Document: WT/DS264/R Page A-1 ANNEX A PARTIES' AND THIRD PARTIES' RESPONSES TO QUESTIONS FROM THE FIRST MEETING
Document codes: WT/DS264/R
Complainant: Canada
Respondent: U.S.
Third parties: China, EU, India, Japan, New Zealand, Thailand
Dispute stage: Mutually Agreed Solution
Agreements cited: Art. 1, 2, 4, 5, 9  Anti-dumpingArt. VI  GATT 1994Art. 18  Anti-dumping

ANNEX A

PARTIES' AND THIRD PARTIES' RESPONSES TO
QUESTIONS FROM THE FIRST MEETING

Contents Page
Annex A-1 Responses of Canada to questi ons posed in the context of the first
substantive meeting of the Panel
A-2
Annex A-2 Responses of the United States to questions posed in the context of
the first substantive meeting of the Panel
A-82
Annex A-3 Responses of the European Co mmunities to questions posed in the
context of the first substantive meeting of the Panel
A-117
Annex A-4 Responses of Japan to questions posed in the context of the first
substantive meeting of the Panel
A-121

ANNEX A-1

RESPONSES OF CANADA TO QUESTIONS POSED IN
THE CONTEXT OF THE FIRST SUBSTANTIVE
MEETING OF THE PANEL

(30 June 2003)

GENERAL ISSUES

To Canada:

1. Could Canada please set out in summary form at its legal arguments in support of each
of its claims, i.e., listing the respective provisions of the Anti-Dumping Agreement and the
GATT 1994, and explaining briefly in the light of the Vienna Convention on the Law of Treaties
how the cited factual circumstances constitute violations of the specific language in those
provisions cited as allegedly being violated.

1. Canada claims that Commerce committed a number of fundamental errors that render the
imposition of anti-dumping duties inconsistent w ith US obligations under both GATT 1994 and the
Anti-Dumping Agreement. Canada’s specific claims are set out below.
(i) Initiation of the Investigation
: Canada’s claims are that the United States acted inconsistently
with Articles 5.2 and 5.3.

 Article 5.2 provides that an “application shall contain such information as is reasonably
available to the applicant” on a variety of issues including “information on prices at which the
product in question is sold when destined for cons umption in the domestic markets of the country…of
origin or export …and information on export pri ces”. (emphasis added) Article 5.2 requires that
information on home market or export prices that is “reasonably available” must be provided in the
application. The investigating authority is obligat ed to examine whether the application conforms to
the requirements of Article 5.2. If the applicant fails to provide informat ion that is reasonably
available, the investigating authority must reject the proposed application. The ordinary meaning of
Article 5.2, together with its object and purpose, make it clear that there is an obligation on the
investigating authority to ensure the requirements of Article 5.2 have been met.

 The facts of this case demonstrate that actua l transaction information was available to the
applicant and, therefore, should have been provided. This information was not in the application.
Given the magnitude of Canada-US trade in so ftwood lumber, including the regular purchases by
members of the Petitioner of softwood lumber fro m Canada, an objective investigating authority
would have known that the Petitioner in this case ha d reasonably available information which was not
provided. In the facts of this case, Commerce’s failu re to reject the application was inconsistent with
Article 5.2.

 Article 5.3 provides that “authorities shall examine the accuracy and adequacy of the
evidence provided in the application to determine whether there is sufficien t evidence to justify the
initiation of an investigation.”(emphasis added) The plain meaning of the text of Article 5.3
demonstrates that an investigating authority must further examine the information in the application to

determine its adequacy and accuracy and, therefore, the sufficiency of evidence. The facts of this case
demonstrate that an objective investigating authority conducting a further examination of the evidence
would have discovered that the information in th e application – consisting of no actual transaction
information or Canadian cost data and relying on unrepresentative surrogate and aggregate cost
information – was not adequate or accurate, and, theref ore, not sufficient to initiate the investigation.
Commerce’s initiation of the investigation was, therefore, inconsistent with Article 5.3.

(ii) Termination of the Investigation
: Article 5.8 provides that “an investigation shall be
terminated promptly as soon as the authorities concer ned are satisfied that there is not sufficient
evidence of either dumping or of injury to justif y proceeding with the case.” The ordinary meaning of
Article 5.8 is unambiguous. It imposes a continuou s obligation on an investigating authority to re-
assess the evidence of dumping. Under Article 5.8, Commerce had an obligation to consider the
information regarding the relationship between Weld wood and International Paper and the actual cost
and price data of Weldwood to determine whether there was sufficient evidence of dumping to justify
proceeding with the case. Failure by Commerce to consider the above-noted information rendered it
impossible for it to comply with this obligation. Therefore, the United States acted inconsistently
with Article 5.8.

(iii) “Like Product” and “Product Under Consideration
”: Canada’s claim is that Commerce
erroneously determined there to be a single “like pr oduct”. This claim is grounded in Article 2.6, in
particular, the ordinary meaning of the words “char acteristics closely resembling”. Canada’s position
is that the group of products within the “lik e product” as defined by Commerce did not have
“characteristics closely resemb ling” those of the group of products in the “product under
consideration”. The facts of the case before Comm erce demonstrated that bed frame components,
finger-jointed flangestock, Eastern White Pine a nd Western Red Cedar did not have characteristics
closely resembling those of the product under consid eration and, therefore, should have been dealt
with separately. Non-compliance by the investiga ting authority with the obligation contained in
Article 2.6 has also caused non-compliance w ith other substantive obligations of the Anti-Dumping
Agreement, e.g., Articles 5.1, 5.2, and 5.4.

(iv) Differences in Dimensions
: Article 2.4 requires that the investigating authority shall make
“due allowance” for differences affecting “price comparability”. Commerce erred by failing, in
comparing non-identical products, to make due allo wance in normal values for physical differences in
softwood lumber products to maintain price compar ability and to ensure a fair comparison between
normal value and export price. The evidence befo re Commerce showed that the value of softwood
lumber varies depending on the size of the product (including differences in thickness, width and
length), and Commerce itself acknowledge d this to be the case. There was, therefore, no justification
for ignoring these differences, and comparing prices fo r different-sized products without adjusting for
such product differences. An objective investigati ng authority evaluating the evidence could not have
determined that size differences in softwood lumb er did not affect price comparability and that
adjustments were, therefore, not necessary. The United States therefore contravened Article 2.4 of the
Anti-Dumping Agreement.

(v) “Zeroing
”: Commerce’s “zeroing” of negative margins of dumping is inconsistent with the
ordinary meaning of the words in Articles 2.4 and 2.4.2 because it fails to take into account a
weighted average of all comparable export transac tions in determining marg ins of dumping and fails
to produce a “fair comparison”. Zeroing fails to take into account “all comparable export
transactions”, as explained by the Appellate Body in European Communities – Anti-Dumping Duties
on Imports of Cotton-Type Bed Linen from India
1, and results in a dumping margin that does not
reflect an “average” of all comparable export tran sactions. In addition, it fails to produce a “fair

1 European Communities – Anti-Dumping Duties on Imports of Cotton-Type Bed Linen from India,
Report of the Appellate Body, WT/DS141/AB/R, adopted 12 March 2001, at para. 55. [hereinafter “EC – Bed
Linen”]

comparison” as required by Article 2.4. Thus the United States contravened Articles 2.4 and 2.4.2 of
the Anti-Dumping Agreement.

(v) Company-Specific Issues
: Article 2.2.1.1 requires that an investigating authority normally
calculate costs (direct and indirect) on the basis of , “records kept by the exporter or producer under
investigation” where these r ecords are in accordance with GAAP and “reasonably reflect costs
associated with the production and sale” of the product at issue. Therefore, the plain language of this
provision requires that the costs an investigati ng authority determines must reasonably reflect the
costs associated with the production and sale of the investigated product.

 Article 2.2.2 requires that the investigating au thority calculate an amount for general, selling
and administrative costs based on actual data “pertaining to” the production and sale of the
investigated product. Together, these provisions impose a “relationship test”, i.e., the calculated cost
must relate to the production and sale of the investigated product.
2 Each of the claims below involves
a violation of one or both of Artic les 2.2.1.1 and 2.2.2. Further, an incorrect calculation of costs
impacts the determination of which sales are us eable in establishing normal value contrary to
Article 2.2.1, as well as the calculation of constructed normal value, contrary to Article 2.2.

 Article 2.4 provides an overarching obligation on the investigating authority to ensure a fair
comparison between export price and normal value. Where the calculation of costs results in an
improper normal value, a fair comparison will not be po ssible. In this situation, Article 2.4 will be
violated. The errors described below resulted in viol ations of Article 2.4. A distinct violation of
Article 2.4 in respect of Slocan is described below.

 Abitibi
: Commerce allocated Abitibi’s financial expenses to its different product lines in
proportion to the cost of goods sold (COGS) for each product line. In light of the factual evidence
presented by Abitibi, Commerce’s selection and application of this methodology to Abitibi
contravened Article 2.2.1.1 and 2.2.2. First, in selecting its allocation methodology, Commerce failed
to “consider all available evidence on the proper al location of costs”. Commerce applied a standard
methodology from which it does not depart. Second, in failing to rely upon audited financial
statement data concerning the assets actually used by each product line and ignoring the evidence that
financial expenses were incurred in relation to assets, Commerce failed to base its calculation of
financial expenses “on actual data pertaining to production and sales . . . of the like product by the
exporter or producer under investigation”. Third, the use of the COGS methodology failed to result
in an allocation that “reasonably reflects the cost s associated with the pr oduction and sale of the
product under consideration.”

 Tembec
: Commerce calculated Tembec’s general and administrative costs based on all of the
products produced worldwide by Tembec, the major proportion of which consisted of pulp, paper and
chemicals. These products incurred significantly di fferent general and administrative expenses than
the production and sale of softwood lumber in Canada . In so doing, Commerce ignored the general
and administrative costs recorded on the books of Tembec’s Forest Products Group, which related
primarily to softwood lumber. Commerce thereby contravened Articles 2.2.1.1 and 2.2.2 of the Anti-
Dumping Agreement by calculating a general and administrative expense cost for Tembec that did not
“reasonably reflect” Tembec’s costs “associated with” the production of lumber and included data that
did not “pertain to” the production and sale of softwood lumber.

 Weyerhaeuser
: Commerce allocated a portion of cer tain charges associated with the
settlement of legal claims of Weyerhaeuser US’s (Weyerhaeuser’s parent company) sales of
hardboard siding (not a softwood lumber product) in the United States, as part of Weyerhaeuser
Canada’s general and administrative costs. As the record demonstrates, the litigation settlement

2 Egypt – Definitive Anti-Dumping Measures on Steel Rebar from Turkey , Report of the Panel,
WT/DS211/R, adopted 1 October 2002, at para. 7.393. [hereinafter “Egypt – Steel Rebar”]

expenses were not a company-wide expense that re lated even in part to Weyerhaeuser Canada’s
production and sale of softwood lumber; rather they we re related exclusively to its parent company’s
production and sale of an unrelated product, hard board siding. Commerce thereby contravened
Articles 2.2.1.1 and 2.2.2 of the Anti-Dumping Agreement by calculating a general and administrative
expense for Weyerhaeuser that did not “reasonably reflect” the costs associated with the production
and sale of softwood lumber and included costs that did not “pertain to” Weyerhaeuser’s costs for
producing and selling softwood lumber.

 West Fraser and Tembec
: Where the production of the investigated product results in the
generation of a by-product, any revenues arising fro m the sale of such by-product must be offset
against the cost of the investigated product in orde r to arrive at a cost which reasonably reflects the
cost of production and sale of the investigated product. If an investigating authority improperly
determines the amount of an offset ( e.g., wood chips), it will necessarily result in a cost for the
investigated product ( e.g., softwood lumber) which does not properly account for the value of the
offset and consequently does not reasonably reflect the costs associated with the production and sale
of the investigated product. In relation to West Fraser, Commerce failed to calculate revenues from
wood chip sales to affiliated parties on the basis of records kept by the company, as required by
Article 2.2.1.1. For Tembec, Commerce rejected fully documented actual market prices from arm’s
length transactions entered into by Tembec with third pa rties, and instead used internal transfer prices
that were set well below market prices. Comme rce thereby contravened Article 2.2.1.1 of the Anti-
Dumping Agreement.

 Slocan
: Slocan generated revenues from certain fu tures contracts for the sale of softwood
lumber. Although Commerce accepted that the revenu es related to Slocan’s core business of selling
softwood lumber, Commerce refused to account for these revenues, as an offset to financial or selling
expenses, or through some other reasonable method. Commerce thereby contravened Article 2.4 in
failing to make an adjustment for futures revenues in the export price, or in the alternative, acted
inconsistently with Article 2.2.1.1 of the Anti-Dumping Agreement in failing to apply those revenues
as an offset to financial expenses in determining the normal value.

(vii) Canada alleges that the above specific clai ms also result in consequential violations of
Articles VI:1 and VI:2 of GATT 1994 a nd Articles 1, 9.3 and 18.1 of the Anti-Dumping Agreement.
Article 1 requires that an anti-dumping measure be applied only under the circumstances provided for
under Article VI of GATT 1994 and pursuant to inve stigations initiated and conducted in accordance
with the provisions of the Anti-Dumping Agreement. Article 18.1 requires that no specific action may
be taken against dumping except in acco rdance with Article VI of the GATT 1994.
3 Article VI
provides that a Member may only apply an anti-dumping duty in order to offset dumping in an
amount that is not greater than the margin of dumpi ng. Similarly, Article 9.3 requires that the amount
of any anti-dumping duty shall not exceed the margin of dumping as established under Article 2 of the
Agreement. By improperly initiating and continuing the investigation, failing to properly determine
the “like product”, failing to make an adjustment for physical differences which affected price
comparability, zeroing negative margins and improperly calculating each respondent’s costs, the
United States applied inflated margins of dumping to Canadian softwood lumber products and applied
a measure against dumping that was contrary to Articles 1, 9.3 and 18.1 and Article VI of GATT
1994.

2. With regard to Question 1 above, please explain with reference, where in the Request
for Establishment of a Panel these claims have been made. The Panel notes that there are
differences, over and above tho se raised by the US in its First Written Submission , between the
Articles cited in the Request for Establishment of a Panel and the Articles cited in Canada's
First Written Submission. Could Canada please clarify?

3 United States – Anti-Dumping Act of 1916 , Appellate Body Report, WT/DS136/AB/R and
WT/DS162/AB/R, adopted 26 September 2000, at para. 81. [hereinafter “US – Anti-Dumping Act of 1916”]

2. Canada’s claims are stated in the Panel Request as follows:
• Canada’s claims regardin g initiation and termination of the investigation under
Article 5 are stated in Section 1(a), (b) and (d).

• Canada’s claim regarding the erroneous determination of “like product” is found in
Section 2.

• Canada’s claim relating to Articles 2.4 and 2.4.2 for the fa ilure to make adjustments
for physical differences is stated in Section 3(b).

• Canada’s claim relating to Articles 2.4 and 2.4.2 for “zeroing” is stated in
Section 3(a).

• Canada’s claims regarding Commerce’s im proper costs calculations for individual
respondents that were contrary to Article 2 are stated in Section 3(c) - (e).

• Canada’s claims under Article 1, 9.3 and 18.1 of the Anti-Dumping Agreement and
GATT Article VI are stated in Section 3(f) and in the paragraph following Section 3.

3. Please provide the Panel with copies of the complete version of Exhibit CDA-4 and
CDA-11.

3. A complete copy of Exhibit CDA-11 is provided with the exhibits to these responses. A complete
copy of the 3-volume transcript of the hearing of the NAFTA Chapter 19 binational panel reviewing
the final anti-dumping determination containing approximately 1,000 pages, from which Exhibit
CDA-4 is taken, is being provided in .pdf fo rmat on CD-ROM (Exhibit CDA-128). If requested,
Canada will file hard copies with the Panel.
4. In para. 26 of its First Written Submission, the US makes the following statement:

"Exhibit CDA-77 contains a 'Lumber Regression Analysis' produced by the
Canadian respondent, Tembec, which is a statistical regression that was not
made available to the US investigating authority during the investigation.
Indeed, it was created more than six months after the investigation was
completed."
Could Canada comment on this statement? Plea se explain in detail how the regression analysis
was developed, that is, which methodologies and a ssumptions were used? In this context, please
also comment on the argument put forward by th e US that the regression analysis includes new
elements which were not presented to DOC. To th e extent that Canada’s position is that the
various components of the regression analysis w ere presented to DOC, please show this to the
Panel by reference to the record of the investigation.

4. As set forth more fully below in response to Questions 21 and 22, the Department of
Commerce, from the very beginning of the investig ation, agreed with both the respondents and the
petitioner that dimension affects price and therefor e was an essential criteri on to use in Commerce’s
model matching. (See: Response to Question 22). Commerce us ed dimension for model matching in
both the preliminary determination and in the final determination. In Comment 7 of the Issues and
Decision Memorandum , Commerce set out its position detailin g how it was responding to various

respondent’s views in organizing diff erent sizes for its product matching. 4 No one reasonably
doubted that the inclusion of dimension for m odel matching would not mean its inclusion in
adjustments for physical differences, and Commerce never gave any reason to expect that it would
exclude dimension from its adjustments in the fina l determination. Commerce could have accounted
so meticulously for dimension in model matching only because it recognized the importance of
dimension for price. Yet, dimension was used throughout for model matching, but not for a price
adjustment for price differences in physical characteristics.
5. The United States had an affirmative duty under Ar ticle 6 to notify Canadian parties that it
did not intend to use dimension for price because it had put the Canadian parties on notice to the
contrary in the questionnaires and in every other aspect of the investigation. All requisite data for the
analysis were on the record. The Canadian parti es had no reason to submit analyses of the data to
prove a point on which Commerce and all parties seemed to have agreed. Had Commerce put the
parties on notice about this issue, as required unde r Article 6.1, the respondents would have prepared
and filed with Commerce analyses similar to the Te mbec Regression Analysis, which in any event is
derived entirely from record evidence and could have as easily been performed by Commerce itself if
it had doubts about the importance of dimension.
6. In October 2002, Capital Trade, Inc., a Washingt on consulting firm with extensive experience
in statistical analyses, performed the regression analyses with Tembec data (the regressions could
have been performed with the data from any one of the companies, all of whom had the requisite data
on the record of the investigation) and advised Tembec’s counsel in writing and in detail of the
methodology it used. Canada provides here a shor t summary, and offers the panel the Memorandum
of October 2002.5
7. Capital Trade used the same US and Canadi an sales databases that Commerce used in
calculating its final determination dumping margins for Tembec. Thus, all of the underlying data used
in these analyses were on the record below and actually used by Commerce in its final determination.
Capital Trade used a procedure called “Ordinary Le ast Squared” or “OLS” to conduct four multiple
regression analyses. The first analysis was of Temb ec’s entire home market sales database as used by
Commerce in its final determination. Capital Trade found a 99.99 per cent probability that dimension
affects price. In Capital Trade’s second regression, using the entire US sales database, it found again
a 99.99 per cent probability that dimension affects price. Capital Trade’s last two analyses were
conducted on portions of the firs t two databases, using the lumber grades that accounted for the
largest and second largest, respectively, volume of sal es. Again the results showed a 99.99 per cent
probability that dimension affects grade. Finally, as an additional check on its model, Capital Trade
compared its regression estimates to published data on lumber prices from Random Lengths . The
published data showed differences in prices that we re extremely close to the pricing differences found
in the regression analyses, and confirmed that th e market recognizes that differences in dimension
affect price. Those data showed significant diffe rences in price between otherwise identical products
that varied only by length or width.
To both parties:

7. Please comment on the findings contained in para. 7.3 of the Egypt – Steel Rebar panel
report:

"the actions of an interested party during the course of an investigation are critical to its

protection of its rights under the AD Agreeme nt. As the Appellate Body observed in US – Hot-

4 Issues and Decision Memorandum for the Anti-Dumping Duty Investigation of Certain Softwood
Lumber Products from Canada, dated 21 March 2002, Comment 7, at 39. [hereinafter “IDM”] (Exhibit CDA-2)
5 Capital Trade Incorporated, Certain Softwood Lumber Products from Canada – Regression Analysis ,
7 October 2002. (Exhibit CDA-129 – Contains Business Confidential Information)

Rolled Steel, "in order to complete their investigations, investigating authorities are entitled to
expect a very significant degree of effort to the best of their abilities from investigated
exporters". The Appellate Body went on to state that "cooperation is indeed a two-way process
involving joint effort". In the context of this two-way process of develo ping the information on
which determinations ultimately are based, where an investigating authority has an obligation
to "provide opportunities" to interested part ies to present evidence and/or arguments on a
given issue, and the interested parties themselves have made no effort during the investigation
to present such evidence and/or arguments, there may be no factual basis in the record on which
a panel could judge whether or not an "opportuni ty" either was not "provided" or was denied.
Similarly, where a given point is left by the AD Agreement to the judgement and discretion of
the investigating authority to resolve on the basis of the record before it, and where
opportunities have been provided by the authorit y for interested parties to submit into the
record information and arguments on that point, the decision by an interested party not to
make such submissions is its own responsibility, a nd not that of the investigating authority, and
cannot later be reversed by a WTO dispute settlement panel.” (footnotes excluded)

8. In Egypt – Steel Rebar , the panel found itself repeatedly confronted with the relationship
between: (1) the requirements on an investigati ng authority during an investigation under the Anti-
Dumping Agreement ; and (2) what evidence and argumentati on interested parties should contribute
during the process of the investigation.
6 Accordingly, in the introduction to its findings the panel
considered the broad principles that relate to this relationship. The above excerpt is drawn from this
introduction.
9. This excerpt accentuates two important principl es relating to evidence provided by interested
parties to investigating authorities: communication a nd co-operation. An investigating authority is
required to “provide opportunities” to interested parties to present evidence on given issues. It
follows that the investigating authority must communi cate with the interested parties to inform them
of the issues and how to provide the required evidence. At the same time, interested parties must co-
operate with the investigating authorities in making an effort to present this evidence. If interested
parties do not present evidence it will not be possible to review whether the investigating authority
met the requirements of or properly exercised its discretion under the Anti-Dumping Agreement.
10. In this respect, Article 6 and Annex II of the Anti-Dumping Agreement provide important
context for these principles. Article 6.1, for exampl e, requires that an investigating authority provide
interested parties with notice of the information it requires. This requirement is reiterated in
paragraph 1 of Annex II, which is incorporated into the Anti-Dumping Agreement through Article 6.8.
This provision provides that: “As soon as possibl e after the initiation of the investigation, the
investigating authorities should specify in detail the information required from any interested party,
and the manner in which that information should be structured … .” An investigating authority is also
not permitted to consider other available information where a party does not provide certain
information because the authorities have failed to sp ecify in detail the information that was required. 7
Moreover, Annex II paragraph 6 provides that an inte rested party must be immediately informed and
afforded an opportunity to provide further explanation when an investigating authority does not accept
its information. These provisions demonstrate that there is a strong requirement on the investigating

7 In Argentina – Definitive Anti-Dumping Measures on Imports of Ceramic Floor Tiles from Italy, the
panel found that:
 [W]e conclude that an investigating authority may not disregard information and resort to
facts available under Article 6.8 on the grounds that a party has failed to provide sufficient supporting
documentation in respect of information provided unless the investigating authority has clearly
requested that the party provide such supporting documentation. (emphasis added)

Report of the Panel, WT/DS189/R, adopted 5 November 2001, at para 6.58.

authority to communicate with interested par ties to inform them of required evidence and whether the
evidence they have provided is adequate.
11. In relation to co-operation, Annex II also speci fies that investigating authorities should ensure
that an interested party is aware that if it does not provide information that the authority will be free to
make a determination on the basis of other evidence. 8 Again, if interested parties do not co-operate
with an investigating authority this will detract from their position in both the underlying investigation
and any subsequent WTO action.
B. ARTICLES 5.2/5.3

To Canada:

8. If it is, arguendo, assumed that there was no relationship between Weldwood and
International Paper, would Canada consider that the evidence before the US authorities at the
time of initiation was sufficient to justify the initiation of the AD investigation against softwood
lumber? Could Canada please explain its position in detail?

12. Assuming that Weldwood was not a wholly-owned subsidiary of International Paper, one of
the leading members of the Coalition for Fair Lumb er Imports Executive Committee (the Applicant),
the information before the US authorities at the time of initiation was not sufficient to justify the
initiation of the investigation against Canadian softwood lumber.
13. As discussed below, even though the Applica tion addresses a product that is the subject of
billions of dollars of cross-border trade including purchases of imported lumber by several companies
that make up the Applicant, the Application provides no information on transaction prices
 and grossly
inadequate information on costs to support its allegations. Even without knowledge of the Weldwood
and International Paper relationship, it would be obvious to any reasonable investigating authority that
the data provided with the Application was insu fficient to justify an investigation and was not all that
was reasonably available to the Applicant. Hen ce Commerce’s initiation violated Articles 5.2 and 5.3
of the Anti-Dumping Agreement.
14. In its Notice of Initiation, Commerce concluded that “[ b]ased on the data provided by the
petitioners, there is reason to believe that certain im ports of softwood lumber products from Canada
are being, or are likely to be, sold at less than fair value.”9 The information provided by the Applicant
and which was relied on by Commerce to initiate the investigation was so inaccurate and inadequate
that it was insufficient to justify the initiation of th e investigation within the meaning of Article 5.3.
Commerce’s determination that the evidence w as sufficient was not one that an objective
investigating authority could properly have made.
15. As will be demonstrated below, there were mate rial deficiencies in the data provided by the
Applicant and upon which Commerce relied to reach its decision that there was sufficient evidence to
initiate the investigation. It is also readily appa rent that Commerce did not sufficiently scrutinize the
accuracy or adequacy of the price and cost information in the Application. In the context of the
market for softwood lumber it would have been obvious to any investigating authority acting
objectively that additional data on actual transactions had to be ava ilable to the Applicant and these

8 Annex II paragraph 1 provides, in part, that:

… The authorities should also ensure that the party is aware that if information is not supplied within a
reasonable time, the authorities will be free to make determinations on the basis of the facts available, including
those contained in the application for the initiation of the investigation by the domestic industry.
9 Certain Softwood Lumber Products from Canada , 66 Fed. Reg. 21,328, at 21,331 (Dep’t Commerce
30 April 2001) (Initiation). [hereinafter “Initiation Notice”] (Exhibit CDA-9)

data might very well have contradicted and nullifi ed the information provided by the Applicant.
Further, it would have been obvious that the US m ills chosen as surrogates for the cost calculation
were unrepresentative and that use of certain cost information was objectively unreasonable.
16. Relying on the Applicant’s representation that better data on Canadian producer prices and
costs were not
 reasonably available to it, Commerce nonetheless initiated its investigation based on
insufficient information contained in the A pplication which omitted actual transaction prices ;
provided limited and, at best, imprecise information on prices at which Canadian lumber was exported
to the United States; and relied on a hybrid cost model built, in significant part, on aggregate
information and non-Canadian cost data from small, unrepresentative surrogate mills.
A. C
OMMERCE FAILED TO HAVE ACCURATE AND ADEQUATE PRICE INFORMATION BEFORE IT
SUFFICIENT TO JUSTIFY THE INITIATION OF THE INVESTIGATION
17. The Application contained no evidence of any actual sales transactions involving identified
Canadian companies, despite the fact that five a pplicant companies (i.e., members of the Coalition for
Fair Lumber Imports Executive Committee) 10 themselves purchased from three of the six largest
Canadian producers11 and that there were billions of dollars of cross-border trade in softwood lumber.
Instead, the Application relied almost exclusivel y on information from Random Lengths, an industry
publication that provides only price estimates - not prices - for various types of lumber supplemented
by a few alleged “price quotes” contained in two affidavits that amounted to mere assertions,
unsupported by material facts such as the identity of the purchaser or the circumstances of sale.
Finally, although the Application described seven major categories of softwood lumber, it provided no
evidence of pricing, of any kind, on five of the seven self-described categories.
(i) Reliance on information contained in Random Lengths
18. Commerce relied on insufficient information represented as US “market prices” reported in
Random Lengths. First, with respect to the alleged “p rice quotes”, even the Applicant characterized
the Random Lengths prices as a “derivation of US market prices”
12 or “as a basis for estimating prices
in the United States”.13 Thus, even the Applicant concedes that what is provided by Random Lengths
are neither actual prices nor an average compiled from actual prices.
19. Random Lengths itself acknowledges that the prices it publishes are not actual transaction
prices or averages of transaction prices. As explained by Random Lengths in information included
with the Application, its “reported prices are not averages, nor are they determined by a formula or
model”:14
A reported price is not an arithmetic average of the prices reported to the Random
Lengths staff. It is not the price for the item for the week following publication (that

10 Ibid., at 21,329 fn 1, and Petition for the Imposition of Anti-dumping and Countervailing Duties:
Certain Softwood Lumber Products from Canada , Vol. I (2 April 2001), Exhibit 1B-1 [hereinafter “Petition”]
(Exhibit CDA-38), Information About Petitioners, for the list of companies that are members of the Coalition
for Fair Lumber Imports Executive Committee. The list includes [[ ]]
11 The record is clear that [[ ]] members of the Coalition for Fair Lumber Imports Executive
Committee (the Applicant), purchased Canadian softwood lumber from [[ ]] during the period of
investigation and therefore had access to US transaction pri ce data. [[ ]] All exhibits contain Business
Confidential Information.
12 Petition, Vol. VI, Exhibit VI.C-13, “Derivation of US Market Price” (Exhibit CDA-44)
13 Petition, Vol. III, at III-12 (Exhibit CDA-37).
14 Petition, Vol. III, Exhibit III.12, “Random Le ngths - How Reported Prices Are Determined” and
“Random Lengths – Answers to Questions About the Prices Published In Random Lengths”, at 1. (Exhibit
CDA-133)

is, it is not a projected price for future transactions). It is not the only price at which
transactions took place during the week of publication.15 (emphasis in original)
20. In short, the Random Lengths reported prices are estimates or judgments based on informal
enquiries conducted by Random Lengths personnel. Informal estimates of this sort are not actual
transaction prices or price quotations. Such estimates did not amount to sufficient evidence to support
the initiation of the investigation especially in a mark et with billions of dollars of cross-border trade
and due to the fact that some of the Applicants are also purchasers of imported Canadian lumber.
21. The eastern spruce-pine-fir (SPF) US “price” data from Random Lengths (delivered to Boston
and the Great Lakes) 16 that was relied upon by Commerce to initiate the investigation 17, may have
suffered from the additional flaw that the data commingled Canadian and US producer data. Random
Lengths defines eastern SPF as follows:
Lumber of the Spruce-Pine-Fir group produced in the eastern provinces of Canada,
including Saskatchewan and Manitoba. Al so used in reference to some lumber
produced in the northeastern United States.18
22. In addition, and with respect to normal valu es, Commerce quite rightly concluded that the
Application contained no evidence of home market prices for producers located in British Columbia.19
Commerce was wrong however to conclude that the Application contained home market price
information for producers in Quebec sufficient to support the Applicant’s allegation of sales below
cost.20 For this determination, Commerce once agai n relied on monthly average “prices” reported by
Random Lengths for the six-month period (October 2000 to March 2001) for two eastern SPF 2x4
products.21 As discussed above with respect to US price information, Random Lengths does not
provide evidence of actual transaction prices that is sufficient to justify an investigation.
(ii) The alleged US Price Quotes contained in the Application
23. The Notice of Initiation and Initiation Checklist confirm that Commerce, for the purposes of
calculating export price for initiation purposes, relied on “POI-average Random Lengths prices and
actual price quotes from Canadian producers”. 22 This information was insufficient as a basis for
initiation. There are material deficiencies in the two price quotes, the only other export price

15 Ibid., at 5 (Page one of the section entitled “Random Lengths – Answers to Questions About the
Prices Published In Random Lengths”).
16 Petition, Vol. VI, Exhibit VI.C-13, “Derivation of US Market Price” (Exhibit CDA-44) and Petition,
Vol. VI, Exhibit VI.C-11, “Yardstick and Random Lengths” (various issues) (Exhibit CDA-43). The price data
at issue related to ESPF, 2x4, Std&Btr, Kiln Dried, ra ndom lengths, delivered to Boston and the Great Lakes
respectively.
17 COMMERCEAD Investigation Initiation Checklist: Certain Softwood Lumber Products from
Canada, Inv. No. A-122-838, at 6-7 [hereinafter “Initiation Checklist”] (Exhibit CDA-10). and Initiation Notice,
at 21,330 (Exhibit CDA-9).
18 Petition, Vol. III, Exhibit III.9, Random Lengths – Terms of the Trade, 4th ed., at 114. (Exhibit CDA-
147)
19 The Applicant provided data from the British Colu mbia Ministry of Forests that Commerce rejected
because the Application di d not indicate that the data were rest ricted to Canadian sales prices. See Initiation
Notice, at 21,330 (Exhibit CDA-9). Because there were no prices given for sales in British Columbia at the time
of initiation, there is no indication that Commerce even evaluated whether the sales in British Columbia were
below cost before calculating normal value based on constructed value.
20 Initiation Notice, at 21,330 (Exhibit CDA-9) and Initiation Checklist, at 7-9 (Exhibit CDA-10).
21 Initiation Checklist, at 7-9 (Exhibit CDA-10). On page 8 of the Initiation Checklist, Commerce
found that the Application contained “[c]urrent price da ta” in “Exhibit C-10, (Volume IV)”. Petition, Vol. VI,
Exhibit VI.C - 10, “Foreign Market Price” (Exhibit CDA-42).
22 Initiation Notice, at 21,330 (Exhibit CDA-9) and Initiation Checklist, at 6-7 (Exhibit CDA-10).

information outside of the Random Lengths data, relied on by Commerce to initiate the
investigation.
23
 First US “Price Quote”

24. The first US “price quote” (Quebec Price Quote #1), is supported by an affidavit containing a
general allegation of lost sales.
24 The Applicant identifies it as a “transaction price” for eastern SPF25,
but in fact it is not. The price quote in the a ffidavit does not identify a Canadian producer or
producers as the seller of the merchandise, nor is th ere any information verify ing that the purchaser
was honestly quoting the Quebec offer (rather than using a phantom quote for negotiation purposes).26
In particular, there is no evidence as to (i) the name of the producer or exporter providing the
quotation; (ii) the names of the customers receiving the quotation; (iii) whether these customers were
affiliated or unaffiliated with the producers; and iv) any other rele vant information regarding the
circumstances of the “alleged” sale, including th e volume of the sale, or the circumstances under
which the price quote was obtained by the party providing the information.
25. The Application contains nothing more than a simple assertion about a price allegedly offered
by what the Applicant claims were Quebec produ cers. Such assertion does not constitute adequate
and accurate evidence sufficient to justify the initiation of the investigation.
 Second US “Price Quote ”

26. The second US “price quote” (B.C. Price Quote # 1) contained in the Application and upon
which Commerce relied, also is supported by an affidavit.
27 The affidavit refers to a price quote for
western SPF from a trading company and does not identify any individual Canadian producer or
exporter as the supplier of the product. In fact, th is price quote was not one offered by a Canadian
producer or exporter, or a US company affiliated with a Canadian producer or exporter. Such pricing
information cannot justify the initiation of an inv estigation as it does not reflect the selling practices
of Canadian producers or exporters.
28
27. From such information no investigating authority evaluating the Application objectively
could have concluded that the information provided in the Application was sufficient to initiate the
investigation.
(iii) The Application provides no pricing data to support initiation on five of the seven softwood
lumber categories or for any species other than Eastern SPF and Western SPF
28. At the time of initiation, Commerce did not have before it pricing evidence for five of the
Applicant’s self-identified seven categories of softwood lumber.
29. While the Application contained pricing info rmation and purported dumping calculations of
only two narrowly defined products ((i) SPF 2x4 kiln -dried dimension lumber and (ii) SPF 2x4 kiln-

23 Ibid.
24 Petition, Vol. VI, Exhibit VI.C-14, “US Price Quote” (Exhibit CDA-45).
25 Petition, Vol. III, at III-10 (Exhibit CDA-37).
26 We note that the International Trade Commission, the US authority which investigates the issue of
material injury, routinely deals with lost sales allegations and often finds that the allegation cannot be
confirmed.
27 Petition, Vol. VI, Exhibit VI.D-14 (public version, as originally filed) (Exhibit US-16).
28 In addition, the affiant assumed that “the mark-up received by lumber wholesalers in the
United States has historically been five (5) per cent of the purchase price”. See Ibid. The Application provided
no evidence in support of this assumption.

dried stud lumber)29, the Application nonetheless requested that Commerce undertake an investigation
of virtually all “softwood lumber” which it classified into 7 major categories: (1) studs; (2) boards;
(3) dimension lumber; (4) timbers; (5) stress grades; (6) selects and (7) shop.
30
30. The Application, however, upon which Commerce relied at the time of initiation, contained
no evidence of dumping of products falling within five of the Applicant's self-described seven product
categories. Specifically, there was no evidence of the dumping of (1) boards; (2) timbers; (3) stress
grades; (4) selects; or (5) shop lumber. The limited evidence offered in the Application on two
products alone applied solely to “dimension” and “stud” lumber.31
31. Commerce relied, without further enquiry, on an Application that contained insufficient
information to justify initiation of an investiga tion with the scope of merchandise proposed by the
Applicant.
B. COMMERCE FAILED TO HAVE ACCURATE AND ADEQUATE COST INFORMATION BEFORE IT
SUFFICIENT TO JUSTIFY THE INITIATION OF THE INVESTIGATION
32. The cost data – which formed the sole b asis for the initiation – were developed from
unrepresentative surrogate companies, employed certa in costs for less than the full operating cycle,
involved aggregate data with no explanation regardi ng cost allocations, and failed to adequately deal
with the freight calculation, among other defects.
33. Cost data were critical to Commerce’s initia tion findings regarding both Quebec and British
Columbia. First, even assuming arguendo that the prices cited for Quebec were usable, Commerce
would have had to find that there was no dumping unless it also determined Canadian domestic sales
were below cost. A price-to-price comparison for the same product in the same month shows that the
US price was consistently above the Canadian price.
32 Indeed, the only instance in which Commerce
was able to find dumping was when it used the aggregate costs and compared these costs to an

29 Petition, Vol. III, at III-16 (Exhibit CDA-37). The alleged dumping margins were subsequently
revised: Petition, Vol. VI, Exhibits VI.D-15, VI.D-16, VI. C-15, VI.C-16 (Exhibit CDA-40).
30 Petition, Vol. I, at I-5 - I-6 (Exhibit CDA-36).
31 Petition, Vol. III, at III-10 – III-16 (Exhibit CDA-37).
32 A comparison of all of the Quebec ex-factory pricing data for Canadian products sold in Quebec and
in the United States consistently shows that the US price was higher, i.e., that there was no price-to-price
dumping. In fact, none of the Quebec Derivation of Foreign Market Price data for any of the months Petition,
Vol. VI, Exhibit VI.C-10, “Foreign Market Price” (Exhibit CDA-42), when compared to the same product in the
same month is higher than the US price data. Petition, Vol. VI, Exhibit VI.C-13, “Derivation of US Market
Price” (Exhibit CDA-44).
Product Date Quebec Price US Price
ESPF, 2x4,
Std&Btr, KD, RL
October 2000 $199.85 $247.00
$241.09
“ November 2000 $210.20 $263.00
$257.09
“ December 2000 $203.01 $237.00
$232.09
“ January 2001 $199.30 $230.00
$221.09
“ February 2001 212.91 $247.00
$242.09
“ March 2001 $215.19 $257.00
$253.09
A comparison of all reported ex-factory price data for ESPF studs (ESPF, 2x4-8’, PET, KD) from the
same sources also shows that there was no price-to-price dumping. Petition, Vol. VI, Exhibit VI.C-10, “Foreign
Market Price” (Exhibit CDA-42) compared with Petition, Vol. VI, Exhibit VI .C-13, “Quebec Derivation of US
Market Price #2” (Exhibit CDA-44).

individual product. Second, there were no Canadian home market pr ices used to calculate normal
value for British Columbia. After Commerce rejected the Applicant’s proffered price data from the
B.C. Ministry of Forests (on the basis that the Application did not indicate that the prices were
restricted to sales in Canada)
33 there were no other British Columbia prices offered or requested.
Because there were no prices given for sales in British Columbia, there is no indication that
Commerce even evaluated whether the sales in Br itish Columbia were below cost (as Commerce
normally does and is anticipated by Article 2.2.1 of the Anti-Dumping Agreement) before calculating
normal value based on constructed value.
(i) Failure to have costs of significant or representative producers
34. Claiming no better information was available, th e Applicant based its estimation of British
Columbia and Quebec producers’ costs on manufacturing costs of members of the US Coalition. The
Applicant asserted and Commerce accepted with no apparent effort at verification that the members of
the Coalition whose costs were used were “signi ficant producers” in the United States that were
representative of the “Canadian producers being modelled”.
34
35. There is no evidence in the r ecord that Commerce made further enquiries to ascertain the
accuracy of these claims prior to initiation. To the contrary, Comme rce appears to have assumed the
accuracy of the Applicant’s claim that no informat ion was available to the Applicant on Canadian
costs35 and that the US companies whose costs were u sed as surrogates were significant producers of
the products for which the cost models were being constructed. A review of the evidence reveals that,
in fact, the US mills relied upon by the Applicant were not significant producers of softwood lumber
and were not representative of the Canadian mills for wh ich their costs were used as a surrogate. 36
For example, the US mills used as a surrogate were significantly smaller than the Canadian mills and
therefore the US mills did not have any of the effi ciencies of scale that the Canadian mills have and
consequently the cost model from the surrogate mill s would have had higher costs. The US surrogate
mills used for British Columbia costs were only a pproximately one-third the size of the Tembec mills
in British Columbia used for the calculation, and the US mills used as a surrogate for the Quebec costs
were less than one-tenth the size of each of the six largest Canadian mills and smaller than over 75 per
cent of all Canadian mills that export to the United States.37
(ii) The failure to provide costs for a period of time sufficient to objectively assess the
reasonableness of the data submitted
36. Both the cost models constructed for Qu ebec and British Columbia relied on certain
manufacturing and cost data for less than a full year (2000). 38 The failure to capture costs associated
with a full operating cycle for the purposes of initia tion is clearly insufficient. Home construction,
and thus dimensional and stud lumber sales, is a seasonal business. Such reliance on a period less
than one fiscal year is misleading and provides a distorted view of unit production costs. There is no

33 Initiation Notice, at 21,330 (Exhibit CDA-9).
34 Petition, Exhibt VI.A (public version), at 2 (E xhibit CDA-134); Initiation Checklist, at 8 (Exhibit
CDA-10) and Initiation Notice, at 21,330 (Exhibit CDA-9).
35 Petitioners’ April 10 Amendment Letter, at 2 (Exhibit CDA-40).
36 Request for Termination and Rescission of Inve stigation, Letter from Weil Gotshal & Manges to
COMMERCE(19 July 2001), at 23 - 28 [hereinafter “Request for Termination”] (Exhibit CDA-51). The
Government of Canada does not have access to the proprietary information in this document as it is confidential
information belonging to the Applicant.
37 Smaller mills generally have higher costs as they cannot benefit from the efficiencies available to
larger mills.
38 Petition, Exhibit VI.C-1 (public version), at para . 4 (Exhibit CDA-135), of each “Certification”; and
Petition, Exhibit VI.D-1 (public version), at para. 4 (Exh ibit CDA-136) of the second “Certification”. The first
“Certification” at para. 4 of Exhibit VI.D-1 is the only one of the cost affidavits relied on that purports to
describe costs for a full calendar year.

evidence on the record of any anal ysis by Commerce of the adequacy of these “abbreviated” cost
reporting periods.
(iii) No evidence of the method used to calculate manufacturing costs for the SPF species or of
how company costs were allocated to the specific 2x4 kiln-dried dimension or stud lumber
37. There was inadequate and insufficient info rmation before Commerce concerning product-
specific costs. Commerce made its initiation deci sion without any evidence before it of how the
Applicant calculated manufacturing costs for the SPF species or of how company costs were allocated
to the specific 2x4 kiln-dried dimension or stud lumber. 39 For example, the stumpage costs were
based on costs for all species, including the higher valued Douglas fir and cedar timber.40
38. The Applicant claimed that it “provided manufact uring costs on a product-specific basis for
representative Canadian products”, that it provided costs for certain eastern and western SPF products,
and that it even “modelled costs for 2x4s that have been kiln-dried.”41 However, there was, in fact, no
evidence on the description of the species produced by companies supplying the cost information or
of how their manufacturing costs were calculated or allocated to the specifi c products for which the
cost models were constructed. Commerce did not have any information on how the costs for multiple
products and species were allocated or whether it was appropriate to take these average aggregate
costs to compare to the costs for a single SPF 2x4 product.
(iv) The Application did not contain adequate information regarding freight costs
39. Although freight is a significant component of the price for lumber, the Application lacked
reasonably obtainable Canadian freight information from either of the two Canadian national railways
and instead relied on freight information that was not even for Canadian rail or international freight.
40. For example, in the case of Quebec, Commer ce relied upon an average freight cost from
Quebec to the United States including in that averag e an estimate for freight cost from the Maritime
provinces. In doing so it included freight costs unr elated to transport between Quebec and the United
States.42 There was also no evidence to support the Appli cant’s allegation that truck rather than rail is
used by Quebec producers to ship lumber.
41. In the case of British Columbia, Commerce relied on an affidavit indicating that rail freight
charges incurred for what appears to be a Southern -Yellow-Pine shipment which weighs considerably
more than the western SPF for which the Applicant purported to be creating a cost model.43
42. There are many other examples of inaccuraci es and inadequacies in the freight rate
calculations provided to and relied upon by Commerce to initiate the investigation.44
43. In short, relying on the claim that no better information was reasonably available, Commerce
relied on data based on the costs of four unrepr esentative US mills and other unrepresentative and
unallocated cost information, even though the market situation and purchases by the Applicant

39 Petition, Vol. III, at III-4 (Exhibit CDA-37); Petition, Vol VI, Exhibits VI.C-12 and VI.D-12
(Exhibit CDA-40). Initiation Checklist, at 8-9 (Exh ibit CDA-10); and Initiation Notice, at 21,330-21,331
(Exhibit CDA-9).
40Petition, Vol. VI, Exhibits VI.C-2 and VI.D-2 (Exhibit CDA-137).
41 Petition, Exhibit VI.A, at 4 (Exhibit CDA-134).
42 Petition, Vol. VI, Exhibit VI. C-9, Freight Affidavit (public version) (Exhibit CDA-41).
43 Petition, Attachment 1 “Average MBF per rail car is 92,160 MBF. Average weight is approximately
195,000 lbs.” (Exhibit CDA-40); Petition, Vol. VI, Exhi bit VI.D-13 (revised) (Exh ibit CDA-40); and Request
for Termination, at 29-30 and Enclosure 7 (Exhibit CDA-51).
44 Request for Termination, at 28-32 (Exhibit CDA-51).

companies the extensive cross-border trade and cro ss- border ownership suggested more reliable and
more specific information was reasonably available to the Applicant.
44. In summary:
(a) The price information in the Application c onsisted principally of estimates from an industry
publication and unsubstantiated anecdotal reports in two affidavits. In short, there was no
information on actual prices.
(b) The cost information in the Application was ba sed on the surrogate costs of four US mills that
were unrepresentative of the Canadian mills. Further, there was no explanation for how
certain aggregate cost elements were allocated.
(c) This price and cost information was accepted as all that was reasonably available to the
Applicant by Commerce in the context of a ma rket Commerce had previously investigated on
three occasions
45 which involved billions of dollars in cross-border trade.
(d) The information contained in the Applicati on was inadequate to justify initiation of an
investigation. It did not provide evidence that would lead an unbiased and objective
investigating authority to determine there was sufficient evidence of dumping within the
meaning of Article 2. Moreover, in this cont ext of the market in question, the information
provided was obviously not all the information that was reasonably available to the Applicant.
(e) Finally, the data provided were so inadequate that an objective investigating authority would
recognize that the Application’s information c ould easily be contradicted and nullified by
actual price and cost data that were almost certainly available to the Applicant.
9. In which way was the data from Weld wood more representative of the Canadian
exports of the relevant softwood lumber produc ts than the information contained in the
application?

45. In a submission to Commerce in connection w ith this investigati on, Weldwood described
itself in the following terms:
Weldwood is the largest producer of softwood lumber in Alberta and one of the
largest producers in British Columbia. In addition, Weldwood is one of the largest
exporters of subject merchandise to the Un ited States. Weldwood sells a broad range
of products throughout the United States and Canada.
46

45 First Written Submission of Canada, at 9-11, fn 21, fn, 22, fn 33. In particular, the footnotes refer to
previous determinations relating to softwood lumber: Certain Softwood Products from Canada , 48 Fed. Reg.
24,159 (Dep’t Commerce May 31, 1983) (final determination) (" Lumber I"); Certain Softwood Products from
Canada, 51 Fed. Reg. 37,453 (Dep’t Commerce Oct. 22, 1986) (prelim. determination) (" Lumber II "); and
Certain Softwood Lumber Products from Canada , 57 Fed. Reg. 22,570 (Dep’t Commerce 28 May 1992) (final
determination) ("Lumber III").
46 Letter from Hunton & Williams re Softwood Lumber from Canada with attached Questionnaire
Response of Weldwood of Canada Limited, 3 May 2001, at 3 of the Mini-Questionnaire Response (Exhibit
CDA-138 – Contains Business Confidential Information). Weldwood was one of the 15 largest producers and
exporters of softwood lumber that received a mi ni-questionnaire from Co mmerce on 25 April 2001. Certain
Softwood Lumber Products from Canada , 66 Fed. Reg. 56,062 (Dep’t Commerce 6 November 2001) (prelim.
anti-dumping determination) (Exhibt CDA-11). Weld wood’s response filed with Commerce on 3 May 2001
indicates that Weldwood produces and exports lumber to the US from nine different mills with seven located in
British Columbia and two in Alberta (p. 1 of the Mini-Questionnaire response).

46. Similarly, the Applicant itself identified Weldwood as one of the “Top Canadian Exporters of
Softwood Lumber” in the Application.47
47. As described in Question 8, the export a nd home market price data submitted by the
Applicant and relied on by Commerce to initiate th e investigation were not actual transaction prices
and were severely flawed. In fact, Commerce appa rently initiated the investigation without any home
market prices or price information from British Co lumbia, the province that accounts for well over
half of Canadian softwood lumber production and exports to the United States. 48 As for the cost data
submitted by the Applicant and relied on by Commer ce, among other flaws, they were based on four
small US mills that are unrepresentative of the typical Canadian mill. (This flaw and others are
described more fully above in response to Question 8).
48. The Weldwood data were actual costs, and act ual export and home market transaction prices
for softwood lumber, including home market prices from British Columbia. This is not only better
and more representative data, it was, as established in Canada’s First Written Submission, readily
available to the Applicant given Weldwood’s status as a wholly-owned subsid iary of International
Paper.
49 Further, the availability of Weldwood as a s ource of data was made clear to Commerce five
days before publication of the Notice of Initiation in this investigation.50
49. No investigating authority acting objectively could have initiated this investigation on the
basis of the data in the Application, particularly in the light of the existence of the better and more
representative data that were available in this case – the Weldwood data be ing only an example of
such data.
10. Please comment on the statements contained in para. 70 of the US First Written
Submission:

"[t]hus, for Canada to prevail on its init iation claim, there must be an obligation
on the part of an investigating authority to reject a petition that excludes some
reasonably available information on matters in Article 5.2(iii) of the AD
Agreement, even where the included info rmation is sufficient to support
initiation, and even where the excluded information could not lessen the
adequacy or accuracy of the included information. There is no such obligation."
50. The United States fails to differentiate between the obligations of the investigating authority
under Articles 5.2 and 5.3.

47 Petition, Vol. 1B, Exhibit 1B-9, Top Canadian Exporters of Softwood Lumber to the United States
2000 (Exhibit CDA-39).
48 The Applicant provided data from the British Columbia Ministry of Forests that Commerce rejected
because the Application di d not indicate that the data were rest ricted to Canadian sales prices. See Initiation
Notice, at 21,330 (Exhibit CDA-9). Because there were no prices given for sales in British Columbia at the time
of initiation, there is no indication that Commerce even evaluated whether the sales in British Columbia were
below cost before calculating normal value based on constructed value.
49 First Written Submission of Canada, at paras. 90,94-95.
50 Quebec Lumber Manufacturers Association Lette r to DOC, 25 April 2001 (Exhibit CDA-50). The
Notice of Initiation was published in the Federal Regist er on 30 April 2001 (Initiation Notice, at 21,328,
Exhibit CDA-9). Canada also notes that Weldwood provided data and information to Commerce in connection
with this investigation on at least two occasions. See Letter from Hunton & Williams re Softwood Lumber from
Canada with attached Questionnaire Response of Weldwood of Canada Limited, 3 May 2001 (Exhibit CDA-138
– Contains Business Confidential Information) and Cover Letter for Weldwood Sections B, C and D
Questionnaire Response from Hunton & Williams to DOC, 16 July 2001 (public version) (Exhibt CDA-49).
Commerce never considered the data or information. Certain Softwood Lumber Products from Canada, 66 Fed.
Reg. 56,062 (Dep’t Commerce 6 November 2001) (prelim. anti-dumping determination) at 56,064 (Exhibit
CDA-11).

51. The obligation on the investigating authority unde r Article 5.2 is clear. The application must
contain all the information that is “reasonably ava ilable” to the applicant on the factors set forth in
Article 5.2(i) –(iv).
52. The obligation under Article 5.3 is equally cl ear and distinct from the obligation of the
investigating authority under Article 5.2. Ar ticle 5.3 imposes an independent obligation on the
investigating authority to assess, once it has determin ed that the requirements of Article 5.2 are met,
whether sufficient evidence exists to initiate an investigation.
51 The authority must examine the
accuracy and adequacy of the evid ence in the application “to determ ine whether there is sufficient
evidence to justify initiation of an investigation”.
11. Please comment on the statements co ntained in paras. 73-74 of the US First Written
Submission:

"Canada appears to suggest that Article 5.2 imposes an independent obligation
on investigating authorities to reject peti tions that contain evidence sufficient to
initiate but that lack some evidence a lleged to be available to petitioners, even
where such evidence would not negate the sufficiency of the included evidence.
However, Article 5.2 of the AD Agreement does not impose such an obligation on
investigating authorities. The obligation of an investigating authority regarding
initiation is set forth in Article 5.3. Article 5.2 simply describes what
information a petition shall contain."
53. The position of the United States in these para graphs is incorrect for the same reasons
mentioned in response to Question 10. It is true that Article 5.2 describes what information an
application shall contain and that there is a requireme nt on the applicant to provide that information.
However, the investigating authority can only accep t the application if it determines that that
requirement has been met. Moreover, the US re ading of Article 5.2 would render the provision
inoperative. Even an application that does not conform to Article 5.2, would, under the US
interpretation, be capable of supporting initiation m eaning that a breach of Article 5.2 would have
absolutely no consequences. Article 5.2 would be rendered meaningless. This is an invalid
interpretation under the well-established requirement of effectiveness in treaty interpretation. It is
also implausible that the negotiators would have drafted such a detailed list of informational
requirements for the application in Article 5.2 if they did not intend for authorities to be required to
reject applications that did not meet the requirements.
To both parties:

16. In the view of Canada/the US, which obligation(s) are imposed by Article 5.2? Which
entity or entities is/are the addressee(s) of the obligation(s)?

54. The obligation under Article 5.2 is on the inv estigating authority to determine whether the
application contains “such information as is reasona bly available to the applicant” on the factors set
out in Article 5.2(i) to (iv) including on “prices” as required by Article 5.2(iii).
52 T h e WTO

51 Guatemala - Anti-Dumping In vestigation Regarding Portland Cement from Mexico, Report of the
Panel, WT/DS60/R, adopted as modified 28 November 1998 (WT/DS60/AB/R), at para. 7.50 [hereinafter
Guatemala-Cement I]. The Appellate Body did not consider the Panel’s interpretation of Article 5 of the Anti-
Dumping Agreement.
52 Canada notes that in Argentina – Definitive Anti-Dumping Duties on Poultry from Brazil , the panel
asked both parties, the complainant Brazil and the respondent Argentina, for their views as to the “extent – if
any – to which Article 5.2 [of the Anti-Dumping Agreement] imposes obligations on Members, as opposed to
applicants.” Both parties agreed that Ar ticle 5.2 imposes obligations on Members. See Argentina – Definitive

Agreement, including the Anti-Dumping Agreement, sets out the obligations of WTO Members, not
private parties.53
17. In the view of the Parties, is there a hierarchy in which the applicant should endeavour
to submit the information, as is reasonably available to it, required under Article 5.2(iii)?
Please motivate your response fully.

55. No. The ordinary meaning of Article 5.2 requi res that if the applicant has information on
prices that is reasonably available to it, then it must provide it to the investigating authority. Whether
the applicant has provided all “reasonably availabl e” information must be determined based on an
objective evaluation of the evidence before the inv estigating authority at the time initiation of an
investigation is requested.
C. ARTICLE 5.8
To Canada:

18. Please comment on the statement contained in para. 79 of the US First Written
Submission:

"[t]his is not a case in which information presented later invalidated the
information Commerce had relied upon to initiate."
56. The US statement is premised on its assertion that Commerce initiated “based on the
objective adequacy of the data showing dumping”.
54 As discussed in the response to Question 8, an
“objective” review demonstrates that the data upon which Commerce relied were inadequate and
therefore insufficient to justify initiation. The United States also maintains that, in initiating the
investigation, Commerce did not rely on the Appl icant’s statement that it was unable to obtain
company-specific cost and price data. 55 However, this is simply a self-serving post hoc
rationalization. Surely, if Commerce had been aw are at the time of initiation of price and cost
information in the Applicant’s possession that coul d show there was no dumping, it would not have
initiated. Hence at least implicitly Commerce was relying on the Applicant’s representation.
57. Viewed in this light it is clear this is a c ase in which information presented after the decision
to initiate could have invalidated the deficient info rmation on which Commerce relied in its initiation.
Moreover, it is telling that Commerce was advised of the existence of significant and extensive actual
price and cost information readily available to the Applicants five days before the notice initiating the
investigation was published 56 and 30 days before the respondent s were selected and anti-dumping
questionnaires were issued. It is apparent Co mmerce would have had ample time to collect and
analyze the price and cost information possessed by Weldwood, for example, and to re-evaluate its
decision to initiate. It chose to take no action and now seeks to defend its inaction by asserting that
demonstrably inadequate information with no actual Canadian price or cost data was in fact adequate.

Anti-Dumping Duties on Poultry from Brazil , Report of the Panel, WT/DS241/R, adopted 19 May 2003, at
paras. 7.96-7.98.
53 While WTO Members are free to give the WTO Agreement direct effect in their domestic law, and
thus to apply Article 5.2, for instance, directly to priv ate parties, this is a consequence of their national laws
rather than the WTO Agreement itself.
54 First Written Submission of the United States, at para. 80.
55 Ibid.
56 Quebec Lumber Manufacturers Association Lette r to DOC, 25 April 2001 (Exhibit CDA-50). The
Notice of Initiation was published in the Federal Regist er on 30 April 2001 (Initiation Notice, at 21,328,
Exhibit CDA-9).

19. Does Canada agree with the statement by the US in para. 81 of the US First Written
Submission that "the cost and price data regardi ng Weldwood could not detract from the
sufficiency of the data upon which [the IA] had based its initiation"?

58. Canada does not agree with the statement for ma ny of the reasons set out in the response to
Questions 8 and 9. As discussed at length above, the information provided with the Application did
not satisfy the requirements of Articles 5.2 or 5.3. However, even if the information had been
marginally sufficient to justify initiation in a s ituation where no actual price and cost data were
reasonably available to the Applicant, it is appare nt that actual sales and cost data information
available to the Applicant could have invalidated the information upon which Commerce relied.
59. The United States suggests that the Weldwood co st and price data would not have been
significant because it was company-specific data that “could not have contradicted the country-wide
price and cost information contained in the petition.”
57 This is simply a post hoc rationalization for
Commerce’s inaction. Weldwood is one of Canada ’s largest producers of softwood lumber with
production operations in British Columbia and Alberta. 58 In its 3 May 2001, submission responding
to Commerce’s mini-questionnaire and as noted in the response to Question 9 above, Weldwood
described its operations as follows:
Weldwood is the largest producer of softwood lumber in Alberta and one of the
largest producers in British Columbia. In addition, Weldwood is one of the largest
exporters of subject merchandise to the Un ited States. Weldwood sells a broad range
of subject products throughout the United States and Canada.59
60. In that same submission Weldwood requested that it be selected as a mandatory respondent in
the anti-dumping investigation.
61. The United States is arguing that transaction-specific information on Canadian and US sales
and on the costs of producing softwood lumber fro m one of the largest Canadian producers would
have been irrelevant to its evaluation of whether to in itiate the investigation. In view of the fact that
the data on which Commerce did rely contained no actual sales data and no actual Canadian cost data,
the US position is untenable. This is especially true in the light of the fact that Commerce apparently
initiated the case without any home market sale prices from British Columbia, by far the largest
lumber-producing province in Canada.
60
D. ARTICLE 2.6
To Canada:

20. Please explain the legal basis for Canada’s legal claim in the present case that the US
action violation Article 2.6 (following the US argument in para. 26 of its First Oral Statement
that the product under consideration is the starting point for determining the “like product”).

57 First Written Submission of the United States, at para. 68.
58 Weldwood was one of the 15 largest producers a nd exporters of softwood lumber that received a
mini-questionnaire from Commerce on 25 April 2001. See Letter from Hunton & Williams re Softwood
Lumber from Canada with attached Questionnaire Response of Weldwood of Canada Limited, 3 May 2001
(Exhibit CDA-138 – Contains Business Confidential In formation). Weldwood’s response filed with the
Department on 3 May 2001 indicates that Weldwood produces and exports lumber to the US from nine different
mills with seven located in British Columbia and two in Alberta (p. 1 of the Mini-Questionnaire response).
59 Ibid., at 3 of the Mini-Questionnaire.
60 See Canada’s response to Question 9 above.

62. Canada does not dispute that “the product under considerati on is the starting point for
determining the ‘like product.’61 Of necessity, an investigating authority begins with the proposed
scope of investigation that an applicant presents to the authority. Although that is the starting point,
that is not the end of the authority’s responsibilities, however. The authority must proceed to find a
like product that conforms to the requirements of Article 2.6.
63. Article 2.6 expressly requires an investigating authority to define the “like product” as
“identical, i.e. , alike in all respects to the product under c onsideration, or in the absence of such a
product, another product which, although not alike in all respects, has characteristics closely
resembling those of the product under consideration.”
64. The ordinary meaning of Article 2.6 and th e terms “characteristics closely resembling”
support this interpretation. The New Shorter Oxford English Dictionary (1993) defines
“characteristic” as “[a] distinctive mark; a distingui shing trait, peculiarity or quality.” It defines
“close” as “[v]ery near in position, relation or c onnection”, and “resemble” as “[b]e like, have a
likeness or similarity to, have a feature or prope rty in common with”. Wh en these three words are
taken together, as they are in Article 2.6, they must mean that the essential, distinctive traits of one
product must be very nearly identical to the essential, distinctive traits of the other product.
62
65. Thus, if a product under consideration has been proposed that is too broad, it will not be
possible to define a single like product that meets th e criteria set forth in Article 2.6. A simple
example, used in Canada’s First Oral Statement, will illustrate this problem. If an applicant proposes
that the product under consideration is to consist of “certain vehicles”, comprising automobiles and
bicycles, then it will not be possible to define a single like product that meets the requirements of
Article 2.6. The “like product” cannot be “automobiles and bicycles,” because then only some of the
items in this proposed “like product” will be identi cal with or have characteristics that closely
resemble the set of items in the proposed “product under consideration.” That is, the automobiles will
be identical with or have essential, distinctive traits that closely resemble the automobiles, but they
will definitely not be identical with or have essen tial, distinctive traits that closely resemble the
bicycles. Each item in the like product class must, however, be iden tical with or have essential,
distinctive traits that closely resemble all items in the product under consideration. If this matching
were not the case, then a “like product” could cons ist of any disjointed agglomeration of products
whatsoever, as long as it was a “mirror image” of the disjointed agglomeration of products in the
proposed product under consideration. That cannot be a correct interpretation of “like product,”
because it would deprive “like product” of any meaning or coherence whatsoever.
66. It should be recalled that, according to Article 2.6, “like product” has the same meaning
throughout the Agreement. As a result, in order to proceed at all, the authority must determine that
the applicant represents the majority of producers of the product that is “like” the “product under
consideration.” See Article 5.4. The applicant must also present evidence that the domestic like
product is injured by the product under consideration. See Article 5.2. Adequate evidence of injury in
the application depends upon defining an industry that makes the relevant like product.
67. A like product that consists of a disjointed aggl omeration of products would lead to irrational
results under Articles 5.4 and 5.2. Using the exam ple from above, were bicycle makers to represent
more than half of both bicycle and automobile manufacturers, automobile manufacturers would not
have to be represented at all among the applicants to satisfy Article 5.4. In such a scenario, an
investigation could be initiated and pursued against both bicycle and automobile imports
notwithstanding the absence of standing or evidence of injury and causation against automobiles.

61 First Oral Statement of the United States, at para. 26.
62 L. Brown, ed., The New Shorter Oxford English Dictionary , 3rd Ed. (Oxford: The Clarendon Press,
1993), at 374, [“characteristic”] (Exhibit CDA-139); 421 [“close”] (Exhibit CDA-140); and 2558 [“resemble”]
(Exhibit CDA-141).

This results directly from the collapse of tw o products that do not have closely resembling
characteristics into a single like product.
68. An investigating authority that has receive d a proposed product under consideration that
comprises products that do not all share identical or closely resembling characteristics must therefore
define multiple like products that will corres pond to subsets of the application’s product under
consideration. Standing, industry support, and other necessary elements of the application must then
be evaluated with respect to each of these distinct like products.
69. In the above example, having properly concluded that two like products existed, the authority
need also determine that there are two distinct products under consideration, such that separate
margins of dumping must be calculated for each: one being bicycles, corresponding to the like
product, bicycles; and the other being automobiles, corresponding to the like product, automobiles. In
this case, each member of a like product set will be identical with or closely resemble all of the
articles in the relevant product unde r consideration. The bicycles in the “bicycles” like product will,
for example, be identical with or closely r esemble all of the articles in the product under
consideration, thereby satisfying the requirement of Article 2.6 for a properly-defined like product.
70. As a consequence of a separate “like product” determination, the investigating authority
would be required to make sepa rate findings, for bicycles and automobiles, of standing under
Article 5.1, and industry support under Article 5.2, a nd the application would have to contain separate
evidence under Article 5.3. In addition, because Articles 2.1 and 2. 2.2 expressly require comparisons
using data only for “the like product”, automobile pr icing, costs, or profits could play no role in
determining the dumping margin for bicycles, and vice versa. Thus, dumping could be found to exist
for one product and not the other. In these circ umstances, it would make no sense to allow for the
calculation of a single average margin of dumping, applied equally to bicycles and automobiles.
71. The United States did not even attempt to define a like product or like products that
conformed to the requirements of Article 2.6, that each item in the like product be identical with or
have essential, distinctive traits that closely resemb le the essential, distinctive traits of the product
under consideration. In this case, the product u nder consideration was defined as “certain softwood
lumber,” and therefore, the like product also was defined as “certain softwood lumber.” The like
product in this case includes products not identi cal, not the same, not similar, and not having
characteristics closely resembling th e essential traits of other products included in the like product.
The absence of essential traits in one product closely resembling the essential traits of another is fatal
to a definition of like product that comports with Article 2.6.
72. As a result of this breach of Article 2.6, Commerce permitted the US applicants to file an anti-
dumping application for products that, in some instances, its members did not even produce, on behalf
of industries they did not represent, and as to which they did not demonstrate industry support,
dumping, or injury, notwithstanding that the “like product” determination de limits these obligations
under Articles 5.1, 5.2, and 5.4.
73. Instead, Commerce included products and species by identifying isolated characteristics of
different products within the “product under consideration,” and then determined whether some
 of the
items comprising the proposed “like product” (which was a “mirror image” of the agglomeration of
diverse products that comprised the “product u nder consideration”) shared the same isolated
characteristics. The United States refers to this test as the “clear divi ding line/continuum” test.63 (It
can be disputed that the United Stat es even applied that test, but that issue is beyond the scope of this
question.) This mode of analysis violates Article 2.6 because it fails to determine whether any
product’s essential, distinctive traits are identical or closely resembling to the essential, distinctive
traits of the products making up the product under consideration. The United States never tested, as it

63 See, e.g.: First Written Submission of the United States, at para. 103.

was required to do under Article 2.6, whether e ach item comprising its proposed like product was
identical with or closely resembled each of the items comprising the proposed product under
consideration. If it had done so (which it could have done by properly applying its “ Diversified
Products”criteria), it would have found that the four cate gories of products at issue here needed to be
treated as separate “products under considera tion” and have separate , and corresponding, like
products defined for each of them, or else needed to be eliminated from the scope of the investigation
as not comprising part of the product under consideration that Commerce undertook to investigate.
74. For the investigating authority to recognize and distinguish like products, it must begin with
the product under consideration as defined by the applicant, but it must ex amine all proposed like
products to determine whether they are identical to the product under consider ation or have traits
closely resembling the essential traits of the produc t under consideration. Commerce failed to make
these comparisons, and consequently failed to conf orm to the plain language of Article 2.6 in
ascertaining the product under consideration and corresponding like product.
E. ALLOWANCE
 FOR DIFFERENCES IN DIMENSIONS
To Canada:

21. For ease of reference of the Panel, can Canada please provide in summary form the
arguments on differences in dimensions, including the date of the relevant documents and
reference where they can be fo und on the record, put forward by respondents in the context of
the investigation.

75. See response to Question 22 below.
22. Have exporters demonstrated to DOC that those differences in dimensions affect price
comparability? Please refer to relevant documents on the record.

76. Canada will address these two questions togeth er as both address the nature of argument and
information presented by the Canadian and othe r parties in the underlying proceeding before
Commerce. Before detailing all of the argument and information presented to Commerce, which
encompassed dozens of individual submissions, it is u seful to place the issue in context with several
summary observations.
77. First, whether differences in dimension affected price comparability was not an issue that was
in dispute during the proceeding before Commerce. From the very outset, all parties and all US
investigating agencies involved agreed that dimension affected price comparability. The Petitioners
so stated in their Petition. The US International Trade Commission, which examines injury issues, so
stated in its preliminary determination a few w eeks after initiation, which determination then was
presented to Commerce as evidence that dimension affects price. All parties (including all
respondents) submitting comments on the product charact eristics that should be taken into account in
distinguishing products for price comparison purpo ses identified thickness, width, and length as
characteristics that needed to be accounted for (aft er characteristics like species and grade but ahead
of other characteristics such as surface treatment, end trimming, and further processing). And, finally,
respondents all argued that an adjustment for dime nsion (DIFMER) in determining normal value was
required by law. Indeed, no submission could be locat ed in which any party, including the applicant,
contended that dimension did not affect price comparability.
78. Second, throughout the proceeding, Commerce indicat ed to the parties that it agreed that
dimension affected price comparability. As shown be low, at the very beginning of its investigation,
in April 2001, Commerce solicited comments on the physical characteristics that affected price
comparability. When all parties agreed in May 20 01 that thickness, width, and length each were
characteristics that affected price comparability , Commerce on 25 May 2001 issued a questionnaire

requiring respondents to report sales identifying the thickness, width, and length of each product.
Respondents were not asked for further justifi cation or data supporting the inclusion of these
characteristics; to the contrary, the questionnaire ma de it clear that parties had to provide supporting
information only if they sought consideration of other characteristics that Commerce had not
identified.
79. In its October 2001 preliminary determinati on, Commerce confirmed the importance it
attached to dimension. In its preliminary de termination, Commerce limited its price-to-price
comparisons only to identical merchandise, with iden tical defined so as to include products that had
exactly the same thickness width, and length , among other characteristics. Commerce ruled
preliminarily that it would not even compare prices of products with different dimensions . Because
Commerce agreed in its preliminary determination that dimension affected price comparability, there
was no need for respondents to submit further argument or analysis to Commerce regarding this issue.
Commerce’s rules require parties only to submit argument and analysis regarding aspects of the
preliminary determination with which they disagree.
80. Third, because the issue was not disputed, and because Commerce accepted all three
dimensional characteristics, individually, as signifi cant in its questionnaire and in its preliminary
determination, Commerce never requested any additional supporti ng analyses or documentation, nor
did it perform any analysis of its own upon which respondents could comment. This latter point bears
emphasis – nowhere in the record is there any evidence that Commerce analyzed the detailed,
dimension-specific, sales data respondents had subm itted (which included not only data for the period
of investigation, but historical data as well), for purposes of reaching its conclusion that the effect of
dimensional differences on price were “minor” or “flu ctuating” and thus did not have to be adjusted
for.
81. Indeed, respondents’ arguments regarding dimens ion were the same as for all other product
characteristics. That is, the companies presented exactly the same argument and evidence regarding
dimension and price comparability as they did for all other physical characteristics, including species,
grade, moisture content, end trimming, surf ace treatment, and further processing. Commerce
performed no analysis, and made no findings that each of these characteristics affected price
comparability; yet Commerce included each in its matc hing characteristics, and either did not permit
non-identical comparisons (such as for species) or else computed and applied an adjustment
(DIFMER) whenever the characteristic was not iden tical (such as for grade, moisture content, end
trimming, surface treatment, and further processing).
82. In its final determination, and thus after the fact, Commerce effectively established a different
standard, and treated dimension differently than a ll of the other physical characteristics it did fully
take into account (for both matching and DIFMER purposes), including species, grade, moisture
content, surface treatment, further processing, and end trimming. As to each of these other
characteristics, the parties agreed th at they affected price comparability, just as they had agreed that
dimension affected price comparability. No further showing was required, no further evidence was
presented, and no further analysis was performed by Commerce. Yet each of these characteristics was
fully taken into account, but dimension was not.
83. Because the applicant and Commerce at every st ep of the investigation had agreed that
dimension affected price, just as they had agreed that species, grade, surface treatment, moisture
content, further processing and end trimming affected price, respondents had no notice that additional
information would be required to satisfy Commerce that dimension affected price comparability, or
what such information could be. Commerce neve r requested additional information, and thus
respondents reasonably understood that the undisput ed information they had submitted would be
sufficient – just as it was for every single other physical characteristic.

84. Fourth, the respondents were concerned that Comm erce would fail to compute an adjustment
(DIFMER) for dimension and other characteristics for which Commerce decided not to compute a
cost difference, and blame such failure on respondents' failure to provide adequate data – just as has
occurred here. On multiple occasions, on 16 August 2001, 10 September 2001, and
24 September 2001 – well in advance even of Co mmerce’s preliminary determination – respondents
expressly requested specific guidance from Commerce as to what data or analysis they could submit
for adjustment (DIFMER) purposes. Commerce never responded to any of these requests.
Respondents nonetheless submitted data they thought mi ght be useful, including historical pricing
data going back several years, as well as data from Random Lengths going back several years.
Commerce ignored these data as well. Again, the record contains no analyses by Commerce of any of
these data.
85. Fifth, Commerce’s final determination not to consid er dimension was internally inconsistent.
On the one hand, Commerce continued, as it had th roughout its investigation, to use all three
dimension characteristics – thickness, width, and le ngth – in deciding the products it would compare,
and treating as identical products only those with identical thickness, width and length. (If Commerce
had decided that dimension did not affect price comparability, it should have eliminated these three
characteristics, and compared prices without regard to dimension.) On the other hand, after having
defined these characteristics as cr itical in matching products so as to achieve price comparability,
Commerce inconsistently then compared products th at differed in dimension characteristics without
any adjustment for the difference in the products compared.
86. There simply is no difference between the charac teristics that affect price comparability for
matching purposes and those that affect price comp arability for DIFMER purposes. They are one and
the same. Either the characteristic affects price, or it does not. The only reason a characteristic is
included for model matching purpose is because it is known to affect price. By including a
characteristic that affects price as a matching characteristic, Commerce ensures that it does not
compare prices of products the prices of which cannot be compared without adjusting for the product
difference.
87. Following, in chronological order, are the detaile d references in the record responding to the
Panel’s requests and supporting the observations above:
1. 2 April 2001: US Industry Petition

• The Petition itself acknowledged that dimension affects the price of lumber. It noted
that “a very
 precise comparison of products is necessary if the Commission hopes to
develop useful price information.”(emphasis in original). 64 The Petition suggested
three product comparisons, all of which specified dimension. For example, the
proposed Product 1 comparison was of 2x4x8 Engleman spruce and lodgepole pine,
kiln dried, PET stud (US) to 2x4x8 western SPF kiln dried, PET stud (Canada).
65
(“2x4x8” means lumber 2 inches thick, by 4 inches wide, by 8 feet long; “stud” is a
grade.) Obviously, if dimension did not affect price, the Petitioner would have no
reason to differentiate products, for price comparison purposes, by thickness, width,
and length.

2. May 2001: ITC Preliminary Injury Determination

• For purposes of its preliminary injury analys is and determination, the ITC concluded
that “[s]oftwood lumber prices generally differ substantially depending on grades

64 DIFMER Exhibit, at 2 (Exhibit CDA-142 – Contains Business Confidential Information) [Petition,
Vol. I, at I-29 (Exhibit CDA-37)].
65 Ibid.

and dimensions and may differ by the species and applications involved, with better
grades and wider dimensions carrying highe r prices than lower grades and narrower
dimensions.”
66 (emphasis added). The Canadian companies subsequently provided to
Commerce this finding by the ITC such that it was made part of the record evidence
before Commerce (see below).

3. 3 and 4 May 2001: Party Comments on Characteristics Affecting Price
 Comparability Submitted at Beginning of Investigation

• Commerce, on 24 April 2001, invited comme nts on the characteristics affecting price
comparability that Commerce should include in its questionnaire. By 4 May all
interested parties submitted co mments. Both the Petitioner and all respondents
agreed that dimension is a characteri stic that must be considered. The only
differences reflected how to take dimension into consideration, not whether to do so.
For example, while respondents proposed reporting studs in length groupings of
either six-inch or 12-inch increments,
67 Petitioner proposed reporting them in one-
inch increments.68 The fact that Petitioner requested that length be reported in one-
inch increments reflects its understanding that even very small differences in length
can affect price comparability.

• In response to Commerce’s questionnaire of 24 April 2001, the Petitioner proposes a
list of model matching characteristics, which address “fundamental product
characteristics, customer expectations, and production processes that distinguish
products within the scope from one another.”
69 (In order of importance, these
characteristics are: (1) treatment, (2) cate gory, (3) species, (4) grade, (5) moisture
content, (6) finger jointed, (7) width, (8) thickness, (9) length, and (10) surface
finish.70 (emphasis added). In the altern ative, Petitioner proposes a “condensed”
model matching hierarchy for use if Commerce adopts Petitioner’s suggestions
regarding limited reporting. The condensed model matching hierarchy contains eight
characteristics – three of which are related to dimension (width, thickness, and
length).

• Respondents all joined in comments provide d by the British Columbia Lumber Trade
Council (“BCLTC”). The BCLTC identifie d 10 characteristics affecting price
comparability, in order of importance: (1) species, (2) lumber type, (3) treatment
(e.g., pressure treated), (4) moisture content ( e.g., dried or green), (5) grade, (6)
dimension (i.e., thickness and width), (7) length, (8) surface trimming (number of

66 Ibid., at 4 [US International Trade Commission, Pub. No. 3426, Softwood Lumber from Canada, Inv.
Nos. 701-TA-414- and 731-TA- 928 (Preliminary)(May 2001) at 16. (Exhibit CDA-31)]
67 Ibid., at 7 [Steptoe & Johnson Letter to the Department of Commerce, “Certain Softwood Lumber
from Canada: British Columbia Lumber Trade Counc il Comments on Procedural and Technical Issues”
(3 May 2001), at Enclosure I, 9].
68 A stud is grade of lumber that requires the product to be precision end trimmed to an exact length. It
is used primarily in framing walls, where the builder needs a precise length vertical piece to fit between
horizontal supports. Ibid., at 10 (fn 3), 14-15 [Dewey Ballantine Letter to the Department of Commerce,
“Antidumping Duty Investigation of Certain Softwood Lumber Products from Canada” (3 May 2001), at
Attachment 1, (fn 3), VII, VIII, IX. B].
69 Ibid., at 9 [Dewey Ballantine Letter to the Depa rtment of Commerce, “Anti-Dumping Duty
Investigation of Certain Softwood Lumber Products from Canada” (3 May 2001), at 3].
70 Ibid., at 10-15 [Dewey Ballantine Letter to the Department of Commerce, “Antidumping Duty
Investigation of Certain Softwood Lumber Products from Canada” (3 May 2001), Attachment 1]

sides planed), (9) edge trimming (eased or square edges), and end trimming
(precision end trimmed or not).
71 (emphasis added)

• Abitibi, in its submission, stated expressly th at size affects price. With respect to the
“dimension” characteristic, it stated: “Dimension (thickness, and width) is an
important physical difference among most softwood lumber product types, with
larger products generally commanding higher prices.” 72 It then stated that “Length
too affects value, with longer length pr oducts generally commanding higher prices
per foot than shorter length products.”73

4. 11 May 2001: Rebuttal Comments on Characteristics Affecting Price
Comparability

• BCLTC responds to the applicant’s proposal, and other respondents all adopt the
BCLTC response. It notes that both the applicant and respondents have identified
thickness, width and length as relevant and important characteristics.

• Respondent’s position on the re lative importance of charac teristics affecting price
comparability is as follows: “In sum, the product matching criteria and hierarchy for
the products under investigation should be: 1) species; 2) lumber type; 3) treatment;
4) moisture content; 5) grade; 6) thickness and width; 7) length; 8) surface treatment;
and 9) end trim.”
74 (emphasis added).

• Weyerhaeuser specifically identified dimens ion as a physical product characteristic
that affects price comparisons, stating: “Petitioners also propose to rank width and
thickness separately and apparently propose to rank width first. This does not follow
industry practice, nor market valuation. Different size products are generally not
substituted for each other and are not directly comparable, and thickness is the more
important factor. (For example, a 2x4 is even less similar to a 4x4 than it is to a
2x6.)”
75:

• The applicant expressly recognizes the link between dimension and price. It
addresses so-called “random-length” transactions, circumstances in which a customer
purchases, at a single average price, lumber of a specified thickness and width, but
with a range of lengths, since it wants to offe r a range of lengths to its customer. It
contends that “comparisons of transactions sold on a R/L [random length] basis is not
appropriate if those comparisons do not take into account the length composition of
the transaction (number of pieces of each length), and the different market value for
pieces of different lengths . . . .” 76 (emphasis added). Moreover, with respect to

71 Ibid., at 6-7 [Steptoe & Johnson Letter to the Department of Commerce, “Certain Softwood Lumber
from Canada: British Columbia Lumber Trade Counc il Comments on Procedural and Technical Issues”
(3 May 2001), at Enclosure I, 8-9].
72 Ibid., at 17 [Arnold & Porter Letter to the Department of Commerce, “Softwood Lumber from
Canada: Anti-Dumping Duty Investigation” (3 May 2001), at 16].
73 Ibid., at 18 [Arnold & Porter Letter to the Department of Commerce, “Softwood Lumber from
Canada: Anti-Dumping Duty Investigation” (3 May 2001), at 17].
74 Ibid., at 6 [Steptoe & Johnson Letter to the Department of Commerce, “Certain Softwood Lumber
from Canada: British Columbia Lumber Trade Counc il Comments on Procedural and Technical Issues”
(3 May 2001), at Enclosure I, 8].
75 Ibid., at 166 [Rebuttal of Weyerhaeuser Company to Petitioners' Comments in Response to the
Request for Information of the Department of Commerce dated 24 April 2001 (11 May 2001), at 2].
76 Ibid., at 25 [Dewey Ballantine Letter to the Depa rtment of Commerce, “Anti-Dumping Duty
Investigation of Certain Softwood Lumber Products from Canada” (11 May 2001), at 12].

precision end trimmed (“PET”) lumber, the applicant notes that “PET lumber should
be separately identified in the model matc h because the length is specified within
narrow tolerance and that distinction is an important determinant of the customer’s
choice of product.”
77(emphasis added)

5. 25 May 2001: Commerce's Initial Questionnaire

• This questionnaire identified the product characteristics Commerce had determined to
be relevant in matching/distinguishing pr oducts for price comparison purposes. All
respondents were required to use these characteristics, and code each of their
products and sales accordingly. Thic kness, width, and length each were individually
listed as required product characteristics. [Exact specifications were required for
thickness and width ( e.g., 2 inches, 3 inches, etc.), but length was required to be
reported in two foot increments ( e.g., 6 feet to less than 8 feet, 8 feet to less than 10
feet, etc.)]78

• The questionnaire instructed that respondent s could add additional characteristics,
“However, if you add characteristics not sp ecified in the questionnaire, describe in
the narrative response why you believe the Depa rtment should use this information to
define identical and similar merchandise .”79 (emphasis in original). In other
words, Commerce told the companies additi onal factual information was required to
justify only additional product characteristics, not those Commerce had already
selected, which, as noted, included each of the three dimensional characteristics.

6. 8 June 2001: Comments on Initial Questionnaire

• Canfor requests that Commerce modify the length break-outs in the Questionnaire for
stud lumber because the existing categories fa il to comport with the manner in which
stud lumber is priced and sold in the North American market and, unless modified,
would result in inappropriate product comparisons.80

7. 15 June 2001: Applicant Comments on Respondents’ Product Reporting

• The applicant objects to the reporting used by Weyerhaeuser which, for certain
limited sales, stated it could not specify length. Petitioner objects, “given the market
reality that different lengths command di fferent prices and the National Lumber
Grades Authority of Canada mandates that invoices for lumber measured in MBF
[thousand board feet] show the number of pieces of each nominal size and length.” 81
(footnote omitted) The applicant emphasizes that “the price of most (if not all)
products per MBF varies by length
.”82 (emphasis in original).

77 Ibid., at 26 [Dewey Ballantine Letter to the Depa rtment of Commerce, “Anti-Dumping Duty
Investigation of Certain Softwood Lumber Products from Canada” (11 May 2001), at 12].
78 Ibid., at 28-29, 31-32 [United States Department of Commerce, Request for Information Abitibi
Consolidated, Inc. (25 May 2001), at B-9 – B-10, C-9 – C-10, Sections: B – 3.5, 3.6 and 3.7; and C – 3.5, 3.6
and 3.7].
79 Ibid., at 30 [United States Department of Commerce, Request for Information Abitibi Consolidated,
Inc. (25 May 2001), at C-5].
80 Ibid., at 34 [Kaye Scholer LLP Letter to the Depart ment of Commerce, “Softwood Lumber Products
from Canada: Anti-Dumping Investigation” (8 June 2001), at 5].
81 Ibid., at 36-37[Dewey Ballantine Letter to the Department of Commerce, “Anti-Dumping Duty
Investigation of Certain Softwood Lumber Products from Canada” (15 June 2001), at 3-4].
82 Ibid., at 37-38, fn 10 [Dewey Ballantine Letter to the Department of Commerce, “Antidumping Duty
Investigation of Certain Softwood Lumber Products from Canada” (15 June 2001), at 4-5, fn 10].

8. 9 August 2001: Letter from Commerce

• In early August 2001, Commerce solicited comments on whether and how it should
compare prices of non-identical products. As if to highlight how well-established it
already was that dimension affected pr ice, Commerce asked parties to “explain
whether, in your view, the thickness and width criteria should be combined into a
single criterion, rather than considered separately”.
83 There was no dispute that both
thickness and width had to be considered ; the only issue Commerce framed was
whether to consider them together or separately.

9. 16 August 2001: Respondents Comments on Physical Characteristics that Should be
considered in Comparing Prices of Non-Identical Products

• Abitibi reiterated that thickness, width and length each should be taken into account,
in that order (and after considering grade and moisture content, but before surface
finish, end trimming, and further processing) . For width, Abitibi noted that value
differences were important, but differed. It noted for example that “the value
difference between a 2x6 and a 2x8 is less that the between a 2x6 and a 2x4.” 84 For
length, Abitibi noted that length affected commercial value, but that there certain
break points: “There tend to be significant breaks in the commercial value of
softwood lumber products of different lengths at two points: 16-foot lengths and 22-
foot lengths. Abitibi suggests, therefore, that the Department divide the length
criterion into three groups: less than 16 feet, 16 feet to less than 22 feet, and 22 feet
plus.”
85

• As to the calculation of an adjustment (DIFMER) when non-identical products are
compared, Abitibi affirmed “its willingness to provide such data as it may have
available that the Department might re quire, but expressly seeks the Department’s
guidance as to what additional data Abitibi should submit to permit the calculation of
the appropriate value-based difmers. We could locate no published decision
indicating how the Department calculates value-based difmers, much less what data it
requires to do so, and thus need guidance on this issue.” 86 Commerce did not
respond to this express request for guidance.

• Canfor reiterated that thickness, width and length (family code and length) should be
taken into account, in that order (and after considering grade and moisture content,
but before surface finish, end trimming, and further processing). Canfor further noted
that “[g]iven the significant differences in application, cost and value, among the

83 Ibid., at 40 [Department of Commerce Letter to Abitibi Consolidated, Inc. “Anti-Dumping Duty
Investigation of Certain Softwood Lumber Products from Canada” (9 August 2001), at 2].
84 Ibid., at 43-44 [Arnold & Porter Letter to the De partment of Commerce “Softwood Lumber from
Canada; Antidumping Duty Investigation Comments on Use of Similar Merchandise Comparisons and
Information Pertaining to Scieres Saguenay Limitee” (16 August 2001), at 19-20].
85 Ibid., at 44 [Arnold & Porter Letter to the De partment of Commerce “Softwood Lumber from
Canada; Anti-Dumping Duty Investigation Comments on Use of Similar Merchandise Comparisons and
Information Pertaining to Scieres Saguenay Limitee” (16 August 2001), at 20].
86 Ibid., at 42 [Arnold & Porter Letter to the De partment of Commerce “Softwood Lumber from
Canada; Anti-Dumping Duty Investigation Comments on Use of Similar Merchandise Comparisons and
Information Pertaining to Scieres Saguenay Limitee” (16 August 2001), at 9].

different lengths of lumber sold, Canfor believes it is appropriate to establish groups,
or families, of lengths for product matching purposes.”
87

• Slocan noted that thickness and width should be treated as separate characteristics,
and also argued for grouping lengths into fa milies: “in general Slocan believes that
the 2-foot increments defined by the Departme nt can be compared to their neighbors.
However, there is a clear price break between 14’ and the highly desirable 16’
lengths, and between 16’ – 20’ lengths and 22’ and above. There are consistent price
gaps between 14’ and under and 16’ and hi gher, and between 16’ –20’, and 22’ and
above. Therefore Slocan proposes that the weighting be set up to make allowance for
this commercial fact . . . .”88

• Tembec pointed to Commerce’s legal authority to make allowances for differences in
physical characteristics based on market values, and stated that “many of the physical
differences between similar lumber products are not reflected in production costs, but
result in significant differences in market valuation.” 89 Tembec also contended that
“when identical matches are not available the Department should base Normal Value
on similar matches with DIFMERs calculated based on difference in variable cost
supplemented with value-based DIFMERs as needed. Should the Department
determine that it needs additional information . . . it should request that information in
a supplemental questionnaire . . . .”90

• Weyerhaeuser reiterated that width, thickness, and length are physical differences that
create differences in realizable value and urged that those characteristics be included
in the product characteristics hierarchy. Weyerhaeuser noted again, as it had in its
earlier submission, that: “Commercially, th ickness is generally more important than
width. Products of different thickness are often used for fundamentally different
applications and thus are sold under different market conditions.”
91

10. 21 August 2001: Petitioner Comments on Using Non-Identical Product
 Comparisons

• The applicant did not argue that Commerce should compare prices of non-identical
products differing in dimension without any DIFMER. To the contrary, the applicant
recognized the distortions this would create, and instead argued that if no identical
product comparison should be made, US Export Price should be compared to a
constructed normal value.
92

87 Ibid., at 48 [Kaye Scholer LLP Letter to the Department of Commerce “Softwood Lumber Products
from Canada: Anti-Dumping Investigation” (16 August 2001), at 5.]
88 Ibid., at 50 [Baker & McKenzie Letter to the Depart ment of Commerce “Certain Softwood Lumber
Products from Canada” (17 Aug. 2001), at 7].
89 Ibid., at 52 [Baker & Hostetler, LLP Letter to th e Department of Commerce “Certain Softwood
Lumber Products from Canada” (16 August 2001), at 7] (Contains Business Confidential Information).
90 Ibid., at 54-55 [Baker & Hostetler, LLP Letter to the Department of Comme rce “Certain Softwood
Lumber Products from Canada” (16 August 2001), at 14-15] (Contains Business Confidential Information).
91 Ibid., at 60 [Miller & Chevalier Letter to the Depart ment of Commerce “Softwood Lumber Products
from Canada: Anti-Dumping Investigation” (16 August 2001), at 9]. The letter responded to the Commerce’s
letter of 9 August 2001, requesting comments on the matching of similar comparison merchandise in the
captioned investigation.
92 Ibid., at 62-64 [Dewey Ballantine Letter to the Department of Commerce “Anti-Dumping Duty
Investigation of Certain Softwood Lumber Products from Canada” (21 August 2001), at 3-5].

• The applicant itself presented public data showing significant price differences by
length. The applicant argued, however, against the length groupings advocated by
respondents, contending, for example, that it was not always the case that 16 foot
length was more valuable than 14 foot length lumber.
93 The applicant itself presented
the following data from Random Lengths94:

Species thickness/width 12 foot long 14 foot long 16 foot long
WSPF 2x8 $244 $198 $227
WSPF 2x10 $228 $340 $291

11. 21 August 2001: Respondents’ Rebuttal Comments on Physical Characteristics
 that Should be Considered in Comparing Prices of Non-Identical
 Products

• Canfor rebuts the applican t’s claim that all of the products covered in the
investigation are substitutable and reiterates its position (stated in its 16 August Letter
to Commerce) that Commerce should estab lish groups, or families, of lengths for
product-matching purposes.95

12. 10 September 2001: Submission of Historical Sales Data

• Following up on 16 August request for guidance from Commerce regarding the data
Commerce would require to compute a DI FMER, Abitibi reiterates its request for
guidance. It then provides additional da ta: “Because the Department has not yet
provided such guidance, and because the i ssue is of such critical importance to
Abitibi, we are providing additional data that the Department may find useful in
computing value-based difmers. We are providing, both electronically, and in Annex
SBC.22, historical, pre-POI pricing data, separately for the years 1999, 1998, and
1997.”
96 In other words, when it could not obtain guidance form Commerce, Abitibi
proactively submitted three years worth of average sales price data, by product
characteristics, that Commerce could use to compute DIFMERs or to analyze, over
time, the effect of different characteristics on price.

• Commerce never responded to Abitibi’s request for guidance, and never analyzed
Abitibi’s pricing data of previous years in examining whether dimension affects price
or to compute a value-based DIFMER.

13. September 2001: Comments in Advance of Preliminary Determination

• Abitibi remained concerned that Commerce would fail to compute an adjustment
(DIFMER), and blame respondents for failing to provide adequate data. It submitted
a letter to Commerce, contending, among other things, as follows:

93 Ibid., at 65-66 [Dewey Ballantine Letter to the Department of Commerce “Anti-Dumping Duty
Investigation of Certain Softwood Lumber Products from Canada” (21 August 2001), at 25-26].
94 Ibid., at 66 [Dewey Ballantine Letter to the Department of Commerce “Anti-Dumping Duty
Investigation of Certain Softwood Lumber Products from Canada” (21 August 2001), at 26].
95 Ibid., at 68-69 [Kaye Scholer LLP Letter to th e Department of Commerce “Softwood Lumber
Products from Canada: Antidumping Investigation” (21 August 2001), at 4-5].
96 Ibid., at 71 [Arnold & Porter Letter to the De partment of Commerce “Softwood Lumber from
Canada: Anti-Dumping Investigation” (10 September 2001), at SBC-56].

 In the circumstances of this case, an d to the extent the Department relies
upon average production costs by mill, the Department should compute
difmers based upon differences in market value. See 19 C.F.R. § 351.411(b);
U.H.F.C. Co. v. United States , 916 F.2d 689, 699 (Fed. Cir. 1990). Abitibi
reiterates its request, first made on 16 August for guidance from the
Department on the data it should submit to enable the Department to compute
value-based difmers. Abitibi submitte d historical sales data, for 1999, 1998,
and 1997, by CONNUM, in its submission of 10 September 2001, that can be
used to calculate value-based difmers, but as there is no available precedent
as to how the Department computes value-based difmers, Abitibi has no
means of identifying what, if any, other data to provide. We do not want to
be in the position of having our request for a value based difmer denied based
on the inadequacy or incompleteness of the factual record, so, one month
after our first request, we again ask th e Department to identify any data it
would need from Abitibi to calculate a nd apply value-based difmers so that
Abitibi can supply such data.
1

 1 See, e.g., Creswell Trading Company, Inc. v. United States, 15 F.3d 1054, 1062 (Fed. Cir.
1994) (“Commerce is presumably in the best positio n to know . . . its own requirements and what
evidence will satisfy these requirements, and therefore . . . Commerce at a minimum bore a burden of
requesting any additional information that it require d when it came to its conclusion . . . that the
information of record was insufficient.”); NSK Ltd. v. United States, 910 F.Supp. 663, 671 (Ct. Int’l
Trade 1995) (“Respondents should not be requir ed to guess the parameters of Commerce’s
interpretation of a phrase in the statute”);
97

• Tembec argued that “[s]hould the Department fail to ask for relevant information to
aid its decision-making on whether to calculate a value-based DIFMER, it may not
avoid a value-based DIFMER calculation based on lack of information or inadequacy
of the record.” 98

14. 30 October 2001: Commerce’s Preliminary Determination

• Commerce explicitly recognizes that grade, thickness, width and length “are
significant physical characteristics”, for which it should calculate a DIFMER. 99
However, Commerce states that it is unab le to calculate a cost-based DIFMER for
these “significant differences in physical characteristics which affect
price.”100(emphasis added) It therefore limits its price-to-price comparisons to
products identical in thickness, width, a nd length, among other characteristics, and
resorts to constructed value where it cannot match a US product to a Canadian
product identical in thickness, width, and length.

97 Ibid., at 76-77 [Arnold & Porter Letter to the De partment of Commerce “Softwood Lumber from
Canada: Anti-Dumping Duty Investigation: Abitibi Pre-Preliminary Determination Comments
(26 September 2001), at 2-3].
98 Ibid., at 79 [Baker & Hostetler, LLP Letter to th e Department of Commerce “Certain Softwood
Lumber Products from Canada” (28 September 2001), at 2]. This letter cited NSK Ltd. v. United States , 910 F.
Supp. 663, 671 (Ct. Int’l Trade 1995) in support of this request.
99 Ibid., at 82 [Department of Commerce, Notice of Preliminary Determin ation of Sales at Less Than
Fair Value and Postphonement of Final Determination: Certain Softwood Lumber Products from Canada
(Preliminary Determination) (30 October 2001), at 18].
100 Ibid., at 83 [Department of Commer ce, Notice of Preliminary Determ ination of Sales at Less Than
Fair Value and Postphonement of Final Determination: Certain Softwood Lumber Products from Canada
(Preliminary Determination) (30 October 2001), at 19].

15. 12 February 2002: Case Briefs to Commerce

• Under Commerce regulations, all legal argumen ts must be made at the time of filing
of the so-called “Case Briefs”. Legal arguments regarding price comparability,
DIFMERS, etc., are not required to have been made earlier.101

• Abitibi began its brief as follows: “Three indisputable facts regarding softwood
lumber must be taken into account in developing the methodology used to measure
dumping in this industry. First, softwood lumber is produced and sold in a wide
range of grades, dimensions, lengths, a nd other characteristics, with individual
products having widely divergent valu es due to differences in these product
characteristics.”
102 As an illustration, it included two charts of monthly prices over
the POI – one for 2x3x8 lumber, by grade, and one of 2x6x16 lumber by grade.
Although each chart showed price differences by grade, the two charts combined
show differences by dimension as well. For example, at the beginning, of the period,
in April 2000, Abitibi’s average net price for No. 2 grade 2x4x8 was around [[ ]]
whereas the No. 2 2x6x16 price was [[ ]]. The comparable figures for economy
grade were [[ ]] for the smaller size and [[ ]] for the larger.
103

• Abitibi also demonstrated that log size affe cts log value, because larger logs yield
more valuable, larger lumber: “Low diameter, shorter trees will produce lower value,
smaller lumber products. Large diameter tall trees will produce higher value, bigger
lumber products. In addition, small diamet er trees will tend to produce lumber with
more wane, thereby of lower grade. Trees with decay or rot or other quality defects
will also produce lower grade lumber than trees without quality defects. For these
reasons, where well-developed log markets exist, logs of the same species sell for
different prices per cubic meter depending upon quality and size characteristics.
104
And, timber quality and size do affect the stumpage price companies must pay to
harvest.
105

101 19 C.F.R. § 351.309 (Exhibit CDA-143).
102 DIFMER Exhibit, at 86 (Exhibit CDA-142 – Contains Business Confidential Information) [Arnold
& Porter Letter to the Department of Commerce “Softwood Lumber from Canada: Anti-Dumping Duty
Investigation” (12 February 2002) enclosing: Case Brief of Abitbi Consolidated Inc. and Affiliates
(12 February 2002), at 2 (citing ITC preliminary determination)].
103 Ibid., at 87-88 [Arnold & Porter Letter to the Department of Commerce “Softwood Lumber from
Canada: Anti-Dumping Duty Investigation” (12 February 2002) enclosing: Case Brief of Abitbi Consolidated
Inc. and Affiliates (12 February 2002), at 3-4] (Contains Business Confidential Information).
104 Ibid., at 91 [Arnold & Porter Letter to the Depa rtment of Commerce “Softwood Lumber from
Canada: Anti-Dumping Duty Investigation” (12 February 2002) enclosing: Case Brief of Abitbi Consolidated
Inc. and Affiliates (12 February 2002), at 19] (Contains Business Confidential Information). See Ibid., at 107
[Arnold & Porter Letter to the Department of Commerce “Softwood Lumber from Canada: Anti-Dumping Duty
Investigation” (23 July 2001), enclosing: Response of Abitibi Consolidated, Inc. to the Department’s
25 May 2001 Questionnaire (23 July 2001), at D-6 (“logs vary in length, diameter, and quality, and thus in
value”)]. Also See Ibid ., at 110-124 [Response of Government of British Columbia to the Department’s
1 May 2001 Questionnaire (29 June 2001), Vol. 16, Exh. BC-LER-20, Case No. C-122-839]. Containing
publicly available pricing data from Vancouver log market, and showing different prices for different grade logs
of the same species.
105 Ibid., at 91 [Arnold & Porter Letter to the Department of Commerce “Softwood Lumber from
Canada: Anti-Dumping Duty Investigation” (12 February 2002) enclosing: Case Brief of Abitbi Consolidated
Inc. and Affiliates (12 February 2002), at 19] (Conta ins Business Confidential Information). Abitibi’s Case
Brief also cites an excerpt from the Questionnaire Response of the Government of Québec in the countervailing
duty investigation which stated that:
For example, Quebec charges different stumpage prices in each of its 161 different tariffing zones.
One of the key variables in the stumpage equation is relative operating costs, and tree size in cubic meters is one
of the key variables in determining relative operating costs between zones. Moreover, Quebec also makes a

• Based on these facts, Abitibi explicitly c ontended that (1) Commerce cannot limit its
price-to price comparisons to identical merchandise, but must instead use non-
identical comparisons when id entical comparisons are not possible, and (2) that an
adjustment (DIFMER) must be applied to all non-identical comparisons, and that
Commerce had the data to do so.
106 Abitibi suggested several alternative data sets
and methodologies for computing such an adjustment (DIFMER).107

• Canfor noted that “there is no question that these distinct lumber products vary
dramatically in their revenue generating cap ability. Lumber prices vary substantially
depending upon the lumber type . . ., grade, dimension, and length of lumber. For
example, the average market price for k iln-dried, Western SPF dimension lumber as
reported by Random Lengths, recently varied from a high of $485 per MBF for 2x10,
24-foot No.2 & Better grade dimension lumber, to a low of $147 per MBF for 2x6
random length No.3 grade.”
108

• Tembec stated that “the Department may not compare products of different
dimensions or grades without adjusting fo r the substantial difference in the value
resulting from those differences in physical characteristics. . . . similar product
matches cannot satisfy the statutory and WTO requirements for a fair comparison
unless an appropriate Difmer adjustment is made.”
109 (footnotes omitted) Tembec
also stated that “[t]here are no reported co st differences for characteristics such as
length, width, thickness or grade for softw ood lumber, all characteristics affecting the
market value of distinct products. Shoul d the Department compare products that
differ with respect to these characteristics in the final determination, it must calculate
a value-based Difmer.” 110 (footnote omitted) Tembec sugg ested several alternative
data sets and methodologies for computing such an adjustment (DIFMER).111

• West Fraser argued that Commerce must make “similar comparisons in a manner that
is in keeping with its statutory obligation.” 112 West Fraser then went on to explain
what information was on the record and how the adjustment (DIFMER) could be
calculated, including properly applying the cost test or using information from
Random Lengths. West Fraser further pointed out that it had sought guidance from
Commerce as to whether Commerce needed addition data and because it received no
such guidance, suggests that Commerce w as satisfied with the data submitted.
113
Weyerhaeuser pointed out that softwood products “vary by grade, thickness, width,
and length” and that these are “all characteristics the Department has identified as

“quality adjustment” that takes into account the impact on timber value of average diameter, rot percentages,
and log taper.
106 Ibid., at 93-101 [Arnold & Porter Letter to the Department of Commerce “Softwood Lumber from
Canada: Anti-Dumping Duty Investigation” (12 February 2002) enclosing: Case Brief of Abitbi Consolidated
Inc. and Affiliates (12 February 2002), at 26-34] (Contains Business Confidential Information).
107 Ibid., at 101-105 [Arnold & Porter Letter to the Department of Commerce “Softwood Lumber from
Canada: Anti-Dumping Duty Investigation” (12 February 2002) enclosing: Case Brief of Abitbi Consolidated
Inc. and Affiliates (12 February 2002), at 34-38] (Contains Business Confidential Information). Ibid., at 127-
130 [Case Brief of Weyerhaeuser Company (13 February 2002), at 48-51].
108 Ibid., at 138 [Case Brief of Canfor Corporation (12 February 2002), at 13].
109 Ibid., at 161-162 [Case Brief of Tembec Inc. (12 February 2002), at 35-36].
110 Ibid., at 163 [Case Brief of Tembec Inc. (12 February 2002), at 37].
111 Ibid., at 163-164 [Case Brief of Tembec Inc. (12 February 2002), at 37-38].
112 Ibid., at 140 [Case Brief of West Fraser Mills, Ltd. (12 February 2002), at 17] (Contains Business
Confidential Information).
113 Ibid., at 140-152 [Case Brief of West Fraser Mills, Ltd. (12 February 2002), at 17-29] (Contains
Business Confidential Information).

affecting value,” citing the Department’s finding in its Preliminary Determination that
thickness, width and length are “significant ph ysical characteristics” affecting value.
Weyerhaeuser specifically went on to explain that: “In this case, the Department can
and should calculate difmer adjustments b ased on market value. As was the case in
Nepheline Svnite, the parties to this proceeding, and the Department itself, agree that
physical differences (such as grade, widt h, length and thickness) exist and affect
market value. Further, evidence of the relationship between these factors and market
value is apparent from the sales data provide d to the Department in the course of this
proceeding, as well as from industry pricing indices such as Random Lengths.”
114
(footnote omitted)

• Even the applicant acknowledged that when making similar comparisons, Commerce
would have to determine “whether a longer or shorter product or a wider or narrower
product would be most appropriate to match when the identical product was not
available.”
115

16. 19 February 2002: Rebuttal Briefs

• In its rebuttal brief to Commerce, Tembec not ed that “[w]henever there is a physical
difference between products, such as moisture content, grade, dimension or planing,
the Department must calculate the appropriate difference in merchandise adjustment
(“Difmer”) to reflect the difference in value attributable to that difference in physical
characteristics.”
116

17. 21 March 2002: Commerce’s Final Determination

• In the final determination, Commerce, “based upon [the] submissions, as well as the
Department’s analysis, width and thickness were numbered sequentially and matched
to similar products.”117

• With respect to length, Commerce accepted respondent s’ arguments, and grouped
products into length bands for matchi ng purposes. Specifically, Commerce
established three length bands: (1) less than 16 feet, (2) 16 feet to less than 22 feet,
and (3) 22 feet and above.
118 For matching purposes, Commerce would first match
within a band before matching to a different band. This recognizes that not all
lengths are of equal value or are equally comparable. To the contrary, the band
approach recognizes the higher value of 16 foot and 22 foot lumber relative to lower
length lumber. Thus, 16 foot lumber could not be matched equally to 14 foot and 18
foot lengths – it would be matched to 18 foot only.

• Commerce explicitly recognized that “in this case . . . differences in dimension ( i.e.,
length, width or thickness) . . . could result in differences in market value.”
119

• Inconsistently with its foregoing findings and conclusions, Commerce elected not to
calculate a DIFMER for differences in di mension. Although Commerce stated that
“there is no information on the record by wh ich we can calculate a difmer adjustment

114 Ibid., at 127 [Case Brief of Weyerhaeuser Company (12 February 2002), at 48].
115 Ibid., at 133 [Case Brief on Behalf of the Petitioner with Respect to Abitibi Consolidated Inc.
(12 February 2002), at 14].
116 Ibid., at 136 [Rebuttal Brief of Tembec Inc. (20 February 2002), at 12].
117 Ibid., at 155-156 [IDM, at 45-46 (Exhibit CDA-2)].
118 Ibid.
119 Ibid., at 158 [IDM, at 51 (Exhibit CDA-2)].

to account for differences in dimension based either on cost or value.”
120 it concluded
that “there appears to be little, if any, difference in home market prices that is
attributable to differences in dimensions of the products compared . . . .” 121 Yet the
record contains no evidence of any analysis by Commerce of any pricing data to
support this conclusion, and it is inconsis tent with Commerce’s use of thickness,
width, and length as matching characteristics, not to mention its adoption of length
bands.

23. Please comment on the statements contained in para. 136 of the US First Written
Submission:

"[i]n the latter quote, Canada emphasizes length and grade together, without
distinguishing between the two factors, and without any reference to width or
thickness. Canada simply could not prove that the minor differences in the size
of the products compared in this case had an effect on price comparability."
88. US paragraph 136 quotes from Canada ’s paragraph 59. It is true in that quote that Canada
mentioned length and grade together. The context of that discussion was a description of the
softwood lumber production process, to make the poi nt that different lumber products resulting from
the production process are joint products with joint cost s. In the very next paragraph, Canada stated
“this joint production process simultaneously yields numerous lumber products that, for any given
species, vary in a number of respects, the most signi ficant of which are grade and size. Each of these
characteristics affect value.”
89. While the United States focussed on paragraph 56, paragraphs 143 through 164 of Canada’s
First Written Submission explain specifically how dimension affects price. Of course, in addition,
when the United States in its paragraph 136 asserts that Canada could not “prove” that dimension
affects price, it would only accept as proof in that regard a “consistent pattern of price movement” and
no fluctuation in relative prices of lumber of differe nt dimension. Since prices through the year-long
POI did indeed fluctuate, as is normal in any commodity market, it was impossible for Canada to meet
the burden of proof that the United States has now articulated after-the-fact. The Anti-Dumping
Agreement does not impose such a burden on entitlement to an adjustment for differences in the
physical characteristics of the produc ts being compared. It directs that adjustment be made for all
physical differences that affect price comparability -- without regard to whether prices are fixed or
fluctuate, or whether the difference between any tw o products is replicated in consistent patterns
across all products. As demonstrated in response to Questions 21 and 22 above, the respondents made
such a showing, i.e., that differences affect price compar ability, with the full agreement of the
Petitioner.
90. After substantial submissions by respondents on this issue, Commerce agreed, first in its
questionnaire, then in its Preliminary Determinati on, and again at least in principle in its Final
Determination when it stated “specifically in this case, where products have differences in dimension
(i.e., length, width, thickness) we recognize that thes e physical differences could result in differences
in market value.”
122 The reason therefore that Commerce re fused to apply a dimension adjustment
was not, as the United States now argues, because the need was not demonstrated but rather because
of Commerce’s assertion that an adjustment could not be calculated. But this assertion simply is
incorrect. Commerce could have made an adju stment based on the value difference between non-
identical products, and it had a va riety of different data sources available for such a calculation.
Alternatively, it could have computed a cost differe nce, if it had simply extended its cost calculations
so as to take dimension into account.

120 Ibid.
121 Ibid., at 159 [IDM, at 52 (Exhibit CDA-2)].
122 IDM, Comment 8, at 51 (Exhibit CDA-2).

24. Please comment on the statements contained in para. 137 of the US First Written
Submission:

"Canada’s examples of price variability, allegedly based on size, are without any
citation to specific pieces of record ev idence presented to Commerce. [footnote
excluded] To the extent that these claims are based on analyses not presented to
Commerce during the investigation, they cannot provide a basis for review of
Commerce’s conclusion on the record before it."
91. The evidence and argument before Commerce is re viewed in detail in response to Questions
21 and 22 above. As already noted, the issue wa s not disputed by any party, and Commerce accepted
in its Preliminary Determination and in its Fi nal Determination that dimension affects price
comparability.
92. In addition to the evidence reviewed above, Co mmerce also had before it the complete sales
databases for all six respondents. These database s contained pricing data by product, differentiated
by thickness, width, and length among other charact eristics. Commerce’s record reveals that it
performed no analyses of these data. The United States refers to CDA-76 that shows that various
dimensions had an effect on price. These charts are simply graphical representations of data that were
before Commerce -- specifically, the data derived from actual pricing in the final Canadian sales
database submitted by individual respondent companies. All of the underlying data were provided to
Commerce, including examples provided by both respondents and petitioners.
93. To the extent that the United States is sugg esting that respondents did not provide record
evidence to Commerce or to this panel showing di fferences in lumber value based on differences in
dimension, the United States is simply in error. Canada cited extensive evidence in its paragraphs 147
and 148 demonstrating that size can and did affect th e value of lumber. That evidence was all before
Commerce during the investigation.
25. Please explain in detail how DOC carried out the product comparison in case of non-
identical CONNUMs. Of the total number of comparisons made, how many were based on
identical CONNUMs?

94. For each US product that could not be compared to an identical Canadian product, Commerce
selected what it regarded to be the most similar Ca nadian product, with reference to the ten product
matching characteristics it had implemented at the out set of the investigation. Specifically, it ordered
these product characteristics from most important to least important, as follows: product category
(e.g., boards, dimension lumber, timbers), species, grad e, moisture content, thickness, width, length,
surface finish the number of sides planed), end trimming ( i.e., whether the end were precision
trimmed or not), and further processing. Commerc e selected the most similar non-identical product
by identifying the Canadian product with the fewest, and least important, product differences. Thus, a
spruce, pine fir (SPF), No. 2 grade, dried, 2 inch x 4 inch x 8 foot, fully planed, not precision
trimmed, and not further processed product would be matched to a spruce, pine fir, No. 2 grade, dried,
2 inch x 4 inch x 10 foot product, ahead of both an SPF No. 1 grade product, and an SPF No. 2, dried,
2 inch x 6 inch x 8 foot product, because length is the least important characteristic among length,
width and grade. Commerce applied other matchi ng rules as well. Commerce did not match across
categories or species. In addition, it limited co mparisons to other produc ts within limited grade
groups, where the grade groups were assigned by Commerce based on the commercial applications
for the lumber. Finally, as noted in more deta il in the response to Questions 21 and 22, Commerce
used three length groupings as well for matching purposes, in an effort to match lengths of the closest
value, and in recognition of the fact that length affects value.
95. In view of the place in the product matching hierarchy for dimension characteristics, and the
fact that virtually all lumber sales reported were lumber without further processing, and with planing,

the vast majority of non-identical comparisons ma de by Commerce were of products that differed
only in length or width.
96. The United States claims that there were few non-identical comparisons made, that the few
non-identical comparisons it made were of very si milar dimension products, and thus little distortion
could exist in the overall margin calculation. The facts show otherwise.
97. Following is a table showing, for each Canadian respondent, the number of price-to-price
comparisons of (1) identical products and (2) non- identical products. The table also shows the
average margins of dumping found for the identical and non-identical comparisons. As can be seen,
the number of non-identical comparisons made by Commerce was significant. Indeed, for several
companies Commerce made more non- identical comparisons than identical comparisons. Moreover,
the impact of non-identical comparisons on the overall margin of dumping found also was significant.
In fact, the non-identical comparisons generated [[ ]] of Tembec's overall margin. The margins of
dumping found for non-identical comparisons was far higher, for every company, than the margins of
dumping found for identical comparisons, highligh ting the very distortion of which Canada
complains.

CANADIAN
RESPONDENT MATCH TYPE
NUMBER OF
COMPARISONS
WEIGHTED
AVERAGE
MARGIN

Source: Analysis Memorandum for Abitibi-Consolidated, Output of Margin Programme (unnumbered
page) (25 April 2002); Analysis Memorandum for Ca nfor Corporation did not provide a summary by
match type; therefore the data is based on a comp uter run of Canfor's data; Anti-Dumping Duty
Investigation on Certain Softwood Lumber Products from Canada - Analysis Memorandum for the
Amended Final Determination for Slocan Forest Products Ltd. (Slocan), Output of Margin
Programme at 35 (25 April 2002); Antidumping Duty Investigation on Certain Softwood Lumber
Products from Canada – Analysis Memorandum fo r the Amended Final Determination for Tembec
Forest Products Ltd. (Tembec), Output of Ma rgin Programme at 42 (26 April 2002); Analysis
Memorandum for West Fraser Mills Ltd., Output of Margin Programme at 25 (25 April 2002);

Analysis Memorandum for Weyerhaeuser Company, Output of Margin Programme (unnumbered
page) (25 April 2002).123

98. Moreover, contrary to the assertions of the United States, the many non-identical comparisons
were not neutral. The non-identical comparisons generally worked against respondents. That is,
Commerce tended to compare prices of narrower, shorter, less valuable products sold in the
United States with prices of wider, longer, more valu able lumber sold in Canada. (This was a direct
result of Commerce’s cost allocation methodology wh ich allocated the same costs of production to
lumber of different size, with the result that smal ler, less valuable lumber tended always to be found
to be below cost. Thus, only high value lumber sold in Canada tended to pass the cost test.)
99. To demonstrate this point, we provide below specific examples of non-identical comparisons
actually made by Commerce for respondent compani es. All products noted are identical in all
physical characteristics other than dimension. We show the dimensions of the US product, the
dimensions of the Canadian product Commerce used in its price comparison, and the dumping margin
that resulted. The Panel should take note of the generally far larger dimensions of the Canadian
product. In each case, Commerce compared a US price to a Canadian price of a larger, more valuable
product, without adjustment.
100. To illustrate the value difference between the pr oducts compared, we have also provided in
the table comparable prices for the two products in the same market . The prices indicated under the
US and Canadian products (reporte d in Canadian dollars) are the period of investigation weighted
average Canadian market price for that product for that company net of all actual billing adjustments,
freight expenses, and selling expenses, so as to elimin ate all price differences caused by differences in
freight and selling expense. The price shown for the US product is not the price used in the dumping
comparison, as it is the Canadian market price rather than the US market price. The data underlying
these charts are the very data respondents submitted to Commerce in their final sales databases – the
actual databases used by Commerce in its Final De termination margin calculations. The products
were chosen as illustrations from the mandatory respondents.
124 The figures provided show one
potential measure of the extent to which the Canadian product used by Commerce in actual dumping
comparisons is more valuable than the US pr oduct to which it was compared. Because Commerce
compared the products without adjustment, it presumed their values to be the same. The tables below
show just how far off this presumption was with ve ry concrete examples, instead of the overbroad
assertions made by Commerce to the effect that dimension has only a minor impact on price, without
reference to any actual product to product comparisons actually made.

123 Respondents’ Analysis Memoranda, Output of Margin Programme at 1-10. (Exhibit CDA-157 –
Contains Business Confidential Information).
124 There are no examples provided for Slocan because Slocan's cons ultant currently is out of the
country and unable to run the calculations for the Home Market (Canadian) Price of the US Product.

ABITIBI

Dumping
Margin
Identical
Characteristics
Dimension of
US Product
Dimension of
Non-Identical
Canadian
Product
Compared by
Commerce
Home Market
(Canadian)
Price of
U.S. Product
Home Market
(Canadian) Price
of Non-Identical
Canadian
Product
Compared by
Commerce

Code: SPF = spruce, pine, fir = species
 dry = kiln dried = moisture content
 kiln-wet = does not meet drying specification
 PET = precision end trimmed

CANFOR

Dumping
Margin
Identical
Characteristics
Dimension of
US Product
Dimension of
Non-Identical
Canadian
Product
Compared by
Commerce
Home Market
(Canadian)
Price of
U.S. Product
Home Market
(Canadian) Price
of Non-Identical
Canadian
Product
Compared by
Commerce

Code: fascia is a type of finish

TEMBEC

Dumping
Margin
Identical
Characteristics
Dimension
of
US Product
Dimension
of Non-
Identical
Canadian
Product
Compared
by
Commerce
Home Market
(Canadian)
Price of
US Product
Home Market
(Canadian)
Price of Non-
Identical
Canadian
Product
Compared by
Commerce

WEST FRASER

Dumping
Margin
Identical
Characteristics
Dimension
of
US Product
Dimension
of Non-
Identical
Canadian
Product
Compared
by
Commerce
Home Market
(Canadian)
Price of
US Product
Home Market
(Canadian)
Price of Non-
Identical
Canadian
Product
Compared by
Commerce

Code: S4S = surfaced on four sides
 EE = eased edges

WEYERHAEUSER

Dumping
Margin
Identical
Characteristics
Dimension
of
US Product
Dimension
of Non-
Identical
Canadian
Product
Compared
by
Commerce
Home Market
(Canadian)
Price of
US Product
Home Market
(Canadian)
Price of
Non-Identical
Canadian
Product
Compared by
Commerce

 2 The larger product (timber) can be less valuable than a smaller product – e.g., due to rot in
the middle, which while it may not affect structural strength, can limit the ability to make smaller
pieces from it.

F. Z
EROING
To Canada:

28. Please explain the legal basis for the claim that zeroing is inconsistent with Article 2.4
and 2.4.2, in addition to its citations from the EC – Bed Linen AB report.

101. Under the first methodology specified in Article 2. 4.2, investigating authorities must take into
consideration “all comparable export transactions ” when calculating margins of dumping. The
express language of the agreement does not limit this standard to a particular stage of margin analysis,
and therefore it must be understood to apply to bot h intermediate stage margin calculations and any
margin calculation made for the product under consider ation as a whole. The report of the Appellate
Body in EC – Bed Linen supports this interpretation of the Ag reement: there, the Appellate Body
analyzed the terms of the Agreement and conclude d that the requirements of Article 2.4.2 are not
limited to the intermediate margin calculations, but rather apply to the final overall margin calculation
as well.125 In Canada’s view, this is the best interpre tation of Article 2.4.2 because it gives all of the
language in that provision operative meaning. When applying this standard to intermediate stage
calculations, the term “all” ensures that all relevant transactions are included in the calculations. The
term “comparable” is particularly significant because it operates to ensure that model-to-model
comparisons include only “comparable” transactions in each given model. In applying this standard
to a margin calculation for the product as a whole — such as that at issue in this case — the term

“comparable” describes the transactions being cons idered for the product as a whole, and — perhaps
most significantly for this case — “all” requires an authority to include every transaction within the
terms of that analysis, without qualification or exception. It is Canada’s position that the
United States failed to comply with this standard when it calculated the overall margin for softwood
lumber, because it improperly reduced to zero an y negative margins that resulted from model-to-
model comparisons, thus failing to fully account for “all comparable export transactions” in its final
margin calculation.
102. It is agreed between Canada and the United States that the margins of dumping were to be
established “on the basis of a comparison of a weighted average normal value with a weighted
average of prices of all comparable export transac tions”. Zeroing is also inconsistent with
Article 2.4.2 because it does not fully take into account certain transactions in establishing “a
weighted average
” (of prices of all comparable export tr ansactions). Zeroing is by definition
inconsistent with the calculation of a true “weighted average”.
103. In Canada’s view, zeroing does not produce a fa ir comparison consistent with Article 2.4
because it does not average all model-specific ma rgins equally, and thus the US practice is
inconsistent with the obligations of the United States under Article 2.4. Canada notes that the
Appellate Body agreed with this position in EC – Bed Linen, where it stated it was “of the view that a
comparison between export price and normal value that does not take fully into account the prices of
all comparable export transactions - such as the pract ice of “zeroing” at issue in this dispute - is not a
“fair comparison” between export price and normal value….” 126
29. Please comment on the statement contained in para. 154 of the US First Written
Submission:

"[n]either Article 2.4, nor Article 2.4.2 co ntains obligations as to how the single,
overall dumping margin is to be calculated and, consequently, the United States’
methodology cannot be found to be inconsistent with a non-existent obligation."
104. This statement by the United States is unsupported by the text of Articles 2.4 and 2.4.2, is
inconsistent with the positi on of the Appellate Body in EC – Bed Linen, and would undermine the
object and purpose of the Anti-Dumping Agreement by effectively allowing investigating authorities
limitless discretion in calculating th e margin actually applied to a respondent in an investigation.
Neither the requirement that “a fair comparison sha ll be made” contained within Article 2.4 nor the
requirement in Article 2.4.2 providing for a compar ison using “all comparable export transactions” is
limited to those margins an authority may calculate before establishing the final margin. The only
permissible reading of Article 2.4.2 is that the “margins” to which it refers are any margins calculated
by the investigating authority at any stage in th e process of calculating a final antidumping margin,
including the final margin itself.
105. The same argument offered here by the United St ates was considered -- and rejected -- by the
Appellate Body in EC – Bed Linen. In that case, the EC had claimed, as the United States now does
in para. 155 of its First Submission, that Article 2.4.2 provides no guidance to investigating authorities
as to how margins of dumping established for partic ular models should be combined in the second
stage to calculate an overall margin of dumping for the product under consideration.127 The Appellate
Body found that the plain meaning of the language of Article 2.4.2, coupled with the reference in
Article 2.1 to establishing dumping for “a product” s uggested that these provisions were intended to
govern any second stage margin determinations, and t hus it was “unable to agree with the European
Communities that Article 2.4.2 provides no guidanc e as to how to calculate an overall margin of

126 Ibid., at para. 55.
127 Ibid., at para. 49.

dumping for the product under investigation.”
128 Based on this reasoning, the Appellate Body
concluded that the Anti-Dumping Agreement prohibited the practice of zeroing. Given that the
Appellate Body’s reasoning in that case was addressed to precisely the same claim raised here, it
should be highly relevant to this Panel’s assessment of the US position in this case.
30. Please comment on the statements contained in para. 156 of the US First Written
Submission:

"Canada’s interpretation of Article 2.4.2 would render the term “comparable”
without meaning, inconsistent with this corollary. By arguing that the phrase
“all comparable export transactions” refers to “[a]ll sales of goods falling within
the scope of an investigation,” Canada deprives the term “comparable” in
Article 2.4.2 of any meaning, instead making it equivalent to the term “all”
which immediately precedes it." (footnotes omitted)
106. Canada has not claimed that Article 2.4.2 do es not cover intermediate-stage comparisons
(when such comparisons are required to be made); thus, in making those comparisons, Article 2.4.2
would require that comparable transactions be used . But, more importantly, contrary to the position
of the United States, nothing in Article 2.4.2 limits
 the application of that Article to intermediate-stage
comparisons. As a result, the requirements of Article 2.4.2, like the requirements of Article 2.4, apply
to the calculation of the margin for the product as a whole and also to the calculation of intermediate-
stage margins (where it is necessary to calculate such in termediate-stage margins, which will depend
on the facts of a given investigation). Thus, for particular intermediate-stage comparisons, some
items falling within the like product may not be cap able of comparison with other items within the
same like product category – because, for example, they do not meet the contemporaneity requirement
set forth in Article 2.4. But this does not mean that the requirement of Article 2.4.2 that “a weighted
average normal value be compared with a weight ed average of prices of all comparable export
transactions” does not apply when it comes to aggreg ating all those intermediate-stage margins, in
order to generate a single margin for the like product as a whole; the “all comparable export
transactions” requirement must still be preserved. Ar ticle 2.4.2 applies to that step also, because the
Anti-Dumping Agreement does not contain a provision excluding its applicability.
31. Please comment on the statements contained in para. 164 of the US First Written
Submission:

"Canada’s reasoning starts from the premise that Article 2.1 defines dumping
with respect to “a product”– in the singular– and concludes that, therefore,
margins of dumping under Article 2.4.2 may not be established with respect to
particular models of a product. Th is reasoning improperly overlooks the more
detailed text of Articles 2.4 and 2.4.2 in favor of the more general text of Article
2.1. It deprives the term “comparable” of any meaning and, accordingly, ought
to be rejected in favor of the more natural interpretation of the operative
terms." (footnotes omitted)
107. The United States incorrectly characterized Canada's argument as based on the reference to “a
product” under Article 2.1. In fact, Canada believes that Articles 2.4 and 2.4.2 more squarely address
the issue, and therefore has focused upon those provisi ons in its analysis. In Canada’s view, zeroing
is prohibited under Article 2.4.2 itself because it requi res that the investigating authority take into
consideration “all comparable export transactions” in calculating margins when the first methodology
is used. Moreover, Article 2.4 imposes the additio nal requirement that comparisons between normal
values and export prices must be “fair”. Zeroing does not produce a fair comparison under Article 2.4
because it does not average all values, and is thus in consistent with US obligations under Articles 2.4

128 Ibid., at para. 53.

and 2.4.2. Thus, Canada has argued that the re quirement contained in Article 2.4.2 that an
investigating authority consider “all comparable export transactions” in calculating the dumping
margin applies both to intermediate stage and fina l margin calculations, and therefore it is on this
ground that zeroing is prohibited under the Agreement.
108. Canada notes that Article 2.1, however, confirms that the final margin determined pursuant to
the requirements of Article 2.4.2 must reflect a determination of dumpi ng for “the product” under
consideration. It suggests, as Japan’s submission no tes, that second-stage calculations of the margin
for “a product” cannot exclude those subcategories of products which result in zero margins. See
Third Party Submission of Japan, at para. 9 (“Ar ticle 2.1 thus provides that dumping must be
determined on the basis of all types of a product under consideration as a whole, not some types of the
product. “). This is consistent with and reinfo rces Canada’s position that the requirements contained
in Article 2.4 and 2.4.2 would operate to prohibit zeroing.
109. Contrary to the allegation of the United States, Canada’s interpretation of Article 2.4.2 does
not prohibit the establishment of margins of dumping w ith respect to particular models of a product.
Rather, the direction to conduct a “comparison of a weighted average normal value with a weighted
average of prices of all comparable export transacti ons” involving the like product operates to require
the authority to compare each wei ghted average normal value with all export transactions that are
fairly comparable with that normal value, and not to compare those export transactions to normal
values established for different levels of trade, or based on sales made in a different time period, or
against normal values not adjusted for other differences that affect price comparability.
110. In Canada's view, the resulting dumping margin should be the same whether the authority
carries out its calculation in one stage or two. In this case the United States used a two-stage method.
But at the second stage it changed negative dumping margins ( i.e., where weighted average normal
value was lower than the weighted average of pri ces of comparable export transactions) to a dumping
margin value of zero, effectively deeming, contrary to fact, that the weighted average of prices of
comparable export transactions of such a model wa s equal to (and not higher than) the weighted
average normal value. An “average” cannot be com puted without the inclusion of all values. By
eliminating some values from the computation of averages, the United States failed to establish
margins of dumping in accordance with Article 2.4.2, which, to repeat, requires margins of dumping
to be “established on the basis of a comparison of weighted average normal value with a weighted
average of prices of all comparable export tran sactions” of the like product. A “comparison”
considers the elements to be compared as they we re calculated, and cannot “revise” certain of these
elements to reflect a fictional value (zero), when the value in issue was in fact computed to be a
negative number.
111. In this case, the first (model-to-model comparison) stage divided the single like product into
multiple models as an expedient that permitted appr opriate comparisons between identical or most
similar products. However, the United States went on to calculate a single overall like product margin
for each investigated exporter, in the “second stage” of the margin calculation. In arriving at the
overall like product margin of an exporter, which could only originate from the comparison of normal
values and export prices done at the first stage, the US was required to continue to take into account
all margins so obtained, because Article 2.4.2 requi res margins to be established by reference to all
comparable export transactions as they occurred, not as revised downward by an investigating
authority.
 At the first substantive meeting with the Pane l, Canada was asked to describe whether it
has a multi-stage process and how it arrives at its anti-dumping margins.

112. Canada respectfully refers to the terms of re ference of the Panel and notes that these terms
cover the measure of the United States referred by Canada to the DSB in document WT/DS264/2, i.e.,

the initiation of the investigation, the conduct of th e investigation, the Final Determination and the
resulting Anti-dumping Order on Softwood Lumber from Canada.
113. Canada regrets it cannot be of further assistance on this question.
G. COMPANY-SPECIFIC
 ISSUES
G.1 Common Questions on Various Company-Specific Issues

To Canada:

36. Can Canada explain its own practice co ncerning the calculation of SG&A, with
particular emphasis on the company-specific issues which are at issue before the Panel?

114. Canada respectfully refers to the terms of re ference of the Panel and notes that these terms
cover the measure of the United States referred by Canada to the DSB in document WT/DS264/2, i.e.,
the initiation of the investigation, the conduct of th e investigation, the Final Determination and the
resulting Anti-dumping Order on Softwood Lumber from Canada.
115. Canada regrets it cannot be of further assistance on this question.
37. For each of the company-specific issues examined below, Canada is requested to
summarize the arguments raised by the relevant ex porter in the context of the investigation.
References to documents on the record should be included (exhibit number, page and
paragraph of the document). Canada is also requested to summarize the reasons which were
given by DOC, if any, when rejecting the ex porter's request. To clarify and summarize the
issues, Canada may present the above data in tabular form.

116. Please see attached Annex I.
38. Please comment on the statement contained in para. 185 of the US First Written
Submission:

"[t]his Panel should reject Canada’s arguments that attempt to interpret the
general language of the cost calculat ion provisions of the AD Agreement as
requiring use of particular methodologies."
117. Articles 2.2.1.1 and 2.2.2 do not specify particular cost calculation methodologies, but instead
impose parameters governing the selection of alloca tion and other calculation methodologies. First,
these provisions impose a general preference for the act ual data recorded in a respondent’s books and
records for the amounts actually incurred in produc ing and selling the produc t under consideration.
This is reflected in Article 2.2. 1.1’s general requirement that “costs shall normally be calculated on
the basis of records kept by the exporter or pr oducer under investigation . . . .” as well as the
requirement of Article 2.2.2 that, where possible, that amounts used for general and administrative
expenses “shall be based on actual data pertaining to production and sales. . . of the like product by
the exporter or producer under investigation.” Thus, for example, where a company maintains
administrative, selling and general cost data pertai ning to the specific product under consideration, an
investigating authority should not disregard such data in favour of more general data that it must then
allocate. Second, Article 2.2.1.1 imposes a general re quirement that an investigating authority’s cost
calculation “reasonably reflect the costs associated with the production and sale of the product under
consideration.” With respect to by-product sales, fo r example, this means th at the revenues recorded
in a respondent’s books and records must not overs tate or understate the ac tual revenues obtainable
through by-product sales, since to do so would lead to an overstatement or understatement of the costs
associated with the production and sale of softwood lumber. Third, Article 2.2.1.1 requires that

authorities “consider all available evidence on the pr oper allocation of costs”. This requirement, in
combination with the requirement that investig ating authorities properly establish the facts and
evaluate those facts in an “unbiased and objectiv e” manner, prohibits the use of standard cost
calculation methodologies in all cases, without regard to the particular facts of each case. This was
confirmed by the panel in Egypt – Steel Rebar.129
118. Canada’s position is that the various methodologies used by Commerce for the company-
specific determinations at issue fell outside these express parameters and t hus violated explicit
obligations in the Anti-Dumping Agreement. Canada does not argue that the general language of these
articles requires the use of particular methodologies.
39. Please comment on the statement contained in para. 221 of the US First Written
Submission:

“[t]he AD Agreement is silent as to how to assess affiliated party transactions
relating to costs.”
119. Canada agrees that Article 2.2.1.1 does not set out a specific test or methodology for
determining whether transactions between affiliated parties can reas onably be used in determining a
respondent’s costs for producing and selling the pro duct under consideration. Article 2.2.1.1 does,
however, express a clear preference for the use of act ual transaction data from records kept by an
exporter. An investigating authority may only di sregard such data where the transactions do not
accord with GAAP and do not reasonably reflect costs associated with the production and sale of the
product at issue. Canada believes that transactions between affiliated parties are subject to the general
requirements of Article 2.2.1.1 of the Anti-Dumping Agreement and, as such, must be disregarded by
an administering authority where a respondent’s records for those sales would lead to a calculation of
costs that do not “reasonably reflect the costs asso ciated with the production and sale of the product
under consideration.” Otherwise, such recorded data should be used in the determination of costs of
production.
120. By statute the United States has adopted a gene ral rule that transactions between affiliated
parties may be disregarded when calculating costs, if those transactions do not fairly reflect market
prices. In this case market pricing represents an objective standard against which the investigating
authority can assess whether the records reasonably reflect the costs associated with the production
and sale of softwood lumber. For the reasons di scussed in Canada’s First Written Submission and
elaborated upon below, Canada does not believe that Commerce satisfied this standard with respect to
affiliated chip sales made by West Fraser and Tembec.
40. Please comment on the statements contained in para. 228 of the US First Written
Submission:

“Canada asserts that Commerce’s calculation of West Fraser’s wood chip offset
also violated its obligation to make a “fair comparison.” This argument confuses
obligations regarding determination of normal value with obligations regarding
the comparison between normal value a nd export price. As the panel in Egypt -
Rebar confirmed, Article 2.4 is concerned exclusively with the comparison

between normal value and export price, not with determination of normal
value.” (footnote excluded)
121. Canada’s claim under Article 2.4 is addressed in the response to Question 51.

To both parties:

44. What obligations does Article 2.2.1.1 impose: 1) in general on investigating authorities,
and 2) with respect to the determination of by-product revenue offsets?

122. Article 2.2.1.1 obligates investigating author ities to examine the books and records of a
respondent to determine whether those books a nd records are in accordance with GAAP and
reasonably reflect the costs associated with the production and sale of the product under
consideration. If those two requirements are met, the investigating authority shall normally calculate
the cost of the product under consideration on the b asis of those books and records. The investigating
authority must also consider all available eviden ce on the proper allocation of costs to the production
of the product at issue. The requirements of Article 2.2.1.1 must also be considered in conjunction
with Article 6.1, which requires the investigating authority to inform respondents of all information
that the investigating authority requires, and pr ovide respondents with a reasonable opportunity to
present evidence.
123. By-product revenue offsets are an essential part of the calcula tion of the costs of the main
product, in this case lumber. As noted above, th e United States has adopted a general rule that
transactions between affiliated parties may be disregarded when calculating costs, if those transactions
do not fairly reflect market prices. To ensure th at the requirements of Article 2.2.1.1 are met it is
necessary for the by-product revenue offset to reflect the market valu e of those by-products. Indeed,
unless the by-product offset reasonably reflects the ma rket value for the by-products at issue, the
calculation of the cost of the main product (in this case, softwood lumber) would be either overstated
or understated. Thus, when the market value of by-product sales is not reflected in a company’s own
books and records, as was the case for Tembec, Article 2.2.1.1 requires an alternative valuation. In
contrast, where the market value of by-product sal es is reasonably reflected in a company’s own
books and records, as was the case for West Fraser, Article 2.2.1.1 requires Commerce to use the
company’s own recorded figures.
45. For the terms "actual data pertaining to production and sales (…) of the like product"
in Article 2.2.2, please explain the application of this sentence in general
 and in light of the
company-specific issues in this case.

124. This provision in Article 2.2.2 requires an inv estigating authority to base its cost calculations
for administrative, general and selling expenses, on actual data maintained by the producer, specific to
(i.e., “ pertaining to”) the production and sale of the product under investigation, wherever such
specific, actual data are available. Expenses w ill “pertain” to the production and sale of a product
where they “belong or be attached to, spec. (a) as a part, (b) as an appendage or accessory . . ..” 130 If
“actual data” are not available, the remainder of the Article permits the investigating authority to rely
on more aggregate data, including data relating to “the same general category of products” of that
producer (Article 2.2.2(i)), other producers data (A rticle 2.2.2(ii)), or “any other reasonable method”
(Article 2.2.2 (iii)).
Abitibi:

125. As Canada has explained, Abitibi’s audited financ ial statements contain detailed data on the
value of assets required for the production and sale of merchandise in each of its business segments
(its three business segments comprise lumber, newsprint, and pulp and paper). 131 In calculating the
amount of financial expenses properly allocable to softwood lumber, Commerce used a COGS
methodology that relied on Abitibi’s “actual data” but over-allocated non-lumber expense data to the

130 L. Brown, ed., The New Shorter Oxford English Dictionary , 3rd ed. (Oxford: The Clarendon Press,
1993), at 2173 [“pertain”]. (Exhibit CDA-144)
131 Abitibi Section A Questionnaire Response (22 June 2001), Annex 12, at 252 (Exhibit CDA-82).

cost of producing lumber. Commerce therefore calc ulated Abitibi’s financial expenses by including
actual cost data that did not “pertain to” the production and sale of lumber contrary to Article 2.2.2.
Tembec:

126. With respect to Tembec’s G&A issue, the phr ase “actual data” is not relevant because both
the company-wide G&A calculation and the Forest Products Group G&A calculation are based on
actual data. The key portion of Ar ticle 2.2.2 is the phrase “pertaining to production and sales . . . of
the like product.” The majority of the sales of the Forest Products Group are of products that are
identical to the product under consideration and, thus, are the “like product.” The Forest Products
Group data therefore more accurately “pertained to ” the production and sale of the product at issue.
By contrast, the Tembec company-wide data cannot be said to “pertain to” the production and sale of
the like product in Canada, or even any product in the same general category of products, because
those figures represent the company’s worldwide pr oduction, 70 per cent of which is made up of
paper, pulp and chemicals.
132 By using the company-wide data to determine G&A, Commerce over-
allocated costs based on data that related to th e production of non-lumber goods to softwood lumber
and therefore calculated Tembec’s G&A for softwood lumber based on data that did not “pertain to”
the production and sale of softwood lumber.
Weyerhaeuser Company:

127. Weyerhaeuser Canada Limited, the producer a nd exporter of Canadian softwood lumber in
Commerce’s investigation, is a Canadian subs idiary of Weyerhaeuser Company (“Weyerhaeuser
US”). Article 2.2.2 requires Commerce to consid er only “actual data pertaining to production and
sales … of the like product by the exporter or producer under investigation. ” In accordance with its
normal practice, Commerce included a part of th e parent-company G&A in the subsidiary’s G&A
calculation. This is reasonable to the extent th at the parent company incurs expenses that would
ordinarily fall on Weyerhaeuser Canada if Weyerhaeuser US did not exist ( e.g., Director salaries).
However, Canada takes issue with the way Co mmerce classified certain expenses incurred by
Weyerhaeuser US as G&A – contrary to Weyerh aeuser US’s books and records – that Commerce
ultimately attributed to Weyerhaeuser Canada’s production and sale of softwood lumber.
133
128. In particular, Commerce included in its G& A calculation a $130 million charge incurred by
Weyerhaeuser US for legal settlement expenses related to hardboard siding, a product produced by the
parent company in the United States, for claims arising for the period 1981 to 1999 (i.e., years prior to
the period of investigation in this case). 134 Weyerhaeuser US’s hardboard siding expense does not
“pertain to”, or “attach” to Weyerhaeuser Ca nada’s production and sale of Canadian softwood
lumber; nor is it “a part” of the Canadian softwood lumber production process. By including these
expenses in the production of softwood lumber, Commerce included actual data that did not pertain to

132 Tembec Section A Questionnaire Response (22 June 2001), Exhibit A-15 (Tembec Inc. 2000
Annual Report) at 45 (Exhibit CDA-94).
133 During the investigation, Weyerhaeuser argued that (1) the hardboard siding expense was not a
general expense properly attributed to the production and sale of Canadian softwood lumber, and (2) that the
expense is properly characterized as a “cost of sale.” Either would have su fficed to reclassify the expense as a
“general expense”. The DOC rejected both claims. See Weyerhaeuser Case Brief (13 February 2002) at 64
(Exhibit CDA-98 – Contains Business Confidential Information). In this WTO appeal, Canada has raised an
issue with the DOC’s reasoning with respect to item (1) only.
134 See DOC Verification Report on the Cost of Product and Constructed Value Data Submitted by
Weyerhaeuser Company Ltd. (22 January 2002) at 4, para. 3(2) (Exhibit CDA-97 – Contains Business
Confidential Information); Weyerhaeuser US Section A Qu estionnaire Response (22 June 2001), Exhibit A-15
at 53, 74 (Exhibit CDA-101); DOC “Issues and Decision Memorandum for the Antidumping Duty Investigation
of Certain Softwood Lumber Products from Canada ,” dated 21 March 2002, Comment 48b, at 136 (Exhibit
CDA-2).

the production and sale of softwood lumber and thereby calculated an inflated amount for
Weyerhaeuser’s G&A costs contrary to Article 2.2.2.
46. What is the relationship, if any, between Articles 2.2.1.1 and 2.2.2 of the Anti-Dumping
Agreement?

129. Both Article 2.2.1.1 and 2.2.2 apply for th e “purposes of paragraph 2” of Article 2 ( i.e.,
constructing costs). Article 2.2.1.1 is generally applicable to all co st calculations and determinations,
including both costs of production and general selli ng and administrative costs. Article 2.2.2 only
addresses the determination of gene ral, selling and administrative costs. Accordingly, where an
authority establishes GS&A costs it must meet the requirements of both Articles 2.2.1.1 and 2.2.2.
These provisions together establish certain specific rules for the construction of costs and normal
value.
G.2 Calculation Financial Expenses of Abitibi

To Canada:

47. Please comment on the statements cont ained in p. 77 of DOC’s Memorandum of
21 March 2002 (Exhibit CDA-2):

"[t]he Department's method addresses Abit ibi's concern that those activities are
more capital intensive. Specifically, those activities would have a higher
depreciation expense on their equipment and assets. Thus, when the
consolidated financial expense rate is a pplied to the cost of manufacturing of
lumber products, less interest will be applied because the total cost of
manufacturing for lumber products includes a lower depreciation expense."
130. These assertions are misleading and demonstrably incorrect, as pointed out below. The
problem with Commerce’s COGS methodology is that it considers only current expenses, and
effectively ignores the true, full costs of long-t erm capital assets. After all, COGS includes only
current expenses. It does not include the full valu e of long-term capital assets, nor does it include the
value of any non-depreciable capital assets at all. Therefore, for companies such as Abitibi, whose
long-term capital assets are far greater than current assets and expenses, a COGS allocation does not
reflect a company’s “overall cash needs” as the United States repeatedly asserts.
131. To understand this point, and Commerce’s misl eading response that it considered capital
assets by virtue of considering depreciation expense, the Panel need not delve into esoteric accounting
concepts. It need only focus on one’s own expe rience in purchasing and financing long-term assets,
such as an automobile.
132. When a buyer purchases an automobile, he is requi red to pay the dealer the full value of the
car. Thus, if he buys a $25,000 automobile, he must finance, through borrowing or equity, the full
$25,000 purchase price of the car. In Commerce’s terminology, the “cash need” is $25,000. Because
the automobile can be used for many years, it is a long-term capital asset, and its initial value is
$25,000.
133. Assuming that the automobile has a useful life of five years, the depreciation expense
associated with that automobile will be one-fifth of th e total or $5,000 per year for each of five years.
So, when Commerce contends that it considered the automobile purchase through its depreciation
expense, the example demonstrates how Commerce undervalued long-term capital assets. Commerce
valued the automobile for inter est expense allocation purposes at $5,000 instead of $25,000, even
though it cannot be disputed that the amount that had to be financed – the “cash need” – is $25,000.

134. In the corporate context, distortions arise from considering only depreciation expense because
different assets used by different divisions have different useful life periods. For example, a company
may purchase a $25,000 five-year asset for one product division, and a $50,000 ten-year asset for a
different product division. Both assets have the same annual depreciation expense of $5,000, but the
$50,000 asset requires double the cash outlay and thus s hould bear double the financial expense. The
COGS methodology, however, assigns the two divi sions the same financial expense for these two
assets. This is how the COGS methodology distor ts the allocation of interest expense between
divisions with respect to capital assets.
135. The question thus is not whether Commerce c onsidered the depreciation expense associated
with long-term capital assets in allocating interest expenses. Canada acknowledges that it did. The
question is why it considered only the depreciation expense, and not the full value of all depreciable
assets. Just like an individual must finance the fu ll value of an automobile purchase, so too must a
company finance the full value of all its depreciable long-term assets. They cannot pay, and cannot
just finance, the depreciation expense.
136. The second problem with Commerce’s approach of valuing capital as sets for interest
allocation purposes only by the depreciation expen se is that not all capital assets are depreciable.
Commerce’s method ignores completely all capital assets that are not depreciated, including land and
goodwill. Abitibi has purchased land for its various plants, and has goodwill assets that it acquired for
over a billion dollars. The purchase of these assets ha d to be financed. Yet because these assets are
not depreciated, they do not affect COGS at all. These significant assets are not considered at all by
Commerce in allocating interest expenses.
137. Now consider the other current expenses incl uded in COGS, like the ongoing labour and
materials costs of felling logs and sawing them into lumber. Unlike the capital assets like automobiles
and sawmills that Abitibi will use for many years, Abitibi will sell the lumber soon after it is produced
and then get paid. Thus, unlike capital assets which n eed to be financed for the full year and longer,
current production expenses do not need to be financed for the full one-year period Commerce
considered. They only need to be financed until payment is re ceived. Thus, the “cash needs” or
capital needed to finance current expense is an amount much less than the annual total of those
expenses. For example, if on average it takes Ab itibi 36.5 days to harvest logs, produce lumber, and
receive payment, its inventory will turnover on aver age 10 times per year. This means that to finance
$10,000 in annual current expenses, Abitibi’s “cash need” will be only one-tenth of its annual
expenses, or $1,000. The same $1,000 in cash will finance ten separate cycles of production and sales
within that one year.
138. In sum, while Commerce contends that money is fungible, and that interest expense must be
allocated equally among all expenses and capital asset s in proportion to all “cash needs” of the
company, its COGS allocation methodology does not do so in a case such as Abitibi’s where its long-
term capital assets are far greater than its curre nt assets needed to finance current production
activities. (These include, for example, cash, raw ma terials inventory, finished goods inventory, and
accounts receivable.) 135 As demonstrated, certain capital assets are not considered at all, whereas
those capital assets that are considered are gro ssly under-weighted, as Commerce does not take into
account the “cash need” to acquire the asset. Correspondingly, Commerce grossly over-weighted
current expenses in its allocation, since the “cash needed” to finance current expenses over one year is
not the total of such expenses, but rather the total divided by the inventory turnover time.

135 As Canada noted in its First Oral Statement at paragraph 83, over 85 per cent of Abitibi’s assets are
long-term assets, with less than 15 per cent co mprising current assets. Also Abitibi Case Brief
(12 February 2002) at 54 (Exhibit CDA-81 – Contains Business Confidential Information); Abitibi Section A
Questionnaire Response (22 June 2001), Annex 12, at 235, 249, 251 and 252 (Exhibit CDA-82).

48. It is stated in para. 201 of Canada's First Written Submission that:

"DOC expressly conceded that it did not consider any of the evidence presented
by Abitibi or otherwise developed in the case."
Could Canada please direct the Panel to the basis for this statement, that is, where in the record
can the Panel find the document (indicate page , paragraph and sentence) in which DOC made
the above-quoted finding? If this document has not been included in the list of exhibits
submitted by the Parties so far, could Canada please submit a copy of the document.

139. Canada’s argument was tied to the next senten ce in paragraph 201 of its First Submission:
“COMMERCEstated that its goal was to use a meth odology that was consiste nt and predictable.”
This statement by Commerce is found in the IDM at Comment 15, page 77, in Exhibit CDA-2. In the
same paragraph, Commerce also referred to its COGS allocation methodology as “its established
practice”. A methodology that is an “established pr actice” and that is “consistent and predictable” is
one that is always followed, and is not one th at is selected based on the particular factual
circumstances of an individual case. Nor does Commerce ever reference any consideration of
Abitibi’s evidence in its findings or adequately explain its reasons for rejecting that evidence.
140. Over at least the past fifteen years, Commerc e has used its COGS methodology for allocating
financial expenses in every single investigation and administrative review, with one lone exception.
In DRAMS from Korea,
136 Commerce departed from its cost of sal es approach and allocated financial
expenses to different product divisions based on assets – the methodology advocated by Abitibi.
Commerce expressly noted that a disproportionate amount of the respondent’s fixed assets related to
the production of subject merchandise, therefore, “allocation of interest expense based on cost of sales
would not appropriately recognize the expense re lated to the capital investment necessary for
semiconductors ( i.e., subject merchandise) compared to the other lines of business.” 137 This is the
same argument Abitibi is making he re. Commerce’s first reviewing court, the Court of International
Trade, upheld the reasonableness of this me thodology in the circumstances of that case. 138 The result
in that case was to allocate more financial expense to the product under consideration than would be
the case using a COGS methodology.
141. Since the 1993 decision in DRAMS from Korea, Commerce has not once departed from its
COGS methodology, including in later administrative reviews of DRAMS from Korea. In case after
case, it has indicated that a COGS allocation methodol ogy is its “standard methodology” or “reflects
its consistent practice,” from which it will not depart.
49. Please comment on the statement contained in para. 184 of the US First Written
Submission:
"[i]n rejecting Brazil’s claim, the panel explained that under Article 2.2.2, the
investigating authority has discretion in selecting a profit rate for constructed
value when actual data are not available, including profit rates derived from
sales that were in sufficiently low volu mes that they could not themselves serve
as a basis for normal value." (footnote excluded)

136 Final Determination of Sales at Less Than Fair Value: Dynamic Random Access Memory
Semiconductors of One Megabit and Above From the Repub lic of Korea, 58 Fed. Reg. 15,467, 15,467 (Dep’t
Commerce 23 March 1993) (Exhibit CDA-145).
137 Ibid. at 15,472
138 See Micron Technology, Inc. v. United States , 893 F.Supp. 21, at 9 (Ct. Int’l Trade 1995) (Exhibit
CDA-146) (“the court concludes that Commerce provided a reasoned analysis for rejecting its [cost of sale]
methodology”).

142. The US reference to the findings of the pane l does not address any of the claims raised by
Canada. The United States uses that case in support of its position that an authority has substantial
discretion in calculating general costs. The case in f act stands for nothing more than the fact that an
investigating authority’s discretion is bound by the language of the Anti-Dumping Agreement.
50. Please comment on the statement contained in para. 185 of the US First Written
Submission:

"[t]his Panel should reject Canada’s arguments that attempt to interpret the
general language of the cost calculat ion provisions of the AD Agreement as
requiring use of particular methodologies."
143. This question is the same as Question 38. In respect of Canada’s claim relating to Abitibi,
Canada takes the position that Commerce’s use of its COGS methodology to allocate Abitibi’s
financial expense fell outside of th e parameters set out in Articles 2. 2.1.1 and 2.2.2. While, as stated,
those provisions do not require “particular me thodologies” they do expressly provide specific
requirements. One such requirement is that an au thority “shall consider all available evidence on the
proper allocation of costs, including that which is made available by the exporter or producer.”
Commerce did not consider Abitibi’s evidence in determining the allocation methodology. It made no
factual findings specific to Abitibi, but instead resorted to the standard methodology it always applies.
The COGS methodology did not result in an amount of interest expense for lumber that reasonably
reflects interest expenses associated with th e production and sale of softwood lumber. And
Commerce impermissibly relied on an overall allocation when the company presented actual data
regarding the assets and thus capital required for each of its business segments.
51. Please comment on the statements contained in footnote 207 to the US First Written
Submission.

144. Canada’s claim under Article 2.4 rests on the findings of the Appellate Body in EC – Bed
Linen. The Appellate Body plainly stated:
Article 2.4 sets forth a general obligation to make a “fair comparison” between export
price and normal value. This is a general obligation that, in our view, informs all of
Article 2, but applies, in particular to Article 2.4.2 . . . .”139 (emphasis added)
145. Based on this “general obligation”, Canada ther efore argues that where the United States, in
constructing normal value, establishes an unreasona ble amount for G&A or an amount for costs of
production that do not reasonably reflect cost s for producing and selling the product under
investigation, this then results in an improper cal culation of normal value which in turn results in
improper comparison between that normal value and export price for purposes of Article 2.4.
52. Please comment on the statements contained in paras. 192-193 of the US First Written
Submission.

146. As explained in Question 47 above, Abitibi’s methodology equally takes into consideration its
actual capital requirements both for current production activities and for the acquisition of all assets,
not just fixed assets ( i.e., land and buildings). Commerce’s methodology did not since it ignored
completely non-depreciable assets, understated th e capital required for depreciable assets (by
considering only the depreciation expense instead of the full cost), and overstated the capital required
for current production activities (by failing to consider that production is sold and thus is financed
only for a short period of time).

139 EC – Bed Linen, at 59.

147. Canada fully agrees that money is fungible, a nd thus a proper allocati on of financial expense
must accurately consider all financing needs incl uding all asset purchases as well as the amount of
working capital (i.e., current cash needs) needed to fund ongoing production operations. The problem
is that Commerce’s methodology fails this standard.
G.3 Calculation of G&A Expenses of Tembec

To Canada:

53. Please comment on the statements containe d in paras. 197 and footnote 230 to the US
First Written Submission:

"Canada argues that Commerce should have based Tembec’s G&A cost on an
unaudited number, even though it had not been substantiated that the number
was established in accordance with Canadian GAAP.
Canada cites no evidence on the record that the specific lumber division G&A
costs were audited. Canada argues that Commerce rejected the division-specific
G&A cost data, although it had been verified. Canada First Written
Submission, para. 220. While Commerce co nducted an on-site verification for
Tembec, Tembec did not provide any evidence at verification that the division-
specific data at issue had been audited and/or were in accordance with Canadian
generally accepted accounting principles."
148. These statements are untrue and misconstrue th e facts with regard to the reliability of
Tembec’s data. In fact, the Forest Products Group’s data were treated by Commerce as reliable for all
purposes, except for G&A.
149. First, as Canada has stated in its First Oral Statement, paragraphs 90-91, the Forest Products
Group’s data, which Commerce rejected, were maintained in accordance with GAAP. Tembec’s
2000 Annual Report, at page 44 at the bottom of the page, states clearly that “[t]he accounting policies
used in [the five business divisions] are the same as those described in the summary of significant
accounting policies.”
140 As well, the Forest Products Group’s profit and loss statement, from which
the G&A amount was taken, was maintained in accordance with GAAP. At verification, Commerce
traced the profit and loss statement directly to Tembec’s audited financial statements. 141 During the
investigation, Commerce never questioned whethe r these data were in accordance with GAAP, nor
did it put such questions to Tembec.
150. Second, the books and records of Tembec’s Forest Products Group are part of the books and
records that Tembec’s outside auditors reviewed in order to certify that the consolidated financial
statements are in accordance with GAAP. It is impossible to audit the consolidated financial
statements of a company without auditing the underlying books and records that feed into those
consolidated financial statements.
151. Third, the company-wide G&A factor that Commerce used in its final determination was not
derived exclusively from the “audited” consolidated income statement of Tembec Inc. The data from
the Tembec Inc. income statement were modified to remove packing expenses. The data on packing

140 Tembec Section A Questionnaire Response (22 June 2001), Exhibit A-15 (Tembec Inc. 2000
Annual Report) at 44 (Exhibit CDA-94). See also Tembec Section A Questionnaire Response (22 June 2001),
Exhibit A-15 (Tembec Inc. 2000 Annual Report), at 33-35 (Exhibit CDA-148).
141 See Tembec Cost Verification Exhibit 20 at 1 and 2 (Exhibit CDA-95 – Contains Business
Confidential Information) and Tembec Cost Verification Exhibit 10, at 1 (Exhibit CDA-96 – Contains Business
Confidential Information).

expenses had to be compiled by adding up the pack ing expense information reported in the divisional
accounting records for each of Tembec’s divisions.142
152. Fourth, the evidence indicated that Commer ce having connected the G&A amount to the
audited financial statements is the Cost Verifica tion Report Exhibit 20, the second page of which is a
worksheet tying the Forest Products Group G&A fact or to the financial statements in the Annual
Report.143 The rest of the exhibit shows that Commerce also used the Forest Products Group
statements to verify the company-wide G&A and demonstrates the linkage between the Forest
Products Group Statements to the audited compan y-wide financial statements. When Commerce
makes a document a verification report exhibit, this indicates that Commerce has accepted the content
of that document.
153. Another example of the linkage is Cost Verification Report Exhibit 10,
144 which demonstrates
that the Forest Products Group statements from which the Forest Product Group G&A factor was
derived constituted the key documents through which all of the cost and sales data were linked to the
audited financial statements. Commerce at verifica tion tied the cost and sales databases subsequently
used in its final determination through the For est Products Group’s profit and loss statement 145 to the
accounting record showing the consolida tion of all of the divisional P&Ls, 146 which then tied into the
Consolidated Statement of Operations in Tembec’s Annual Report.147
154. For example, Commerce traced the Forest Products Group’s cost of sales for fiscal year 2000
of $[[ ]] 148 to the same number for the Forest Products Group in the consolidation document. It
then noted that sum total of the cost of sales figures for all of the divisions149 equals [[ ]], which in
turn equals the cost of sales figure reported in th e Consolidated Statement of Operations in Tembec’s
Annual Report.150
54. Ple ase comment on the statements contained in para. 201 of the US First Written
Submission:

"Canada states that '[t]he G&A factor derived from the Forest Products Group
includes a properly allocated portion of corporate G&A. . . .' [footnote excluded]
Implicit in this statement is an acknowledgement that the division-specific data,
on their own, were an inaccurate basis fo r allocating G&A. That number had to
be supplemented by a portion of company-wide G&A to come up with a
'derived' G&A number for the Forest Products Group."

142 See Tembec Cost Verification Report Exhibit 20 at 1 (Exhibit CDA-95 – Contains Business
Confidential Information)
143 See Tembec Cost Verification Report on the Cost of Production and Constructed Value Data
Submitted by Tembec Inc., Exhibit 20 (29 January 2002), at 2. (Exhibit CDA-95)
144 Tembec Cost Verification Exhibit 10, at 1 (Exhibit CDA-96 – Contains Business Confidential
Information).
145 Tembec Cost Verification Exhibit 10, at 3-7 (Exhibit CDA-149 – Contains Business Confidential
Information).
146 Tembec Cost Verification Exhibit 10, at 2 (Exhibit CDA-149 – Contains Business Confidential
Information).
147 Tembec Section A Questionnaire Response (22 June 2001), Exhibit A-15 (Tembec Inc. 2000
Annual Report), at 31, which was on the record below as Cost Verification Report Exhibit 5) (Exhibit CDA-
148).
148 Tembec Cost Verification Exhibit 10, at 3 (Exhibit CDA-149 – Contains Business Confidential
Information).
149 Tembec Cost Verification Exhibit 10, at 2 (Exhibit CDA-149 – Contains Business Confidential
Information).
150 Tembec Section A Questionnaire Response (22 June 2001), Exhibit A-15 (Tembec Inc. 2000
Annual Report), at 31 (Exhibit CDA-148).

155. The Forest Products Group data did not have to be “supplemented” to establish a G&A
amount for softwood lumber because Tembec recorded G&A expenses for its headquarters operations
on each of its products group’s accounting records in the ordinary course of business. Commerce
verified that the sum total of the G&A expen ses recorded on the books of Tembec’s products groups
equalled the G&A expense recorded on Tembec’s aud ited financial statements for the company as a
whole, thus specifically verifying what it now atte mpts to deny: that the Forest Products Group G&A
included distributed company-wide G&A.
151
55. Could Canada please indicate wheth er there is information on the record on the status
of the financial statement of the Forest Products Group? (for example, whether it was audited
or not, whether it complied with Canadian GAAP, whether the respondent commented on the
status of that statement, etc.) If so, please provide copies of the relevant documents.

156. Please see the response to Question 53.
G.4 Calculation of G&A (Legal Costs) of Weyerhaeuser

To Canada:

58. Could Canada please direct the Panel to where in the record it can find Weyerhaeuser's
arguments on the treatment of certain legal settlement claims incurred by Weyerhaeuser US.
Please include references to documents on the record, identifying with precision
 where on the
document Weyerhaeuser's argument are to be found. Also provide a concise summary of
Weyerhaeuser's arguments.

157. The Record evidence is as follows:
• In response to the Department’s initial and supplemental questionnaires to the
respondents sent July – November 2001, Weyerhaeuser reported its costs of
producing softwood lumber, including G&A expenses. This reported information did
not include the hardboard siding settlement expenses because they were not treated as
a G&A expense by Weyerhaeuser on its books and did not pertain to the production
of the like product. Commerce used this re ported cost information in its Preliminary
Determination. The Preliminary Determin ation makes no mention of the hardboard
siding expense.
• Commerce’s Cost Verification Report
152 Commerce did not identify the hardboard
siding expense as a potential issue until it released its cost verification report in
January 2002. The verification report was not released until after the record of the
investigation was closed. Even then, Co mmerce did not adequately explain why it
might reclassify the hardboard siding expense, stating simply that: “[Weyerhaeuser]
included in the cost of sales associated with the Product’s ‘Costs and Expenses’,
[[ ]] associated with product claims, which might be more appropriately included
as G&A, not cost of sales.”

151 Tembec Cost Verification Report on the Cost of Production and Constructed Value Data Submitted
by Tembec Inc., Exhibit 20 (29 January 2002) (third page – not numbered) (Exhibit CDA-95 – Contains
Business Confidential Information).
152 DOC Verification Report on the Cost of Product and Constructed Value Data Submitted by
Weyerhaeuser Company Ltd. (22 January 2002), at 4, para. 3, subpara. 2 (Exhibit CDA-97 – Contains Business
Confidential Information).

• Weyerhaeuser’s Case Brief to Commer ce following the Verification Report .153
Weyerhaeuser filed several briefs after the verification report was issued.
Weyerhaeuser stated that:

 [the hardboard siding expense] is not general in nature and it does not relate
to the operations of the company as a w hole. As disclosed in note 14 of
Weyerhaeuser’s consolidated financial statement, this cost relates to a
proposed class action settlement of the hardboard siding claims [footnote
omitted]. The settlement class consists of all persons who own or owned
structures in the United States on which the company’s hardboard siding has
been installed. Thus, the facts on the r ecord clearly show that this cost is
associated with a specific product line of non-subject merchandise and that
the expense does not relate to the operations of the company as a whole.
Thus, it should not be included as a component of corporate G&A.
• Final Determination:
154 Commerce rejected this argumen t in its Final Determination,
stating its rationale for reclassifying the expense for the first time:

 while the costs relate to non-subject product . . . the Department typically
allocates business charges of this nature over all products because they do not
relate to production activity, but to the company as a whole.’ Stated another
way, Commerce states that if an expense does not relate to production
activity, it must relate to the ‘company as a whole.
• In Weyerhaeuser’s Ministerial Error Allegation Letter,
155 Weyerhaeuser stated that
Commerce’s position was in error:

 In revising Weyerhaeuser’s G&A ratio , the Department included claims on
hardboard siding . . . as a component of parent G&A. The Department has
made a ministerial error by including this amount. The Department does not
typically include this type of expen se as a component of COP because it has
no relationship to the production or sale of the subject merchandise. In this
instance, Weyerhaeuser agreed to settle a suit by homeowners who claim that
the company sold them faulty hardboard siding. . . Clearly this expense does
not relate to the production and sale of Canadian softwood lumber. This
expense does not relate to the admini strative activities of the company or
corporation as a whole and is not specific to the manufacture, design or sale
of the product under investigation.
158. Weyerhaeuser’s argument before this Pane l can be summarized as follows. Commerce
improperly calculated Weyerhaeuser’s G&A amount for its production of softwood lumber.
• The Facts
: As stated previously in the res ponse to Question 43, the producer and
exporter of the merchandise subject to Commerce’s investigation is Weyerhaeuser
Canada Limited. Weyerhaeuser Canada is a subsidiary of a US company,
Weyerhaeuser US In calculating G&A expenses for Weyerhaeuser Canada’s
production and sale of softwood lumber, Comme rce will attribute a part of the G&A
of the parent company to the subsidiary. At issue is one expense that Commerce

153 Weyerhaeuser Case Brief (13 February 2002) at 63 and 64 (Section c.) (Exhibit CDA-98 – Contains
Business Confidential Information).
154 IDM, at 134, Comment 48b (Exhibit CDA-2).
155 Weyerhaueser Comments on Ministerial Errors (8 April 2002), at 6-7 (Exhibit-100 – Contains
Business Confidential Information).

classified as parent-company G&A (contrary to Weyerhaeuser US’s own books and
records) and then attributing that expen se to Weyerhaeuser Canada’s production and
sale of softwood lumber. More particularly, Commerce improperly included in the
parent company G&A a $130 million charge for litigation settlement expenses related
to hardboard siding (which is unrelated to softwood lumber), a product produced by
the parent in the United States in years 1981 – 1999 (before the POI).

159. Weyerhaeuser makes two specific claims:
• Commerce acted contrary to Article 2.2.2 by including cost data that did not pertain
to the production and sale of the product under investigation. Weyerhaeuser argued
before Commerce that the hardboard siding expense was not general in nature and
therefore not attributable to the company as a whole.
156 It was a cost that did not
pertain to the production and sale of softw ood lumber in Canada for Weyerhaeuser
Canada and therefore incorrectly increased the G&A cost attributable to lumber.
Commerce’s conclusion to the contrary was not a proper establishment of the facts,
nor an evaluation of the facts that was unbiased and objective.

• Commerce violated Article 2.2.1.1 by improperly ignoring Weyerhaeuser’s books
and record and establishing G&A costs fo r Weyerhaeuser Canada that did not
“reasonably reflect” its costs for producing and selling softwood
lumber.Weyerhaeuser did not treat this settlement fund as a general expense on its
records as Commerce indicated. It is a sep arate line item in its corporate financial
statement.
157 Nor should this expense be treat ed as a general legal expense.
Weyerhaeuser US characterized its general legal expenses as G&A in its financial
statement.158 Rather, the company recorded the hardboard siding expense as a
separate line item – not in G&A – and given its clear association with the production
and sale of non-like product, should not have been included in Commerce’s G&A
calculation in this case. By including this cost, Commerce calculated a cost that did
not “reasonably reflect the costs associated with the production and sale” of softwood
lumber.

59. Please comment on the following stat ement contained in para. 207 of the US First
Written Submission:

"[DOC] found that because this cost wa s incurred years after the production of
the hardboard siding at issue and was not part of the production process for that
product, it could not properly be co nsidered a cost uniquely allocable to
hardboard siding production. In additi on, Weyerhaeuser had treated it as a
general cost on its audited financial statement." (footnotes omitted)
160. These two sentences express two separate and inco rrect points. Commerce makes the first
point in order to support its argument that any expe nse that does not relate specifically to production
is “general” and is therefore properly characterized as a general expense attributable to the production
and sale of the like product. However, this is not Commerce’s traditional practice and it violates
Article 2.2.2 of the Anti-Dumping Agreement . Contrary to Commerce’s statement, Commerce
“normally computes . . . an amount of G&A from related companies which pertains to the product

156 Weyerhaeuser Case Brief (13 February 2002), at 63-64 (Exhibit CDA-98 – Contains Business
Confidential Information).
157 Weyerhaeuser US Section A Questionnaire Response (22 June 2001), Exhibit A-15, at 53 (Exhibit
CDA-101).
158 Weyerhaeuser Cost Verification Exhibit 26, at 26 (Exhibit CDA-121 – Contains Business
Confidential Information).

under investigation . G&A . . . expense items are not considered fungible in nature. Thus . . .
expenses realized by a related company do[] not necessarily affect the general activity of the
respondent.”159 This policy facially comports with Ar ticle 2.2.2, which requires “the amounts for
administrative, selling and general costs and for pr ofits shall be based on actual data pertaining to
production and sales in the ordinary course of trade of the like product by the exporter or producer
under investigation.” However, in this instan ce, Commerce failed to establish any relationship
between the hardboard expense incurred and the pr oduction of Canadian softwood lumber. On the
contrary, the expense on its face relates to the production and sale of non-subject merchandise.
161. Commerce did follow its policy to only includ e related cost data with respect to
Weyerhaeuser’s other non-produc tion related expenses. As noted, Weyerhaeuser US financial
statement reports about $1 billion in SG&A expenses. 160 Yet, according to Attachment 2 of
Commerce’s 21 March 2002 memo161, only [[ ]] of Weyerhaeuser US’s SG&A was included in
the parent company G&A calculation. In arriving at a figure of [[ ]] from $1 billion, Commerce
excluded numerous expenses because they did not relate to the production and sale of Canadian
softwood lumber. Inexplicably, Commerce failed to apply the same rule to the hardboard siding
expense.
162. Commerce makes the second point to support its position based on the “fact” that
“Weyerhaeuser had treated [the hardboard siding se ttlement expense] as a general cost on its audited
financial statement.”162 That is not true. Weyerhaeuser’s consolidated financial statement states that
Weyerhaeuser US spent $1 billion in SG&A expenses in 2000. It also identifies a separate line item
called “charge for settlement of hardboard siding cl aims,” which reported $130 million in charges for
2000.163 Had Weyerhaeuser considered the hardboard siding claim expense as a general expense, it
presumably would have included that amount as part of the 2000 GS&A expense. Therefore,
Commerce’s claim that the Company treated this charge as GS&A is false.
60. Please comment on the following stat ement contained in para. 208 of the US First
Written Submission:

"[DOC]’s decision on this issue is supported by Weyerhaeuser Company’s own
books and records, which include these litigation settlement expenses as a
general expense, as opposed to a cost of goods sold. More specifically, in a note
to its financial statement, Weyerhaeuser Company describes litigation costs as
“generally incidental to its business." (footnotes omitted)
163. Again, these sentences address two separate points. The first statement is simply false. As
noted in the response to Question 58, Weyerhaeu ser’s consolidated financial statement provides
Weyerhaeuser US’s SG&A expenses in 2000 and cites a separate line item called “charge for
settlement of hardboard siding claims”.
164 Therefore, Commerce’s claim that the Company treated this
charge as SG&A is incorrect.

159 See Brass Sheet and Strip from Canada , 61 Fed. Reg. 46,618, 46,619 (Dep’t. Commerce) (Final
Antidumping Administrative Review) (Exhibit CDA-104). (emphasis added)
160 Weyerhaeuser US Section A Questionnaire Response (22 June 2001), Exhibit A-15, at 53 (Exhibit
CDA-101).
161 DOC Memorandum on Weyerhaeuser’s Cost of Production and Constructed Value Calculation
Adjustments for the Final Determination (21 March 2002 ) at Attachment 2 (Calculation at the Top) (Exhibit
CDA-105 – Contains Business Confidential Information).
162 First Written Submission of the United States, at para. 207.
163 Weyerhaeuser US Section A Questionnaire Response (22 June 2001), Exhibit A-15, at 53. (Exhibit
CDA-101).
164 Weyerhaeuser US Section A Questionnaire Response (22 June 2001), Exhibit A-15, at 53 (Exhibit
CDA-101).

164. The second statement was not made in the context of the hardboard siding claim that is at
issue in this case. Rather, the statement cited to by the United States relates to pending and threatened
environmental litigation.
165 Further, this statement does not re late to whether a particular expense
should be classified as a general or administrative expe nse consistent with Article 2.2.2. Article 2.2.2
requires that any expense to be included as a selling, general or administrative expense must relate to
the production and sale of the like product. The statement neither attributes the expenses to any
particular portion of Weyerhaeuser’s business nor the business as a whole. It simply acknowledges
that the company incurred certain costs.
G.5 Calculation By-Product Revenue Offset – West Fraser

To Canada:

64. Please comment on the statement contained in para. 223 of the US First Written
Submission:

“Canada claims Commerce should have relied upon sales by other respondents
to non-affiliates in B.C. Canada’s argument that Commerce should have
preferred one source of evidence over another effectively is an improper request
for this Panel to find facts de novo . Moreover, the evidentiary preference
expressed directly contravenes Article 2. 2.1.1, which instructs investigating
authorities to rely on an exporter’ s or producer’s records where they are
available. In this case, such records were available.” (footnote omitted)
165. Contrary to this US assertion, Canada is not asking the panel to find that Commerce should
have preferred one source of evidence on BC market prices ( i.e., other respondents’ woodchip sales to
unaffiliated parties) over another source of evidence on BC market price ( i.e., West Fraser’s tiny
quantity of woodchip sales to unaffiliated parti es). Rather, Canada argues that Commerce was
required to consider all record evidence relevant to the issue of whether West Fraser’s affiliated
woodchip sales were made at inflated, non-market prices, including evidence on the prices charged by
other respondents in British Columbia for their sales to unaffiliated purchasers. That argument is
fully consistent with the finding of the panel in United States – Hot Rolled Steel that, in determining
whether an unbiased and objective investigating authority could have reached the conclusions at issue,
a panel must “consider whether all the evidence is considered, including facts which might detract
from the decision actually reached by the investigating authority.”
166
166. Moreover, the United States is incorrect in imp licitly suggesting that Article 2.2.1.1 sets out
an “evidentiary preference” that instructed it to use West Frase r’s own sales data to unaffiliated
parties as its exclusive evidence of British Columbia market prices, irrespective of other evidence of
market prices. Article 2.2.1.1 makes no distinc tion between affiliated a nd unaffiliated sales data.
Article 2.2.1.1 requires that the cost calculation reasonably reflect the costs associated with the
production and sale of the product at issue. With resp ect to by-product revenues, this requires that the
revenues recorded in an exporter’s books and records must reasonably reflect the market values of the
by-products so as not to overstate or understate th e costs associated with the main product. If the
revenues recorded in the books and records meet this requirement, the authority should use such
recorded revenues. In this case, the “evidentiary pr eference” expressed in Article 2.2.1.1 requires, in
fact, the use of West Fraser’s actual recorded figures for its chip sales to affiliated parties.

165 Weyerhaeuser Section A Questionnaire Response (25 June 2002), Exhibit A-15 (Audited
Financials), at 74 which addresses Weyerhaeuser’s separate litigation expenses (Exhibit CDA-101).
166 United States – Anti-Dumping Measures on Certain Hot-Rolled Steel Products from Japan, Report
of the Panel, WT/DS184/R, adopted 23 August 2001, at para 7.26.

65. In para. 224 of its First Written Submission, the US states:

"[c]ontrary to the arguments made by Canada, [footnote omitted] West Fraser
made no argument that the long-term co ntract by which one of its mills made
sales during the investigation period did not represent valid market prices, nor
did it make any argument about the arm’s length nature of the sales made from
its other mill. [footnote omitted] Thus, if the unaffiliated sales quantities [[ ]]
in B.C. were “too low” in the view of West Fraser, it never made that claim to
Commerce."
Could Canada confirm whether West Fraser did raise this claim to DOC, and if so, could
Canada please direct the Panel where in the record this evidence can be found?

167. The record shows that West Fraser did expr essly point out to Commerce that woodchip sales
made from its McBride sawmill (which constituted over 50 per cent of West Fraser’s total unaffiliated
sales in British Columbia) were not reflective of average market prices for the POI as a whole. This is
reflected in Commerce’s cost verification report for West Fraser which notes:
Company officials explained that the McBride mill had a long-term contract in effect
for chip sales when the mill was purchased and that all sales occurred during April
and May. They explained that the sales value of the chips increased in May 2000 and
that they were obligated to sell the chips at the lower contracted price.
167
168. West Fraser did not make specific arguments in its briefs before Commerce regarding chip
sales made by McBride or the tiny quantity of its sales to unaffiliated parties in British Columbia
because there was no reason to do so at that time.168
66. Please refer to para. 225 of the US First Written Submission. Please comment.

169. In its first submission, Canada observed that Commerce applied inconsistent benchmarks to
Canfor and West Fraser in determining whether th eir respective chip sales to unaffiliated parties were
made at market prices. In paragraph 225, the United States defends this action by arguing that
“[unaffiliated] sales in B.C. made by West Fraser were of its own product mix, and thus the best
evidence of the value of an o ffset in West Fraser’s process.”
169 In contrast, the United States notes
that the best evidence for Canfor was other comp anies’ arm’s length sales because Canfor did not
have any BC chip sales to unaffiliated parties.170
170. The United States creates a false, post hoc distinction. Commerce itself did not find that West
Fraser’s chip sales to unaffiliated parties provide d a better benchmark because they reflect West
Fraser’s “own product mix”. Like Canfor, West Fraser sold woodchips from its sawmills located
throughout British Columbia, and Commerce identifie d no evidence that West Fraser’s woodchips

167 DOC Verification Report on the Cost of Production and Constructed Value Data Submitted by West
Fraser Mills Ltd. (4 February 2002), at F.3, se cond paragraph (Exhibit CDA-110 – Contains Business
Confidential Information).
168 The limited volume of unaffiliated sales (1666 OD TS or less than the amount a large pulp mill
would use in a single day) was self-evident. The onus was on Commerce to evaluate the usability of the data
before it. Moreover, in its preliminary determination Commerce examined West Fras er’s woodchip sales on a
country-wide basis. For the final determination, West Fraser argued that Commerce should base its
determination on the information regarding sales on a mill - specific “regional” basis. Commerce provided West
Fraser with no indication that it was considering adopting the alternative, province-specific methodology in its
Final Determination. Certainly, West Fraser was not required to guess that Commerce might adopt such a
methodology, and then make arguments that would only be relevant in that eventuality.
169 US First Written Submission, at para. 225.
170 Ibid., at para. 226.

somehow differed from those of Canfor or any other producer. Indeed, the record shows that

171 Nor, for that matter, is there any evidence that the unaffiliated sales made by West Fraser’s
McBride and Pacific Inland Resources mills were somehow more reflective of the woodchips
produced and sold by other West Fraser mills in ot her parts of British Columbia, as the United States
alleges. Rather, Commerce’s decision to treat West Fraser differently than Canfor was based solely
on its blind adherence to its methodology of exclusiv ely using West Fraser’s own unaffiliated sales as
its benchmark for market price – a methodology that, in this case, is inconsistent with an unbiased and
objective examination of the record evidence as a whole.
171. Indeed, the contrast with Canfor underscores Co mmerce’s failure to treat West Fraser in an
unbiased and objective manner. Both West Fraser and Canfor had sawmills located throughout the
province of British Columbia. Both West Fraser and Canfor sold the overwhelming majority (100 per
cent in the case of Canfor, 99.7 per cent for West Fr aser) of the woodchips produced at their BC mills
to affiliated pulp and paper mills. 172 And for both companies the relevant enquiry Commerce was
required to perform was the same: whether their BC sales of woodchips to affiliated parties were
made at market prices. Notwithstanding these similarities, Commerce applied to West Fraser a
significantly lower and less adva ntageous benchmark for what c onstituted “market prices” in British
Columbia, based solely on the fact that West Fraser sold 1,666 tons of woodchips – approximately the
amount used by a large pulp mill in a single day – to unaffiliated parties in British Columbia.
Specifically, whereas Commerce used a benchmark of a pproximately [[ ]] as the market price in
reviewing Canfor’s affiliated woodchip sales in British Columbia, Commerce applied a benchmark of
just [[ ]] as the market price in reviewing West Fraser’s affiliated woodchip sales in British
Columbia.173 Canada submits that an unbiased and objectiv e finder of fact could not conclude that
this seemingly insignificant distinction justifies Commerce’s fundamentally dissimilar treatment of
West Fraser. Commerce’s finding reduced West Fraser ’s by-product offset by [[ ]] (CDA-108
Attachment 1 (“Difference”)).
172. Finally, in footnotes 267 and 268 to paragraph 225 of its First Written Submission , the
United States discusses West Fraser’s and Canfor’s woodchip sales in Alberta, as well as British
Columbia, in asserting that “Commerce carefully di stinguished the market situation” of these two
companies. However, whether West Fraser’s sales operations in Alberta were, or were not, similar to
those of Canfor is irrelevant. The issue Canada has challenged is Commerce’s dissimilar treatment of
West Fraser’s woodchip sales from mills in British Columbia, not Alberta.
67. Please refer to paras. 226-227 and note 270 to the US First Written Submission . Please
comment.

173. In its First Submission, Canada showed th at Commerce revalued (on the basis of the
unaffiliated sales price) certain chip sales made by West Fraser to an affiliated customer, Quesnel
River Pulp (“QRP”), even though it specifically veri fied that those sales had been made at market
prices, based on a comparison with the prices QR P paid to an unaffiliated chip supplier. In
paragraph 226, the United States characterizes Canada’s argument as asking the panel to find that data
from QRP was “more relevant,” and it asserts that such data is not “a better indication of the market
value of West Fraser’s wood chips than West Fr aser’s own unaffiliated wood chip sales used by

171 See West Fraser Cost Verification Exhibit C5, WF-Cost-007520-21 showing West Fraser’s
woodchip swaps with other respondents, including Canfor) (Exhibit CDA-150 – Contains Business
Confidential Information).
172 See DOC Memorandum on Canfor’s Cost of Production and Constructed Value Calculation
Adjustments for the Final Determination (21 March 2002), Attachment 1 (Exhibit CDA-109 – Contains
Business Confidential Information).
173 Ibid. Note that these average prices are calculated from the data in Attachment 1 in Exhibit CDA –
109: for West Fraser, [[ ]] and for Canfor, using total sales [[ ]]. Contains Business Confidential
Information.

Commerce.”174 In a footnote, the United States also st ates that such “additional information” was
“superfluous” because “West Fraser’s BC chip sales to affiliated parties had already failed
Commerce’s primary test.”
175
174. The United States’ argument misses the point. Canada did not claim that QRP data were
“more relevant.” Rather, Canada argues that Commerce unreasonably disregarded chip sales made by
West Fraser’s large sawmill in Quesnel, BC (Wes t Fraser Mills) to QRP, even though Commerce
itself specifically recognized that QRP paid West Fraser market prices for those sales. 176 T h e U S
argument does not address this basic inconsistency. Nor is it correct to say that such evidence is
“superfluous,” even with respect to affiliated sales made by other West Fraser sawmills in British
Columbia. At the very least, this evidence – wh ich the United States does not deny weighs against
Commerce’s findings – must be considered in determining whether Commerce’s finding was based on
an unbiased and objective evaluation of the record evidence as a whole.
175. Finally, the United States claims that, even if such information is relevant, West Fraser failed
to submit “the entirety of its affiliated pulp mill purchases on the record.”177 During verification West
Fraser provided Commerce with information on chip purchases by QRP to illustrate that if West
Fraser’s highest priced sales to affiliated parties were not made at inflated prices, then its lower priced
sales similarly were not inflated. Had Commerce considered this inform ation inadequate, it was
Commerce’s responsibility to notify West Fraser of this fact. Commerce, however, did just the
opposite: it requested samples of affiliated and unaff iliated sales made by West Fraser’s Blue Ridge
(Alberta) and Pacific Inland (BC) mills, verified th at information, and then represented that no further
information was necessary on this point. Indeed , Commerce ended cost verification one day earlier
than scheduled because it required no further information from West Fraser, and its verification report
does not indicate that the information it received with respect to the wood chip issue was in any way
inadequate. It was not until Comme rce issued its final determinati on that West Fraser became aware
that the information it provided was alleged to be “selective” and “inadequate”.
176. In light of these facts, the United States’ attempt in paragraph 229 to make it appear that West
Fraser failed to provide Commerce with all the information it required should be rejected.
G.6 Calculation of By-Product Revenues – Tembec

To Canada:

69. It is stated in para. 258 of Canada's First Written Submission that:

"DOC relied on internal transfer prices to calculate the by-product revenue
offset for Tembec, notwithstanding ample evidence on the record that
established that these internal prices are set significantly below market prices."
Please state in detail which evidence was on th e record showing that internal prices were set
significantly below market prices. Refer to sp ecific portions of documents on the record where
that evidence was contained.

177. Contrary to US assertions, Tembec did provide Commerce with record evidence that
Tembec’s internal woodchip prices were set only for internal accounting purposes. Also, contrary to

174 US First Written Submission, at para. 226.
175 Ibid., at para. 227 n. 274.
176 IDM, Comment 11, at 61 (CDA-2); DOC Verification Report on the Cost of Production and
Constructed Value Data Submitted by West Fraser Mills Ltd. (4 February 2002), at 23-24 (Exhibit CDA-110 –
Contains Business Confidential Information).
177 USFirst Written Submission, at para. 227 & n.274.

US assertions, Commerce reviewed the data for each of Tembec’s unaffiliated party sales in British
Columbia (which are the basis of this claim), and verifi ed that those customers paid [[ ]] more than
the internal transfer prices.
178 The evidence is as follows:
• The Cost Verification Report at page 25 179 and Exhibit 14 to that Report displays the
huge price differential between market pr ices for woodchips and Tembec’s internal
transfer price. Exhibit 14 to the Cost Verification Report 180 in its entirety
demonstrates that the internal prices were set well below market prices, but the point
is most evident on pages 2 and 9, which summarizes the information in the
underlying source documents that constitute th e bulk of the exhibit. Page 2 is a copy
included in the verification exhibits of a by-product revenue calculation worksheet
from Tembec’s questionnaire response. The third line of the worksheet reports the
total quantity of woodchips that each of Tembec’s British Columbia sawmills
transferred to affiliated parties. The total for all three mills was [[ ]] BDMT (bone
dried metric tons). The sixth line reports the sales value based on the internally set
transfer prices (as noted in the handwriti ng of the Commerce verifier) which for the
three mills combined equalled $[[ ]]. Dividing the sixth line by the third line
equals the transfer price of $[[ ]] per BDMT. The first two lines on page 9 report
the total sales value and quantity for Tembec’s woodchip sales in British Columbia to
unaffiliated parties and the source of that in formation. The handwriting on this page
is that of the Commerce verifier and the letter “I” on these two lines indicates that the
verifier traced the amounts reported in these lines to the original invoices. The figure
of $[[ ]] per BDMT reported in the third line is the per unit unaffiliated sales price
derived by dividing the first line by the second line.
181

• This price difference had been explained as arising for internal accounting purposes
in Tembec’s verified Questionnaire Res ponse, dated 23 July 2001, at D-24 where
Tembec stated “[[ ]]”182

• In its Second Supplemental Questionnaire Response, dated 16 November 2001 at SD-
20 through SD-23 Tembec again explained “[[ ]].”183

• Tembec’s noted in its case brief before the agency, dated 12 February 2002, that “In
the Preliminary Determination, the Depart ment correctly recognized that Tembec's
intra-company transfers of chips did not reflect market prices.”184

178 See Tembec Cost Verification Report, at 25 (Exhibit CDA-112 – Contains Business Confidential
Information) and DOC Verification Report on the Cost of Production and Constructed Value Data Submitted by
Tembec Inc. (29 January 2002) at Exhibit 14, at 8 (Exhibit CDA-114 – Contains Business Confidential
Information).
179 Ibid. (Exhibit CDA-112 – Contains Business Confidential Information).
180 DOC Verification Report on the Cost of Production and Constructed Value Data Submitted by
Tembec Inc. (29 January 2002), at Exhibit 14 (Exhibit CDA-114 – Contains Business Confidential
Information).
181 Ibid., at 9. (Exhibit CDA-114)
182 Tembec Section D Questionnaire Response (23 July 2001), at D-24. (Exhibit CDA-151 – Contains
Business Confidential Information).
183 Tembec Second Section D Supplemental Questionnaire Response (15 November 2001), at SD-20 –
SD-23. (Exhibit CDA-152 – Contains Business Confidential Information).
184 Tembec Rebuttal Brief (19 February 2002), at 19. (Exhibit CDA-153 – Contains Business
Confidential Information).

70. Please explain the statement cont ained in para. 261 of Canada's First Written Submission
that:

"Article 2.2.1.1 of the Anti-Dumping Agreement reflects the requirement that
market price is the appropriate benc hmark for valuing by-product revenue
offsets."
178. Article 2.2.1.1 specifies that “costs shall normally be calculated on the basis of records kept
by the exporter or producer under investigation, pr ovided that such records are in accordance with the
generally accepted accounting princi ples of the exporting country and reasonably reflect the costs
associated with the production and sale of the product under consideration.” (emphasis added) There
is no dispute that Commerce uses by-product revenues in its cost calculations. Tembec’s records are
maintained according to GAAP, but by-product revenues on Tembec’s books do not reasonably
reflect market prices for woodchips because they are internal transfer prices artificially set for
accounting purposes. Under Article 2.2.1.1, unl ess the by-product offset reasonably reflects the
market value for the by-products at issue, the calcul ation of the cost of the main product (in this case,
softwood lumber) would be either overstated or unde rstated. Thus, when the market value of by-
product sales is not reflected in a company’s ow n books and records, as was the case for Tembec,
Article 2.2.1.1 requires an alternative valuation. The use of Tembec’s internal transfer prices in
calculating lumber costs violates Article 2.2.1.1 b ecause of the requirement that the cost calculation
must reasonably reflect the costs associated with the production and sale of the product under
consideration.
71. Please comment on the statements contained in para. 235 of its First Written Submission:

"Canada argues that Commerce should have valued the cost of wood chips
transferred to Tembec’s pulp mills using the [[ ]] prices for wood chips sold to
unaffiliated parties during the period of investigation (“POI”). [footnote
excluded] Canada contends that Tembec’s inter-divisional wood chip sales were
“set arbitrarily to provide an internal preference.” [footnote excluded] However,
no evidence in the record before Commerce supports that contention."
179. Please see Canada’s answer to Question 69 a bove, which references the evidence of record
demonstrating that Tembec’s inter-divisional wood chip sales were set arbitrarily to provide an
internal preference for pulp and paper operations. All the Questionnaire Responses; the Verification
Report exhibits; and the Tembec case brief were before Commerce and on the record.
72. Please comment on the statements contained in paras. 241-242 and footnote 295 to the
US First Written Submission:

"Canada maintains that Commerce should have used data other than data from
Tembec’s own books and records. However, that would have been proper under
Article 2.2.1.1 only if Tembec’s books and records did not reasonably reflect the
costs associated with wood chip production.
295
The simple fact that Tembec sold wood chips to no n-affiliates for prices that [[ ]] the internal
transfer prices for wood chips transferred between Tembec divisions, does not mean that the
internal transfer price in this case was un reasonable as a surrogate for Tembec’s cost. The
question is whether the internal transfer price be tween divisions reasonably reflected the cost of
producing the transferred wood chips, not whether such transactions occurred at market prices.

determination. This alleged fact was not
 verified by Commerce, it appears nowhere in the Cost
Verification Report, it is directly contrary to the Cost Calculation Memorandum (which
concluded that “the company’s internal transfer prices did not give preferential treatment to
the sawmills”), see Commerce Memo randum on Tembec Cost Calculation Adjustments for the
Final Determination (21 March 2002), at 2, Exhi bit US-58, and is cont rary to Commerce’s
ultimate conclusion." (footnote excluded)

180. First, the US misstates the “question” at issue. As explained, by-products are an unavoidable
product from the production of lumber and do not ha ve independent costs (or profits). Rather, the
by-product revenue offset must reasonably reflect the market value for the by-products at issue;
otherwise the calculation of the cost of the main product (in this case, softwood lumber) would be
either overstated or understated.
181. Second, please see Canada’s answers to Questi ons 69 and 71 above for evidence regarding
the verification of Tembec’s internal transfer prices. The record evidence demonstrates that Tembec’s
internal transfer prices for woodchips did not reflect market prices, and therefore would not lead to a
calculation that reasonably reflects the true costs of producing and selling lumber if used to establish
Tembec’s by-product offset. The record evidence also is that Temb ec sold woodchips to unaffiliated
parties for market prices. The reco rd includes both the internal transf er prices and the market prices.
Despite a full verification of precisely this issu e, Commerce excluded from its report any narrative on
the subject, and now attempts to use that deliberate omission to argue that the record does not contain
the evidence. The record, and the Verification Repor t itself, demonstrate the contrary. The record
includes Tembec’s Questionnaire Responses, which expr essly, in the narrative, addresses the issue.
The Questionnaire Responses were fully verified. The Cost Verification Report, in Exhibit 14,
contains the data that show the discrepancy betw een internal and market prices. And Tembec’s case
brief before Commerce, also a record document, shows and explains the differences. Commerce’s
willful exclusion of the facts from its narrative in its Verification Report cannot overcome the rest of
the record evidence that Commerce is trying so hard to avoid..
73. Please comment on the statements contained in para. 243 of the US First Written
Submission:

"[i]n its analysis, Commerce correctly took into account the fact that the price
Tembec paid for wood chips to non-affiliated suppliers included an amount for
profit. After taking into consideration the critical factor of the amount of profit,
if the divisional transfer prices were extremely low or extremely high in
comparison to the prices paid by una ffiliated purchasers, then Commerce might
determine that the value assigned to th e internally transferred wood chips was
unreasonable. In this case, however, an adjustment for profit led to the
conclusion that prices for inter-divisional transfers [[ ]] from prices to non-
affiliates. In fact, once Commerce took into account profit and the varying
quality and types of wood chips, it determined “no preferential prices” existed.
Accordingly, Commerce concluded that inter-divisional sales as reflected in
Tembec’s books and records reasonably reflected costs of wood chip
production."
182. The [[ ]] difference between internal prices and market prices cannot be attributed to profit
as the United States purports. By-products, by definition, have neither profits nor costs. In this case,
Commerce made no findings about profits.
185 The Final Determination includes no evidence of any
adjustment for profit in relation to the price di fferential between recorded woodchip sales. This post
hoc rationale must therefore be rejected. In addition, Commerce’s entire discussion of by-product
issues in its final determination is contained in Comment 11 of the Issues and Decision Memorandum.

185 See IDM, Comment 11, at 60-61. (Exhibit CDA-2)

Nowhere in that discussion does the word “profit” appear, nor is there any mention of any adjustment
for profit, nor any taking account of profit. Nowh ere in the calculations for Tembec is there any
analysis of profit in connection with by-product s. Therefore, this rationale does not justify
Commerce’s determination that Tembec’s internal transfer prices did indeed represent market value.
G.7 Futures Contracts

To Canada:

75. Explain, with a numerical example, the basi s of Canada’s claim argument with respect
to the by-product revenue offset.

183. Canada’s claim is as follows. A by-product is a product that is produced unavoidably through
the production of one or more main or principal pr oducts. In this case, woodchips are a by-products
of the production of softwood lumber. Woodchips are produced by sawmills and sold to pulp mills
for making such things as paper. Because woodchips are produced unavoidably, they have no costs
and respondents’ records therefore, only reflect revenues and prices at which woodchips were sold.
184. Commerce, in accordance with recognized accounting principles, deducts the revenues that a
respondent receives from its sales of a by-product from the costs of producing the main product.
Therefore, woodchip by-product revenues will be de ducted from respondents’ costs of producing and
selling lumber.
185. By way of example, assume that it costs a lumber company $150 in both direct and indirect
costs to produce 1,000 board feet of lumber. Also assume that the production of that 1,000 board feet
of lumber also generated small qua ntities of woodchip by-products with a value of $10. To calculate
that company’s cost of production, Commerce will “offset” (i.e., deduct) the $10 in revenues received
from the sale of those by-products from the $150 cost of producing the 1,000 board feet of lumber,
thus resulting in a cost of production for the lumber of $140.
186. When dealing with sales of woodchips between affiliated or related parties, Commerce will
evaluate whether woodchip revenues and prices r ecorded on a respondents’ books are accurate and
not arbitrarily set at inflated prices to improperly reduce production costs. Commerce makes this
determination by comparing a respondents’ affiliated sales prices to its unaffiliated sales prices. If
affiliated prices are higher than unaffiliated prices, the affiliated prices are considered inflated and
Commerce will re-calculate all affiliated sales transaction revenues at the unaffiliated price.
187. By way of example, for Tembec’s sales from its sawmills in British Columbia, the data was
as follows. As stated in Question 69, the transfer price for woodchips to affiliated parties was [[ ]].
The sales price to unaffiliated parties was [[ ]] . This means that in Te mbec’s case, its sales prices
to affiliated parties were not at market prices because they were too low. The United States asserts
that this [[ ]] difference in price was attr ibutable to “profit” (something Commerce never found in
the investigation) and that Tembec’ s affiliated sales were in fact at market value. Woodchips can
have no profit since they have no costs. Theref ore, the US justification is incorrect. Tembec’s
recorded revenues should have been recalculated because they could not be used to calculate
Tembec’s costs for producing and selling lumber.
76. By emphasizing the terms "and any other differences which are also demonstrated to
affect price comparability." in para. 271 of its First Written Submission, does Canada argue that
the requested adjustment should have been granted based on that language in Article 2.4? To
what extent did Slocan demonstrate in the course of the investigation that the alleged difference
affected comparability? Please provide references to documents on the record (indicate page,
paragraph and sentence) where Slocan proved that the alleged difference affected price
comparability.

188. Article 2.4 of the Anti-Dumping Agreement provides that “[d]ue allowance shall be made in
each case, on its merits, for differences which aff ect price comparability, including differences in
conditions and terms of sa le, taxation, levels of trade, quantiti es, physical characteristics, and any
other differences which are also demonstrated to affect price comparability.” Slocan’s futures
hedging activity was a condition of sale unique to the US market that affected prices of all sales in
that market. Therefore, the revenues (or losses) earned from that activity constituted a difference
between the Canadian and US markets affecting pr ice comparability. Article 2.4 mandates that in
such circumstances, an administering authority must make an adjustment. As Commerce itself noted
in its final determination, Slocan’s futures contracts were related to its core business of selling lumber.
In particular, its futures contracts related directly to its export sales of lumber to the US market.
189. As a practical matter, a respondent in a US anti-dumping investigation is not required to
separately establish the effect of price compar ability for every potential adjustment. Although
Article 2.4 requires the United States to adjust for all differences affecting price comparability,
Commerce does not normally make a separate finding regarding price comparability for every
adjustment. It is not among the criteria that Commerce uses, so one would not expect to find a
discussion of the issue on the record of an investiga tion. For example, it is universally acknowledged
that Commerce should, and does, adjust for the cost of freight. Freight costs are usually very different
for home market and US sales, and Commerce corrects for that difference by subtracting freight from
the price to the customer to obtain comparable ex-factory prices. At no point, however, does
Commerce expressly analyze the extent to which fre ight differences affect price comparability.
Neither does it require respondents to prove anew in every investigation that there is an effect on
price. Commerce simply makes the adjustment. Its obvious effect on price is accepted by Commerce
without individual, independent demonstration. No te that in this investigation, Commerce never
stated that futures contract revenues did not aff ect price comparability between export and domestic
sales. Rather, its rationale for refusing the adjust ment was that futures contract revenues were not
“sales” contemplated by Article 2.4.
190. That said, there is evidence in the record demonstrating that Slocan’s hedging activity
affected one market and not the other, creating a difference in conditions of sale between the two
markets. All ex pit settlements appeared on Slocan’s datab ase of US sales in the investigation.
186
They were identified as a separate sales channel in th e CHANNELU database field. In contrast, there
was no ex pit settlement channel of sale in the home market database, because Slocan’s hedging
activity was in the United States only. 187 Commerce verified that the contents of these fields were
accurate, and there is no dispute as to the amount of the revenues earned or the market in which they
occurred.188
191. By proving the existence and amount of the revenues, and by demonstrating that they
occurred in one market only, Slocan provided all of the proof necessary, and all that the United States
ever requires in an investigation, to show that a difference has affected price comparability.
77. The Panel notes the following st atement in para. 273 of Canada's First Written
Submission:

"[i]t was DOC that determined that this difference affected the comparability of
the two softwood lumber markets."

186 Slocan’s Sections B-D Questionnaire Response (24 July 2001), at C-12 to C-13, (Exhibit CDA-154
– Contains Business Confidential Information).
187 See Ibid., at B-14 (CHANNELH field).
188 DOC Verification Report on the Cost of Production and Constructed Value Data Submitted by
Slocan Forest Products Ltd. (1 February 2002), at 26 (Exhibit CDA-118).

The Panel also notes the following st atement contained in note 313 to the US First Written
Submission:

"Canada is incorrect that the “DOC made the factual determination that futures
revenues affected lumber prices. . . .” Canada First Written Submission, para.
274. This is nowhere stated or implied in Commerce’s findings. As noted above,
Commerce stated that “Slocan’s lumber futures hedging activity is related to its
core business of selling lumber,” but nowhere did Commerce determine that
futures revenue affected prices. Final Determination , Comment 21 (Exhibit
CDA-2)."
Could Canada please point to the relevant docume nt on the record (indicate page, paragraph
and sentence) where that determination is made?

192. In the Issues and Decision Memorandum acco mpanying its Final Determination, Commerce
stated “we agree that Slocan’s lumber futures hedging activity is re lated to its core business of selling
lumber[.]”189 The Memorandum was based on Commerce’s factual findings at verification, as
reported in its verification reports.190 The record evidence before Commerce was as follows:
• Commerce had before it an explanation of the purpose and effect of hedging
contracts.191

• At verification, Commerce confirmed that Slocan was a “hedger” rather than a
“speculator” in the lumber market. (The CME requires each participant to identify
itself as one or the other). 192 Revenue earned by a speculator might or might not
affect prices in the market, but futures revenue earned by a hedger affects prices by
definition. The sole purpose of a hedging contr act is to shield against fluctuations in
price. Hedges have a stabilizing effect on the market by bringing a measure of
predictability to an otherwise volatile commodity market.

• During the open life of the contract, Slocan monitors US market conditions to
determine whether it should settle the contract ex pit and thereby ship, or let the
contract go to term and then ship, or li quidate (sell) the contract and not ship.
193 The
contracts that happen to be sold rather th an fulfilled by delivery of physical goods are
not a separate activity at all, but are an integral part of Slocan’s selling activities. The
decision to sell the contract or deliver the goods depends on the current price trends in
the market. The hedging company has great er flexibility to respond to changes in
price trends because it knows that a certain percentage of its sales (those through the
CME) will achieve a certain minimum income (either by completing delivery at the
agreed price or by liquidating the contract for an agreed price). The prices that it
offers on other sales are thus different than they would have been absent the safety
net that hedging contracts provide, Thus, hedging activity, by definition, affects
prices for all sales in the market, not only those made through the CME.

193. Given the purpose and definition of hedging ac tivity, a factual determination that “Slocan’s
lumber futures hedging activity is related to its core business of selling lumber” is a determination that

189 IDM, Comment 21, at 94. (Exhibit CDA-2)
190 Cost Verification Report at 15, Exhibit CDA-155; Memorandum from David Layton et al. to Gary
Taverman, at 15 (28 Jan. 2002), (Sales Verification Report) (Exhibit CDA- 117).
191 Slocan Sales Verification Exhibit 21 Random Length--An Introductory Hedge Guide, at VE02362 to
VE02380 (Exhibit CDA-119 – Contains Business Confidential Information).
192 Ibid., at VE2381 to VE2384 (Exhibit CDA-119 – Contains Business Confidential Information).
193 Ibid.

“futures revenue affected prices.” That was the basi s for Canada’s statement at para. 273 of its First
Written Submission.
78. The Panel notes the following statement in para. 246 of the US First Written Submission:

"[DOC] found that revenues from futures contracts were recorded in Slocan’s
books as sales-type revenues, not as production revenues." (footnote excluded)
In the view of Canada, would not Slocan’s ow n treatment of these revenues contradict its
requests that those revenues be treated as “investment revenues”? Please explain.

194. At no point did Slocan suggest that the best way to treat its futures revenues was as
“investment revenues.” On the contrary, Slocan argued (and continues to argue before the NAFTA
dispute settlement panel), that its futures revenu es are properly treated as offsets to direct selling
expenses. This is consistent with the fact that revenues from futures contracts were recorded in
Slocan’s books as “sales-type revenues.”
195. It was Commerce, and not Slocan, that first s uggested that Slocan’s futures revenues were
more properly treated as “investment revenues” rather than as direct selling expenses. Specifically, in
its Analysis Memorandum for Slocan Forest Products, Ltd., Commerce stated that:
In the field DIRSELU2 in the US sales database, Slocan has reported the profit or
loss associated with sales made on the futures market. We conclude that this is an
investment revenue, and should not be treated as a sales specific deduction/addition.
As this is not a direct selling expense, we have disallowed this price adjustment and
have not included this field in our calculations.
194 (emphasis added)
196. In response, Slocan argued that if Commerce continued to refuse to treat the revenues as part
of direct selling expenses, then it should at least follow through on its decision to treat them as
“investment revenues” by applying them as an offset to financial expenses.195 This was an argument
“in the alternative” only, and in no way changed Sl ocan’s position that the best way to treat the
revenues was as an offset to direct selling expenses.
197. Before this Panel, Canada’s position is that while Commerce may have had the discretion to
determine whether to treat Slocan’s futures reve nues as direct selling expenses or as investment
revenues, it did not have the discretion to refuse to ma ke any adjustment at all. Furthermore, Slocan
did not have to “guess right” about how Commerce wanted to characterize the adjustment, before
Slocan could qualify for an adjustment. Slocan me t its only responsibility to bring the difference to
the attention of Commerce, and to provide it with the relevant data with which to make an adjustment.
Once Commerce determined that the futures revenu es were unique to the US market and that they
were hedging activity, which is designed to affect prices, all of the underlying facts required were
established, and Commerce was then bound by Article 2.4 of the Anti-Dumping Agreement to make
an adjustment.

194 DOC Analysis Memorandum for Slocan Forest Pr oducts Ltd. for the Preliminary Determination in
LTFV Investigation on Certain Softwood Lumber Products from Canada (30 October 2001), at para. 8 (Exhibit
CDA-116).
195 Slocan Case Brief, at 10-11, 73 (12 Feb. 2002). (Exhibit CDA-156– Contains Business Confidential
Information).

79. Please comment on the findings contained in para. 6.77 of the US – Stainless Steel panel
report:

“[i]n our view, the requirement to make due allowance for differences that affect
price comparability is intended to neutrali se differences in a transaction that an
exporter could be expected to have reflected in his pricing. A difference that
could not reasonably have been anticipa ted and thus taken into account by the
exporter when determining the price to be charged for the product in different
markets or to different customers is not a difference that affects the
comparability of prices within the meaning of Article 2.4.” (footnote omitted)
198. Commerce recognized that Slocan is an active player in the futures market.
196 As a hedger,
Slocan participated in the futures market in order to affect its net realized profits for overall sales
activities in the US market. Its hedging activity wa s a deliberate effort to affect pricing across the
entire US market. In its books and records, Slo can treated liquidated hedging contracts as lumber
sales, listing the CME as the customer. Hedging contract s that went to term or that were subject to ex
pit settlements were booked as lumber sales to the person taking delivery of the physical goods. With
each contract, Slocan had a choice as to who the customer would be – the CME or another buyer –
based on the price it could obtain from each when the contract came to term. When Slocan
determined the price to be charged to its US cu stomers, it did so knowing that it had the option of
protecting that price by (1) purchasing more or fewer hedging contracts, and (2) liquidating more or
fewer contracts rather than making physical deliver y of the goods. Slocan did not have these options
when determining the prices for its Canadian custom ers. This was a difference in market conditions
that was not merely anticipated, but was expressly d esigned, to affect pricing decisions in lumber
exports to the US market.
80. Please comment on the statements contained in para. 252 of the US First Written
Submission:

"[a] given expense or revenue item cannot be both a selling expense and a cost of
production item. It must be one or the other. This distinction is evident in
Article 2.2, which identifies as an alternative basis for normal value “cost of
production . . plus a reasonable amount for administrative, selling and general
costs and for profits.” The fact that Article 2.2 contemplates adding SG&A to
cost of production makes it clear that selling expense (part of SG&A) is not an
inherent element of cost of production."
199. Canada is not suggesting that Commerce should have treated Slocan’s lumber revenues as an
offset to both direct selling expenses and financial expen ses. Slocan never argued to Commerce that
it should adjust twice for futures revenues. That would be double-counting – an error as egregious as
Commerce’s “zero-counting” of the adjustment, as if it did not exist at all. Rather, as described
above, Slocan argued that the revenues should be treated as an offset to direct selling expenses. Only
when Commerce determined that they were mo re properly treated as “investment revenues” did
Slocan suggest that, in the alternative, Commerce should at least account for the revenues as offsets to
financial expenses.
197
200. The United States is correct that a given e xpense or revenue item cannot be both a selling
expense and a cost of production item. But it is inco rrect in its belief that a properly documented and

196 DOC Verification Report on the Cost of Production and Constructed Value Data Submitted by
Slocan Forest Products Ltd. (1 February 2002), at 26 (Exhibit CDA-118); DOC Memorandum on Verification
of the Sales Response of Slocan Forest Products Ltd (28 January 2002), at 7-8 (Exhibit CDA-117).
197 Slocan Case Brief, at 67-72 (12 Feb. 2002) (Exhibit CDA-156– Contains Business Confidential
Information).

verified expense or revenue item could be neither a selling expense nor a cost of production item.
Once Commerce determined that the futures revenues existed, that they were present in one market
only, and that they related to its core business of selling the product under investigation, it was
required by Article 2.4 to treat those revenues as eith er one or the other, and to make an adjustment
accordingly. It could not “zero-count” the adjustment, as if it did not exist.

ANNEX I
G.1 Common Questions on Various Company-Specific Issues
To Canada:
37. For each of the company-specific issues examined below, Cana da is requested to summarize the arguments raised by the relevant exporter in the
context of the investigation. References to documents on the record should be included (exhibit number, page and paragraph of the document).
Canada is also requested to summarize the reasons which were given by DOC, if any, when rejecting the exporter's request. To clarify and summarize
the issues, Canada may present the above data in tabular form.
1. Abitibi
Issue Summary of Argument Record Evidence Summary of DOC Reasons
Given for Rejection
Abitibi: Allocation
of Financial
Expenses
Beginning with its first cost questionnaire
response, Abitibi argu ed that Commerce’s
COGS allocation methodology, required by
the questionnaire, would result in an
unreasonable allocation of financial expense
as between its lumber products, on the one
hand, and its newsprint, paper, and pulp
products on the other, because “{o}ur
different business lines have vastly different
financing requirements, which differences are
not captured by an allocation of net financing
expenses based on cost of sales .” Abitibi
23 July 2001 Response at D-45 (emphasis
supplied) Exhibit CDA-83. See also Abitibi
10 Sept. 2001 Response at SD-35-36, Exhibit
CDA-84 (arguing for an asset based allocation
of financial expenses “due to the highly
divergent asset and financing requirements of
lumber operations on the one hand and pulp
and paper operations on the other.”); Abitibi
26 Sept. 2001 Letter at 12 Exhibit CDA-158
(“Where, as here, allocation of financing
expenses based on cost of sales is distortive,
because different product lines demonstrate
different capital requirements, per dollar of
sales or per dollar of cost of sales, the
Department must depart from its traditional
methodology because that allocation
Abitibi provided specific data to support its
arguments. With respect to production costs,
it noted that, “[f]or calendar year 2000,
lumber sales were CN$638 million, requiring
assets of CN$ 859 million, meaning that each
dollar of assets produced $0.74 in sales.
Newsprint and paper each required more than
50 per cent more assets. Newsprint required
assets of CN$7,276 million to produce
CN$3,438 million in sales, or a ratio of 0.47.
Value-added paper and pulp required assets of
CN$3,120 million to produce sales of
CN$1,601 million, for a ratio of 0.51. The
asset and thus financing needs of lumber is
significantly less than that of pulp, value-
added papers, and newsprint. Abitibi
23 July 2001 Response at D-45 Exhibit CDA-
83.
With respect to sales, Abitibi noted that its
“standard terms of sale for lumber are [[
 .]] For North American newsprint, paper,
and pulp, standard terms of sale are [[
 .]] In terms of outstanding accounts
receivable, the average number of days
outstanding for past due receivables in lumber
as of March 2001 was [[ ]] days. For pulp
the corresponding figure was [[ ]] days. For
value added papers and newsprint, [[ ]]
On 10 August 2001 , Commerce issued a
supplemental cost questionnaire to Abitibi,
which did not question Abitibi’s analysis, or
the evidence it offered with respect to the
allocation methodology for financial
expenses. Commerce also did not seek
additional evidence relating to the issue of the
proper allocation of financial expenses.
Without explanation, Commerce directed
Abitibi to revise its allocation so as to use
Commerce’s standard methodology.
Commerce 10 August 2001 Supplemental
Section D Questionnaire to Abitibi, Question
41 Exhibit CDA-92.
Commerce used its COGS methodology for
Abitibi in its preliminary determination. No
reasons were given. See Memorandum from
LaVonne Jackson to Neal Halper, Director,
office of Accounting, Re: Cost of Production
and Constructed value Calculation
Adjustments for the Preliminary Results
(30 Oct. 2001) at 2 and Attachment 2 Exhibit
CDA-89.
Commerce did not depart from its COGS
allocation methodology in the final
determination. Commerce effectively
acknowledged that its methodology was not
selected based on the evidence presented in

Page A-74 Issue Summary of Argument Record Evidence Summary of DOC Reasons
Given for Rejection
methodology is unreasonable.”); Abitibi
12 Feb. 2002 Case Brief to Commerce, at 50-
55, Exhibit CDA-81 (“under any measure, the
capital requirements of pulp and paper
operations are substantially greater than those
of lumber operations. The Department’s
COGS methodology unfairly assumes that
each dollar of cost of these different
operations bears the same financial expense,
which is demonstrably untrue for Abitibi.”)
days. Plainly, by any measure, the financing
needs of these different products are not
proportionate to cost of sales, and an
allocation based on cost of sales is highly
distortive.” Abitibi 23 July 2001 Response at
D-45 Exhibit CDA-83.
In its Case Brief, Abitibi provided a table
summarizing the record data. See Abitibi’s
12 Feb. 2002 Case Brief at 54 Exhibit CDA-
81.
the case, but rather reflected its “established
practice” of applying a uniform, “consistent
and predictable” methodology in all cases.
Commerce Final Determination, Issues and
Decision Memorandum, at Comment 15
Exhibit CDA-2.
 Abitibi proposed an alternative to
Commerce’s COGS allocation methodology.
Using actual business segment data contained
in its audited financial statements, Abitibi
suggested that Commer ce first allocate its
total financial expense among its different
business segments in proportion to the total
assets used by that business segment. See
Abitibi 23 July 2001 Response at D-44,
Exhibit CDA-83. Once a financial expense
for lumber was determined in this fashion,
Abitibi agreed that it would be appropriate to
allocate this expense among the different,
individual lumber products it produced and
sold in proportion to cost of sales, as different
lumber products are produced and sold using
basically the same assets.
Abitibi also argued that COGS undervalues
capital assets. It contended that certain capital
assets are non-depreciable, and that, in any
event, the depreciation expense does not
reflect the value of the asset that must be
financed. Abitibi also pointed out that
“{u}nder the Department’s traditional
methodology, roughly 13.6 per cent of total
financing costs will be assigned to lumber,
notwithstanding the fact that lumber requires
only 7.6 per cent of Abitibi’s assets, and
accounts for only 10 .6 per cent of its
depreciation expense. {T}he fact that
depreciation is included in cost of sales does
not remove or materially mitigate the
Abitibi calculated its financial expenses for
lumber on this basis, and responded to
Commerce’s cost questionnaire with full data
and supporting worksheets showing its asset-
based allocation methodology. See Abitibi
23 July 2001 Response at Annex D.6 Exhibit
CDA-83.
See Abitibi’s 12 Feb. 2002 Case Brief at 54
(table summarizing the record data) Exhibit
CDA-81.
In its Preliminary Determination, Commerce
simply ignored Abitibi’s submitted
methodology and data without comment. See
Memorandum from LaVonne Jackson to Neal
Halper, Director, Office of Accounting, Re:
Cost of Production and Constructed value
Calculation Adjustments for the Preliminary
Results (30 Oct. 2001) at 2 and Attachment 2
Exhibit CDA-89.
Rather than responding directly to Abitibi’s
arguments, Commerce mischaracterized or
ignored them in its Final Determination:
“Setting aside Abitibi’s assumptions that the
debt of the company only relates to assets
belonging to the pulp and paper activities, the
Department’s method addresses Abitibi’s
concern that those activities are more capital
intensive. Specifically, those activities would
have a higher depreciation expense on their
equipment and assets. Thus, when the
consolidated financial expense rate is applied
to the cost of manufacturing of lumber
products, less interest will be applied because
the total cost of manufacturing for lumber
products includes a lower depreciation
expense. Commerce Final Determination,
Issues and Decision Memorandum, at
Comment 15 at 77, Exhibit CDA-2.

Issue Summary of Argument Record Evidence Summary of DOC Reasons
Given for Rejection
distortion.” Abitibi’s 12 Feb. 2002 Case Brief
at 54-55 Exhibit CDA-81.

2. Tembec
Issue Summary of Argument Record Evidence
Summary of DOC Reasons
Given for Rejection
Tembec G&A Tembec stated in its initial questionnaire
response that it was reporting its G&A
expenses based on the expenses recorded on
the books of its Forest Products Group, which
Tembec noted is the business unit within
which all of the subject merchandise was
produced. The response identified the cost
categories covered by the G&A data, which
include, among many other cost categories,
administration fee – Head Office. Tembec’s
12 February 2002 case brief argued, based on
the US statutory provision that implements
Article 2.2.2, that G&A must be based on
“actual data pertaining to production and sales
of the foreign like product by the exporter in
question;” that the company-wide data did not
meet this requirement because most of
Tembec’s sales are in pulp, paper and
chemicals; but that the verified data from the
Forest Products Group would meet the legal
requirements.
Response of Tembec Inc to Section D of the
Department of Commerce Antidumping
Questionnaire, 23 July 2001 (Exhibit CDA-
159) at pages D-28, D-29 and D-32; Case
Brief of Tembec Inc., 12 February 2002
(Exhibit CDA-160) at pages 41-42.
“Because there is no definition in the Act of
what a G&A expense is or how the G&A
expense rate should be calculated, the
Department has developed a consistent and
predictable practice for calculating and
allocating G&A expenses. This consistent and
predictable method is to calculate the rate
based on the company-wide G&A costs . . “
Issues and Decision Memorandum (Exhibit
CDA-2) Comment 33, page 105.
Tembec By-product
Revenue Offset
Tembec stated in its initial questionnaire
response that [[

 ]] Tembec provided a
detailed explanation, accompanied by a sworn
declaration, worksheets and supporting
documentation, of its woodchip purchases and
sales, both internal transfers and market
transactions, in its 15 November 2001
Response of Tembec Inc to Section D of the
Department of Commerce Antidumping
Questionnaire, 23 July 2001 (Exhibit CDA-
151) at page D-24; Response of Tembec Inc to
the Second Section D Supplemental
Questionnaire, 15 November 2001 (Exhibit
CDA-152) at pages SD-20 to SD-23 and
Exhibits SD-42, SD-43, SD-44, SD-46;
Rebuttal Brief of Tembec Inc.,
19 February 2002 (Exhibit CDA-153) at
pages 15-22.
“Based on the comparison of Tembec's B.C.
sawmills' internally set transfer prices for
wood chips to the B.C. sawmills' chip sales to
unaffiliated purchasers, we concluded that the
internally set transf er prices are not
preferential. . . . For Tembec's Quebec and
Ontario wood chip sales . . . since we have
determined that its B.C. mills do not sell wood
chips to other Tembec divisions at preferential
prices, we deem it reasonable to conclude that
their Ontario and Quebec saw mills did not
receive preferential pri ces for its internally

Page A-76 Issue Summary of Argument Record Evidence
Summary of DOC Reasons
Given for Rejection
supplemental questionnaire response. Tembec
repeated its argument that the internal transfer
prices were set administratively without
reference to market prices. Tembec argued in
its 19 February 2002 rebuttal brief, in
response to the applicant’s argument that
affiliated party transactions should be used,
that DOC should calculate Tembec’s by-
product revenue offset based on the market
prices for woodchips as demonstrated during
verification.
transferred wood chips.” Issues and Decisions
Memorandum (Exhibit CDA-2), Comment 11,
page 61.

3. Weyerhaeuser

Issue Summary of Argument Record Evidence Summary of DOC Reasons
Given for Rejection
Weyerhaeuser
G&A
In Weyerhaeuser’s Case Brief to the DOC at
63-64, Exhibit CDA-98,Weyerhaeuser stated
that: “[the hardboard siding expense] is not
general in nature and it does not relate to the
operations of the company as a whole. As
disclosed in note 14 of Weyerhaeuser [US]’s
consolidated financial statement, this cost
relates to a proposed class action settlement of
the hardboard siding claims. [footnote to
Weyerhaeuser’s Section A response at Exhibit
A-15 omitted]. The settlement class consists
of all persons who own or owned structures in
the United States on which the [US]
company’s hardboard siding has been
installed. Thus, the facts on the record clearly
show that this cost is associated with a
specific product line of non-subject
merchandise and that the expense does not
relate to the operations of the company as a
Weyerhaeuser’s Case Brief to the DOC,
CDA-98 at 63-64; Weyerhaeuser’s Section A
response at Exhibit A-15, Exhibit CDA-101;
Weyerhaeuser’s Ministerial Error Allegation
letter dated 8 April 2002, CDA-100 at 6-7.
“while the costs relate to non-subject product .
. . the Department typically allocates business
charges of this nature over all products
because they do not relate to production
activity, but to the company as a whole.”
[IDM, Comment 48(b), CDA-2, page 134.

Issue Summary of Argument Record Evidence Summary of DOC Reasons
Given for Rejection
whole. Thus, it should not be included as a
component of corporate G&A.”1
In Weyerhaeuser’s Ministerial Error
Allegation letter dated 8 April 2002, at 6-7,
Exhibit CDA-100, Weyerhaeuser stated that:
“In revising Weyerhaeuser’s G&A ratio, the
Department included claims on hardboard
siding . . . as a component of parent G&A.
The Department has made a ministerial error
by including this amount. The Department
does not typically include this type of [[
 ]] expense as a component of COP
because it has no relationship to the
production or sale of the subject merchandise.
In this instance, Weyerhaeuser [US] agreed to
settle a suit by homeowners who claim that
the [US] company sold them faulty hardboard
siding. . . Clearly this expense does not relate
to the production and sale of Canadian
softwood lumber. This expense does not
relate to the administrative activities of the
company or corporation as a whole and is not
specific to the manufacture, design or sale of
the product under investigation.”

1 During the investigation, Weyerhaeuser ar gued that (1) the hardboard siding expense was not a general expense properly attribu ted to the production and sale of
Canadian softwood lumber, and (2) that the expense is properly characterized as a “cost of sale.” Either would have sufficed to correct the DOC’s classification of the expense as
a “general expense.” The DOC rejected both claims. In this WTO appeal, Canada has raised an issue with the DOC’s reasoning with respect to item (1) only.

4. West Fraser (by-product):
Issue Summary of Argument Record Evidence
Summary of DOC Reasons
Given for Rejection
West Fraser
By-product
Revenue
Offset
During cost verification, West Fraser
explained that Commerce’s preliminary
decision to compare th e average prices of
West Fraser’s sales to affiliated and
unaffiliated parties across all provinces (to
determine whether the former had been made
at market prices) was unreasonable, since the
price difference Commerce observed resulted
from timing differences and local supply and
demand factors, rather than inflated prices for
sales to affiliates. West Fraser therefore
discussed pricing for individual mills and, in
effect, urged that the “market” for purposes of
19 U.S.C. § 1677b(f)(2) be defined as the
geographic area close to individual pulp and
lumber mills.
To show that its affiliated sales were made at
market prices, West Fraser provided
Commerce with monthly data for the year
2000 for chip purchases made by one of its
affiliated pulp mills, QRP. This data showed
that the prices QRP paid to West Fraser (for
woodchip sales from “West Fraser Mills” in
Quesnel, BC) were consistent with the prices
QRP paid to its principal unaffiliated chip
supplier, [[ ]]. West Fraser’s choice
of QRP was appropriat e because (a) those
sales were West Fraser’s highest-priced sales
to affiliated purchasers and, therefore, were
the most likely to have been above market
prices, and (b) the volume of West Fraser’s
sales to QRP was significant.
To determine whether West Fraser’s affiliated
sales were made at market prices, Commerce
officials also requeste d sample information
regarding sales made to affiliated and
unaffiliated purchasers by West Fraser’s Blue
Ridge (AB) mill and by its Pacific Inland
(BC) mill, the two West Fraser lumber mills
that had sales to both affiliated and
DOC Verification Rept. at 23 (Exhibit CDA-
110); West Fraser Cost Verification Exhibit
C5, WF-Cost-007520-21 (CDA-150)
(showing chip swaps West Fraser engaged in
to minimize transportation costs). Contains
Business Confidential Information on both
pages.
West Fraser Cost Verification Exhibit C5,
WF-Cost-007548 (CDA-107) (providing
monthly comparisons); West Fraser’s
Appendix D-2 – Revised (CDA-106)

West Fraser Cost Verification Exhibit C5,
WF-Cost-007589-007593 (CDA-111) (further
documentation requested and verified by
Commerce)
West Fraser’s Case Br. of 12 Feb. 2002, at 46-
48 (US Exh. 55); West Fraser Rebuttal Br. of
19 Feb. 2002, at 19-21 (US Exh. 54).
While it acknowledged that the documentation
West Fraser provided at verification showed that
QRP paid similar prices to West Fraser as to an
unaffiliated party for purchases of woodchips,
Commerce stated that th ese comparisons “were
selectively provided . . . and not based on a
sample chosen by the Department.” IDM,
Comment 11 at 61 (CDA-2). Commerce also
stated that “[t]hese comp arisons represented only
a portion of the total wood chip purchases by . . .
West Fraser’s pulp mills and there is no record
evidence to determine what the results might be if
all mills were included.” Id. Commerce made
these findings despite the fact that its verification
report for West Fraser did not list woodchip sales
to affiliates among the issues that “will require
further consideration.” DOC Verification Rept.
at 2 (Exhibit CDA-110). Commerce’s decision
memorandum also did not address the further
evidence that Commerce specifically requested
and verified on woodchip sales made by West
Fraser’s Blue Ridge and Pacific Inland sawmills.
Instead of basing its decision on the mill-specific
information reviewed at verification, Commerce
adopted a new methodology in which it compared
the average prices of West Fraser’s affiliated and
unaffiliated woodchip sales on a province-by-
province basis to determine whether the former
had been made at market prices. See id. at 60.

Issue Summary of Argument Record Evidence
Summary of DOC Reasons
Given for Rejection
unaffiliated purchasers. After verifying that
additional information, the Commerce
officials neither requested any further
information on West Fraser’s affiliated
woodchip sales, nor indicated that the
information provided was inadequate.
Consistent with these facts, in its briefs before
Commerce West Fraser argued that the mill-
specific information that had been verified by
Commerce showed that West Fraser’s
woodchip sales to affiliated parties had in fact
been made at market prices.
 Immediately after Commerce issued its Final
Determination, in which it adopted a
province-by-province methodology for the
first time, West Fraser submitted a letter to
Commerce arguing that its oversight in using
West Fraser’s de minimis volume of
unaffiliated woodchip sales in British
Columbia as its exclusive benchmark for BC
market prices constituted a ministerial error.
Letter from West Fraser to DOC of 04/09/02
(CDA-161). Contains Business Confidential
Information on pages 4-5.
Commerce rejected West Fraser’s ministerial
error claim, stating that “[t]he adjustment made to
West Fraser’s by-product revenue is clearly an
intentional methodological choice made by the
Department” and, thus, not a ministerial error.
See DOC Memorandum re Ministerial Error
Allegations (25 Apr. 2002) at 17 (CDA-162).

5. Slocan
Issue Summary of Argument Record Evidence
Summary of DOC Reasons
Given for Rejection
Slocan futures
revenue
Slocan traded lumber futures in the US
market. In its books and records Slocan
records the profits and losses from futures
trading as lumber selling activity, so it
reported the net revenue earned in the POI to
Commerce as a direct selling expense.
Verification Exhibit 21, Exhibit CDA-119
(public excerpt – explanation of futures
trading)
Slocan Cost Verification Report at 26, Exhibit
118; Slocan Case Brief at 70 n.24, Exhibit
CDA-156 (revenue recorded in books and
records)

 Commerce rejected th is approach in its
preliminary determination and stated that the
futures revenue was “an investment revenue.”
Preliminary Determination Analysis
Memorandum at 7 at paragraph 8, Exhibit
CDA-116 (futures revenue was investment
revenue)

“In the field DIRSELU2 in the US sales
database, Slocan has reported the profit or loss
associated with sales made on the futures
market. We conclude that this is an
investment revenue, and should not be treated
as a sales specific deduction/addition. As this
in not a direct selling expense, we have
disallowed this price adjustment and have not

Page A-80 Issue Summary of Argument Record Evidence
Summary of DOC Reasons
Given for Rejection
included this field in our calculations.”
Prelim. Det. Analysis Mem. at 7 at paragraph
8, Exhibit CDA-116..
 In its case brief, Slocan argued that if this was
Commerce’s decision, then it should account
for futures profits and losses as a financial
expense, as it would for other investment
revenues.

Slocan Case Brief at 67-72, Exhibit CDA-156
(“The Department Should Include Slocan’s
Futures Profits and Losses in Direct Selling
Expenses, or, If It Does Not Do That, Include
the Profits and Losses in Slocan’s Financial
Expense.”)
“Slocan suggests that as an alternative, the
Department apply the profits as an offset to
Slocan’s financial expenses.” IDM, Exhibit
CDA-2, Comment 21 at 94.
 Commerce rejected this alternative also and
did not account for the futures revenue
anywhere in its calculations.
IDM, Exhibit CDA-2, (failure to account for
revenue as either a selling expense or a
financial expense)
“{W}e have not included in our analysis
profits on the sale of a futures contracts that
did not result in the shipment of subject
merchandise. Such profit is realized from
Slocan’s position on the CME and as a
producer of softwood lumber, but not from its
actual sale of subject merchandise.
We also have not applied these profits as an
offset to Slocan’s di rect selling expenses.
Section 773(a)(6)(C)(iii) of the Act directs the
Department to make circumstance of sales
adjustments only for direct selling expenses
and assumed expenses. Section 351.410(c)
defines direct selling expenses as “expenses . .
. that result from and bear a direct relationship
to the particular sale in question.”
Accordingly, where no sale of subject
merchandise occurred, there can be no
circumstance of sale ad justment for direct
selling expenses.
Slocan suggests that as an alternative, the
Department apply the profits as an offset to
Slocan’s financial expenses. In support of this
argument, Slocan disputes the Department’s
statement in its preliminary determination
calculation memo that these profits are
“investment revenues” by stating that Slocan
is engaging in hedging rather then speculative
activity, and that sales on the futures market
are integral parts of the company’s normal
sales and distribution process. While we
agree that Slocan’s lumber futures hedging
activity is related to its core business of selling

Issue Summary of Argument Record Evidence
Summary of DOC Reasons
Given for Rejection
lumber as opposed to speculative investment
activity, it is for this very reason that we
disagree that the futures contracts are related
to Slocan’s financing activity. As such, the
futures profits should not be used to offset the
company’s interest expense.” IDM, Exhibit
CDA-2, Comment 21 at 94.
 Commerce’s failure to make any adjustment at
all for Slocan’s futures revenue violated
GATT arts. VI:1-2 and AD Agreement
Arts. 2.4 and 9.3 because it did not make “due
allowance… for factors which affect price
comparability{.}”

ANNEX A-2

RESPONSES OF THE UNITED STATES TO QUESTIONS POSED
IN THE CONTEXT OF THE FIRST SUBSTANTIVE
MEETING OF THE PANEL

(30 June 2003)

Questions to the Parties

1. The following responses of the United States answer the 19 June 2003 questions to the
United States and to both parties. In several inst ances, the United States has also addressed questions
posed by the Panel to Canada.
A. G
ENERAL ISSUES

To the US:

 5. In para. 36 of its First Written Submission, the US identifies one instance where,
in the view of that party, Canada requested the Panel to engage in what effectively
would be a de novo review of DOC's establishment and evaluation of the facts in this
matter. In the view of the US, are there any other such instances? If so, please identify
in detail.

2. Paragraph 36 of the US First Written Submissi on references paragraph 83 of Canada’s First
Written Submission. In that paragraph, Canada e xplained, as a general matter, what it believes the
Panel must do to determine whether Commerce’s evaluation of facts was unbiased and objective.
First, since Canada made that statement as a ge neral proposition within its “Standard of Review”
discussion, it presumably frames the approach Canada would urge on each of the questions of fact
presented in this case. Second, several specific in stances in which Canada is asking the Panel to
engage in de novo review are as follows:
3. Canada’s presentation of a new regression an alysis (Exhibit CDA-77) to support its
contention that Commerce should have made a pric e adjustment to account for differences in the
dimension of lumber in transactions compared amounts to a request for de novo fact finding. This
exhibit was not before Commerce in the underlying investigation. At the June 17 Panel meeting,
Canada stated that it intends to submit an expe rt’s memorandum to explain the exhibit. The
introduction of new evidence and a stated intenti on to introduce an expert’s memorandum (which
itself would be new evidence) to explain the new evidence demonstrates an improper attempt to have
the Panel find facts as if it were the investigating authority.
4. In the case of Commerc e’s calculation of cost of production for Abitibi, Canada is asking the
Panel to determine whether one method for allocatin g general and administrative (“G&A”) costs is
more reasonable and accurate than another. At paragraph 203 of its First Written Submission, Canada
asserts, without citation, that “DOC failed to eval uate Abitibi’s circumstances and evidence before it
so as to develop the most accurate and reasonabl e method for determining the financial expenses

associated with the production and sale of softwood lumber.” Inherent in Canada’s statement is a plea
for the Panel to weigh the evidence and find Abitibi’s proposed method more “accurate and
reasonable” than Commerce’s. That is a request for de novo review.
5. Canada’s claim regarding West Fraser’s wood chip offset is another illustration. Commerce
examined West Fraser’s wood chip sales to affilia ted entities and “tested” revenues from those sales
against revenues from the company’s own sales to una ffiliated entities. Canada complains about the
“weight” Commerce attached to certain facts versus others. 1 Weighing facts is the responsibility of
the investigating authority. In asking the Panel to re-weigh the facts, Canada is again asking for a de
novo review.
6. A fourth example is Canada’s claim regard ing product under consideration. This is
highlighted in paragraph 35 of Canada’s Oral Statement at the 17 June Panel meeting. There, Canada
states that the product under consideration “shoul d have been limited to commodity dimension
lumber.” Effectively, Canada is asking the Panel to adopt its view of where the lines should have
been drawn with respect to the product under consideration. That is a request for de novo review.
7. The foregoing list is illustrative rather than exha ustive. As stated at the beginning of this
response, the United States understa nds Canada’s overarching explanation of standard of review as a
statement of how Canada would have the Panel look at each of the issues in dispute.
6. In footnote 166 to its First Written Submission, the US states:

"[t]he footnote attached to this asser tion contains factual analysis never
presented to Commerce during the admi nistrative proceeding, in clear
violation of Article 17.5(ii), and that information should not be
considered by this Panel.166
166See Section III, supra. See also, EC-Pipe Fittings Panel Report , para. 7.33. However, even if this Panel
considers this analysis, despite the US co ntention that to do so would involve de novo review of the facts,
the United States submits that it is inconclusive on its face. For example, a close examination of Canada’s
Exhibit CDA-76 reveals that while Weyerhaeuser’s [[ ]], Slocan’s comparable product (page 7) sold for
an average price of [[ ]], a difference of [[ ]] per cent above Slocan’s average price. For Slocan, the
average POI price for [[ ]]. For Weyerhaeuser, the average POI price for [[ ]]. Both products
commanded the same price within each company, yet the difference between companies in both cases was
approximately [[ ]]. In addition, [[ ]] From an examination of the charts, it is apparent that there is no
consistent pattern of prices that would require concluding that Commerce did not make an objective and
unbiased evaluation of the facts."
 Could the US please clarify its position regarding Exhibit CDA-76 in light of the
above statement?

8. Footnote 166 of the US First Written Submissi on appears in paragraph 137 and refers to the
US objection under Article 17.5(ii) to the new inform ation presented by Canada in its Exhibit CDA-
77 (the regression analysis). To clarify this point, the footnote makes reference to the charts
contained in Canada's Exhibit CDA-76. These ch arts were also not presented to Commerce during
the underlying proceeding, although the data upon wh ich they are based apparently are derived from
the respondents' submitted databases and do not involve the kind of manipulation of data presented by
the new regression analysis contained in Canada's Exhibit CDA-77. Although the United States did
not object to Canada's inclusion of the data and analysis contained in Exhibit CDA-76, the
United States nonetheless believes that Canada’s submission of these charts demonstrates that Canada
is asking this Panel to re-weigh the evidence and conduct a de novo review of the facts.

1See Canada’s First Written Submission, para. 244.

To both parties:

7. Please comment on the findings contained in para. 7.3 of the Egypt – Steel Rebar
panel report:

"the actions of an interested party during the course of an investigation
are critical to its
 protection of its rights under the AD Agreement. As the
Appellate Body observed in US – Hot-Rolled Steel, "in order to complete
their investigations, investigating authorities are entitled to expect a very
significant degree of effort to the best of their abilities from investigated
exporters". The Appellate Body went on to state that "cooperation is
indeed a two-way process involving joint effort". In the context of this
two-way process of developing the information on which determinations
ultimately are based, where an investigating authority has an obligation
to "provide opportunities" to int erested parties to present evidence
and/or arguments on a given issue, and the interested parties themselves
have made no effort during the investigation to present such evidence
and/or arguments, there may be no factual basis in the record on which a
panel could judge whether or not an "opportunity" either was not
"provided" or was denied. Similarly, where a given point is left by the
AD Agreement to the judgement and discretion of the investigating
authority to resolve on the basis of the record before it, and where
opportunities have been provided by the authority for interested parties
to submit into the record information and arguments on that point, the
decision by an interested party not to make such submissions is its own
responsibility, and not that of the investigating authority, and cannot
later be reversed by a WTO dispute settlement panel.” (footnotes
excluded)

9. The quoted passage involves the Egypt – Steel Rebar panel’s analysis of the respective
responsibilities of the investigating authority and the interested parties in an antidumping
investigation. Specifically, it relates to those in stances in which the AD Agreement imposes certain
procedural obligations on the investigating authorit y, but “leaves to the discretion of the investigating
authority exactly how they will be performed.”
2 This discussion is particularly relevant to
Commerce’s application of certain cost calculation methodologies ch allenged by Canada, as well as
Canada’s claim for a price adjustment for differe nces in the dimension of the softwood lumber
products compared. With respect to each of th ese calculations, the action taken by Commerce falls
within the discretion afforded by the AD Agreement, and Canada’s claims are without merit.
10. This statement by the Rebar panel highlights the responsibility, in the first instance, for an
interested party to submit any releva nt information on the record to be considered by an investigating
authority. With respect to differences in dimensi on, Article 2.4 states that a due allowance will be
provided “in each case, on its merits,” and when differences are “demonstrated” to affect price
comparability. Whether a factor has been demonstrat ed to affect price comparability is a matter for
“the judgement and discretion of the investigating authority to resolve on the basis of the record
before it.”3 In this case, Commerce provided interested parties with ample opportunity to provide
relevant information on the record with respect to any claimed price adjustments for differences in
dimension. The questionnaire informed the inter ested parties of the requirements to establish an
adjustment for differences in merchandise 4, a 14 September 2001 letter from Commerce informed the

2 Egypt– Steel Rebar Panel Report, para. 7.2.
3 Id. at para. 7.3.
4 See Letter to Abitibi enclosing Questionnaire (25 May 2001) at B-29 (requesting variable cost of
manufacturing information for all sales of similar, rather than identical products, i.e., if there are differences in

parties that Commerce would consider matching si milar, not just identical, softwood lumber
products5, both identical and similar softwood lumber products were matched in the 6 November 2001
Preliminary Determination,6 after which there was still opportunity for comment and the submission
of new factual information. 7 In spite of these opportunities, the Canadian respondent companies’
requests for a price adjustment remained unsubstantia ted. Therefore, Canada’s complaint on this
issue, particularly its efforts now to submit new ev idence in the form of a regression analysis (Exhibit
CDA-77), should be rejected. As the Egypt – Steel Rebar panel concluded: “[W]here opportunities
have been provided by the authority for interested parties to submit into the record information and
arguments on that point, the decision by an interest ed party not to make such submissions is its own
responsibility, and not that of the investigating authority, and cannot later be reversed by a WTO
dispute settlement panel.”8
11. There are at least two other examples in Canada ’s claims where the interested party in the
underlying investigation failed to make submissions or to present evidence or arguments. First,
contrary to Canada’s argument here, West Fraser never raised the claim that its unaffiliated sales in
British Columbia were “too small” to be a valid basis for assessing the market value of affiliated
transactions, nor did it present evidence or argument to that effect.
9 Second, again contrary to
Canada’s argument here, Slocan neve r requested that its futures profits be used as an adjustment to
anything other than a direct selli ng expense or an interest expense. 10 In both cases, the Canadian
companies failed to meet their obligations to rai se any relevant issues and adequately prove their
claims.
B. ARTICLES 5.2/5.3

To the US:

12. Please indicate whether the relationship between IP and Weldwood was
disclosed by the applicants in the Applicatio n, and if so, whether this fact was discussed
and considered by the DOC in the context of the initiation of the investigation.

physical characteristics) and at I-5 (defining and describing the adjustment for differences in physical
differences) (Exhibit US-36). The Questionnaire also refers interested parties to Commerce’s regulations on this
issue, which were also provided in the US First Written Submission in Exhibit US-44.
5 See Letter to Abitibi Consolidated Inc. (14 Sept. 2001) (Exhibit CDA-75).
6 Notice of Preliminary Determination of Sales at Less Than Fair Value and Postponement of Final
Determination: Certain Softwood Lumber Products From Canada , 66 Fed. Reg. 56,062 (6 Nov. 2001)
(“Preliminary Determination”) (Exhibit CDA-11); see also Final Determination, Comment 7 (Exhibit CDA-2).
7 See Commerce’s regulations, 19 C.F.R. § 301(b)(1)(providing that new information may be
submitted in investigation until seven days prior to date of commencement of verification) (Exhibit US-65).
Verifications normally take place afte r the Preliminary Determination in i nvestigations, as they did in the
softwood lumber investigation.
8 Panel Report, Egypt – Steel Rebar, para. 7.3 (footnote omitted).
9 Under US procedures, parties are provided a final opportunity to present all relevant issues that
remain in dispute. See 19 C.F.R. § 351.309(c)(2) (Exhibit US-69). West Fraser never raised a single point
regarding the quantity of these unaffiliated sales in British Columbia. See West Fraser’s Case Brief of
12 February 2002, at 46-48 (Exhibit US-55); West Fraser’s Rebuttal Brief of 19 February 2002, at 19-21
(Exhibit US-54).
10 Slocan only requested two alternative treatments for the amount corresponding to these profits, and
contradictory ones at that. If there was a third way to treat them – as indirect selling expenses – that claim was
never made. In its 23 July 2001 Questionnaire Response , Slocan unambiguously stated that the hedging profits
should be treated as an offset to direct selling expenses in the US market, as an adjustment for differences in the
conditions and terms of sale. Response of Slocan Forest Products Ltd To Sections B, C, & D of the Department
of Commerce Antidumping Questionnaire, 23 July 2001, pp. C35-37 (Exhibit US-71). In the same submission,
Slocan unambiguously asserted that it did not incur indirect selling expenses. Id. at p. C-37 (Exhibit US-71).

12. The industry support section of the applicati on addressed the question of quantifying the
portion of the US industry that chose not to suppor t the application because of their own affiliations
with Canadian producers. In Petition Exhibit IB-7 , the applicants provided a Canadian newspaper
article on this issue in which Weldwood is me ntioned as “owned by International Paper.”
11 I n i t s
initiation decision, however, Commerce did not discu ss the Weldwood-IP relationship, because it was
not relevant to either the industr y support question or the sufficiency of the evidence presented in the
application as to prices and costs.
13. Article 5.2 of the AD Agreement requires the a pplication to list known domestic producers of
the product under consideration and known exporters or foreign produ cers. The application included
Weldwood in the list of Cana dian producers/exporters.12 Article 5 does not require the investigating
authority to discuss and consider relationships be tween companies whose data are not necessary for a
finding of “sufficient evidence to justify the initiation of an investigation.”
13. In para. 66 of its First Written Submission, the US states:

"[t]he product under consideration wa s a commodity-type product for
which industry-wide data were likely to provide a more reliable
representation than company-speci fic data for a single company
responsible for only a small fraction of the Canadian exports to the
United States."

Bearing the above statement in mind, did DO C have industry-wide data on cost of
production, home market sales and export pri ces before it at the time of initiation? If
not, did DOC gather that information when examining whether the requirements of
Article 5.3 were met?

14. The application contained data on cost of prod uction, home market sales, and export price for
many companies in the two largest lumber-pr oducing provinces in Canada: British Columbia in
western Canada and Quebec in eastern Canada. Thus , the application data were representative of the
Canadian industry.
13 Commerce did not gather additional, nationwide data when examining whether
the requirements of Article 5.3 were met, because the information provided in the application was
sufficient to initiate an antidumping investigation.
14. The Panel notes the following statemen t made by Canada in para. 17 of its First
Oral Statement:

"[m]embers of the Petitioner buy lumber from Canadian companies to
fill out their product lines daily. They do regular business with Canadian
companies, which results in thousands of transactions and billions of
dollars worth of cross-border trade. All of these facts were known by
Commerce. Accordingly, it is inco nceivable that the application was
accepted without information on a single actual transaction involving a
sale of softwood lumber either in Canada or the United States. The
application did not contain transaction-specific evidence identifying a
single Canadian exporter or providing any specific examples of price or
cost. The Petitioner’s claim that su ch information was not “reasonably
available” is simply not credible and should never have been accepted by
Commerce." (footnotes omitted)

11See Exhibit US-62.
12See Petition Exhibit IB-9 (Exhibit US-63).
13See US First Written Submission at paras. 52-62 and sources cited therein, which detail the diverse
sources of data in each of these three categories.

In light of the substantial cross-border trad e in lumber products between Canada and
the US (as stated by Canada in the above ci tation), was not information on export price
from Canadian producers and exporters reasonably available to the applicant?

15. Information on export prices was reasonably ava ilable to the applicant and was provided in
the application.14 Because the export prices that were provi ded in the application (including the full
period of investigation Random Lengths export price information for both Eastern and Western S-P-F,
the affidavit on lost sales and the price quotation affi davit) were sufficient for initiation, no further
export price information was necess ary. Commerce, therefore, made no determination, during the
initiation process or the subsequent investigation, as to whether still more information on export
prices from Canadian producers and exporters was also reasonably available to the applicant. The
AD Agreement does not require such determinations in these circumstances.
16. Paragraph 17 of Canada’s First Oral Statement, moreover, significantly distorts the facts. It
is not accurate that "the application was accepte d without information on a single actual transaction
involving a sale of softwood lumber either in Canada or the United States." As demonstrated by the
record and detailed in our First Written Submission at paragraphs 48-64, the application contained
extensive evidence on actual sales of softwood lumb er in both Canada and the United States from
Random Lengths and from affidavits. The claim in paragr aph 17 of Canada’s Fi rst Oral Statement
that "[t]he application did not contain transacti on-specific evidence identifying a single Canadian
exporter or providing any specific examples of price or cost" is true only in the sense that the
Canadian producers associated with the specific transactions underlying the data in the application
were not named; that does not make the evidence any less "transaction-specific."
15. Please comment on the statement co ntained in para. 23 of Canada’s First Oral
Statement:

"it was demonstrated that the Random Lengths data contained in the
application commingled Canadian and US producer prices, and, thus,
were not representative of Canadian sale prices.”

17. This statement is incorrect. Canada’s First Oral Statement, at paragraph 23, refers, in turn, to
Canada’s First Written Submission. The only "demonstration" to be found in that submission
regarding the alleged commingling of Random Lengths data are statements in paragraphs 91 and 104.
At paragraph 91, Canada misleadingly suggests that the applicant (the Coalition for Fair Lumber
Imports Executive Committee) characterized the Random Lengths data as commingled: "According
to the Executive Committee, the following information [was] relie d upon by DOC to initiate the
investigation . . . (1) Random Lengths pricing data for Eastern Spruce-Pine-Fir that commingled both
Canadian and non-Canadian producer prices . . . ." This and other misleading statements in
paragraph 91 are indiscriminately "supported" by a lengt hy citation in footnote 87 of various exhibits
in the application, most of which have no bear ing on the "commingled data" allegation. Canada
repeats the claim, absent even th e limitation to Eastern S-P-F, at paragraph 104 of its First Written
Submission: "The Random Lengths pricing data commingled both Canadian and non-Canadian
producer prices." Once again, that claim and others are "supported" only by an indiscriminate citation
of exhibits, none of which "demonstrates" that the Random Lengths data relied upon in the application
"commingles" Canadian and US sales.
18. The United States, in its own First Written Su bmission, and in response to the Panel’s
questions during the first Panel meeting, clarified the facts. As an initial matter, the "Random Lengths
pricing data" contained in the application comprises three different groups of data used to demonstrate
the existence of dumping of softwood lumber by Canadian exporters and producers.

14See exhibits cited at paras. 57-61 of the US First Written Submission.

19. First, at paragraph 52 of its First Written S ubmission, the United Stat es discussed the use of
Random Lengths pricing data for Eastern S-P-F "delivered to Toronto" as a source of Canadian home
market softwood lumber prices used to demonstrate the existence of below-cost sales in the Canadian
market. In footnote 46, the United States explaine d that "[a]lthough Canada has claimed that these
prices, ‘commingle’, US and Canadian data, the publishers of Random Lengths have expressly stated
that the prices in the "Toronto delivery" column are based exclusively on production from mills in
Canada." As authority for this, the United States referenced an 19 April 2001 letter from Random
Lengths to this effect, which was placed on the record in an applicant’s submission of 20 April 2001.
15
20. Second, at paragraph 58 of its First Written Submission, the United States discussed the use
of Random Lengths pricing data for Western S-P-F delivered to the Chicago and Atlanta markets as a
source of export prices used to demonstrate below-cost ( i.e., "dumped") sales to the US market. In
footnote 58, the United States noted that "Random Lengths defines ‘Western S-P-F’ as ‘Lumber of the
Spruce-Pine-Fir group produced in British Columbia or Alberta.’"16
21. Third, at paragraph 61 of its First Written Submission, the United States discussed the use of
Random Lengths pricing data for Eastern S-P-F delivered to Boston and the Great Lakes region as an
additional source of export prices used to demonstrate below-cost ( i.e., "dumped") sales to the US
market. Canada’s "commingling" claim with respect to this data group is based on the "Terms of the
Trade" definition of "Eastern S-P-F": "Lumber of the Spruce-Pine Fir group produced in the eastern
provinces of Canada, including Saskatchewan and Manit oba. Also used in reference to some lumber
produced in the northeastern United States."
17
22. This definition itself reflects the fact that the primary meaning of this term is limited to
certain Canadian-produced lumber. Its use as a "term of the trade" in connection with US-produced
lumber is not only secondary, but also separate. In footnote 67 of its First Written Submission, the
United States explained that a reasonable reading of statements by Random Lengths’ publisher on the
record demonstrated that Canada’s claim lacked me rit. As authority for this, the United States
referenced an 19 April 2001 letter from Random Lengths which had been placed on the record of the
case in a submission made by the applicant on 20 April 2001. 18 That letter states, among other things,
that the Eastern S-P-F prices reported in Random Lengths "are representative of lumber produced in
the Eastern Canadian provinces." With resp ect to this species group, the publisher of Random
Lengths states that, although his publication "receives" information on S-P-F from mills in New
England, "current grading rules" require the Ne w England product to be designated as S-P-F-S (for
"south"), whereas "we focus our information gathering and price reporting on Eastern S-P-F coming
out of Eastern Canada."
23. This combination of evidence shows that Random Lengths recognizes a market distinction
between Canadian-produced and US-produced S-P-F and does not commingle data on the
Canadian-produced "Eastern S-P-F" with data on US-produced (Eastern) "S-P-F-south" lumber.

15 We note that Exhibit US-1 mistakenly included a different submission made by the applicant on that
same date. The Random Lengths letter regarding Toronto delivery was submitted on the public record of the
investigation and is attached as a new exhibit to these responses to the Panel’s questions. See Fiche 22,
Frame 80 (Exhibit US-60).
16 The cited authority for this is Petition Exhibit III.9 (relevant excerpts from the Random Lengths
publication "Terms of the Trade") (previously submitted in this dispute as Exhibit US-17). The relevant page
from "Terms of the Trade" was inadvertently omitted from Exhibit US-17. A complete version of Petition
Exhibit III.9 is attached as Exhibit US-61; the definition of Western S-P-F is at page 370 of that publication.
17 See Petition Exhibit III-9, at p. 114 (Exhibit US-1; Exhibit US-61).
18 As explained above, Exhibit US-1 mistakenly included a different submission made by the applicant
on the same date, and the United States is now providing the correct record document to the Panel as Exhibit
US-60. The Random Lengths letter in question is at Fiche 22, Frame 79.

24. Further, other export price data in the application, such as the Random Lengths Western S-P-F
data discussed at paragraph 58 of the US First Wr itten Submission, would have been independently
sufficient to justify initiation.
To both parties:

16. In the view of Canada/the US, which ob ligation(s) are imposed by Article 5.2?
Which entity or entities is/are the addressee(s) of the obligation(s)?

25. Article 5.2 does not impose an obligation on in vestigating authorities. It describes the
contents of an application.
26. Canada’s argument regarding Article 5.2 rests on the flawed premise that Article 5.2 must be
read as imposing a stand-alone obligation, independent of the obligation under Article 5.3. This is not
what Article 5.2 does at all. Article 5.2 is a descrip tion of the contents of an application. It provides
context for an investigating authority’s obligati on under Article 5.3 to determine whether there is
sufficient evidence to initiate an investigation.
27. The proposition that Article 5.2 does not impo se a stand-alone obligation on investigating
authorities is not nearly as unusual as Canada suggests. 19 Elsewhere in the WTO Agreements, one
finds provisions that do not themselves impose obligati ons but that provide context for obligations set
forth elsewhere. An example is Article III:1 of th e GATT 1994. Article III:1 states that certain laws,
regulations and requirements "should not be applied to imported or domestic products so as to afford
protection to domestic production." In Japan–Alcoholic Beverages , the Appellate Body explained
that the Panel in that case had correctly found "a distinction between Article III:1, which ‘contains
general principles’, and Article III:2, which ‘provides for specific obligations regarding internal taxes
and internal charges.’”20 A similar relationship exists in this case between AD Agreement Article 5.2
and Article 5.3.
28. Another example of an agreement provision that does not impose an obligation but provides
context for obligations found elsewhere is Artic le 4.1 of the Agreement on Agriculture, which
provides
Market access concessions contained in Schedul es relate to bindings and reductions of tariffs,
and to other market access commitments as specified therein.

29. In EC–Bananas, the EC argued that Article 4.1 is a substantive provision, which, read in the
context of Article 21.1 of the Agreement on Agriculture (providing that the provisions of the GATT
1994 "shall apply subject to the provisions of th is Agreement"), demonstrates that Schedules of
concessions supercede the requirements of Article XIII of the GATT 1994. 21 Accordingly, the EC
contended that the tariff rate quotas provided for in its Schedule would not be subject to Article XIII.22
The Appellate Body disagreed, concluding that "Artic le 4.1 does no more than merely indicate where
market access concessions and commitments for agricultural products are to be found.”23
30. The Appellate Body’s interpretation of Article 4.1 of the Agreement on Agriculture illustrates
the fact that sometimes an agreement provision may serve a limited purpose, and that obligations

19 See Canada’s First Oral Statement, para. 10.
20Appellate Body Report, Japan–Taxes on Alcoholic Beverages , WT/DS8, 10, 11/AB/R, adopted
1 Nov. 1996, pp. 17-18.
21 Appellate Body Report, European Communities – Regime for the Importation, Sale and Distribution
of Bananas, adopted 25 September 1997, WT/DS27/AB/R, para. 20.
22 Id.
23 Id. at para. 156.

should not be extracted from a provision unless the la nguage explicitly supports that interpretation.
Article 5.2 of the AD Agreement serves just such a limited purpose—describing the contents of an
application. Where paragraphs in Article 5 impose obligations on investigating authorities, they refer
explicitly to what "the authorities" shall or shall not do. This is th e case, for example, in Articles 5.3,
5.4, 5.5, 5.6, and 5.8. There is no such referen ce in Article 5.2. The Panel should reject Canada’s
attempt to read an obligation into Article 5.2 that is not there.
17. In the view of the Parties, is there a hierarchy in which the applicant should
endeavour to submit the information, as is reasonably available to it, required under
Article 5.2(iii)? Please motivate your response fully.

31. Article 5.2(iii) gives three alternative bases fo r identifying normal value: (1) information on
home market prices, or “where appropriate,” (2) in formation on prices for sales to a third country or
countries, or (3) information on the constructed value of the product. Article 5.2 (iii) also gives two
alternative bases for identifying export price: (1) information on export prices, or “where
appropriate,” (2) information on “the prices at whic h the product is first resold to an independent
buyer in the territory of the importing Member” (i.e., “constructed export prices”).
32. The alternatives described in Article 5.2(iii) are not interchangeable. With respect to
identifying normal value, for example, home mark et prices in the ordinary course of trade are
normally preferable to the other two categories. Howe ver, if there are not sufficient sales in the home
market for the home market to provide a viable basis of comparison, or if the home market sales
database does not offer, because of significant volum es of below-cost sales, a reliable indication of
sales made in the ordinary course of trade, it is “appropriate” to use sales in third country markets or
constructed value, respectively, even if there are some home market prices on the record. In other
words, the “appropriateness” of using the later-lis ted alternatives depends not upon the absence of
data corresponding to the first-listed alternative, but upon other circumstances. The application in this
case, for example, began the process of identifying normal value by looking to Canadian home market
prices. Because the applicants demonstrated wid espread sales below cost in the Canadian market,
however, they properly relied upon constructed valu e as the basis for comparis on to export price for
purposes of providing evidence of dumping sufficient for initiation of the investigation.
33. It may be that the Panel’s question has to do with another sort of “hierarchy on which the
applicant should endeavor to submit information.” Canada claims that if company-specific sales and
cost data for Weldwood were reasonably available to the applicants, then the applicants were required
to base their application on these data. But this claim implies that Article 5.2 imposes a data
hierarchy, in which data specific to a named compan y are deemed superior to other types of data, and
that, if data in this allegedly higher category are available, alternative types of data may not be used to
demonstrate dumping in an application. Article 5.2 contains no such obligation. There is no
hierarchy of the types of information an app licant should endeavor to submit to show dumping
sufficient to initiate an investigation. As explaine d at the first Panel meeting, in this case, because of
the large number of softwood lumber producers in Canada, the United States believes that the
aggregate data submitted in the application provided a relevant, broad picture of pricing practices of
the industry.

E. ALLOWANCE FOR DIFFERENCES IN DIMENSIONS

To the US:

25. Please explain in detail how DOC carrie d out the product comparison in case of
non-identical CONNUMs. Of the total number of comparisons made, how many were
based on identical CONNUMs?

34. To carry out the product comparison, Commerce first identified the matching characteristics
in order of importance, as suggested by the interested parties. 24 These characteristics, from most to
least important were: (1) product category ( e.g., dimensional lumber, timbers, boards); (2) species
(e.g., SPF, Western Red Cedar), (3) grade group, (4) gr ade, (5) moisture content, (6) thickness, (7)
width, (8) length, (9) surface finish, (10) end trimming, and (11) further processing ( e.g., edged,
drilled, notched). 25 With the exception of grade group, these characteristics were included in the
questionnaire. Grade group was added for the Fi nal Determination based on suggestions received
from the parties in response to Commerce’s 9 August 2001 request for suggestions regarding a model
matching hierarchy.26
35. At the suggestion of the parties, Commerce di d not match across product category, species or
grade group. Therefore, all matches are identical with respect to those characteristics. Commerce
first compared the control numbers of the US products to those of the home market products to
determine if an identical match was available. If an identical match for all characteristics was not
available, Commerce’s matching methodology found the most similar match. Commerce’s computer
programme accomplished this by finding the most similar match for each characteristic based on its
order of importance. For example, it tried to find a product of the identical grade regardless of the
less important characteristics. If there were multiple sales of the identical grade, it tried to find a
product where grade and moisture content were identical and so on, keeping as many of the
characteristics identical to the US sale product as po ssible, until it found the most similar match. If
there were no sales of the identical grade, it found the product with the most similar grade. If there
were multiple sales of the most similar grade, it tried to find a sale with the identical moisture content,
and continued in this fashion along the hierarch y of characteristics until it found the most similar
match.
36. To achieve the most appropriate similar match, each identified trait within each model
characteristic was assigned a numeric value.
27 For example, with regard to moisture content, dry
lumber was assigned a value of one, kiln-wet lumber was assigned a value of three and green lumber
was assigned a value of four. When determining a proper similar match, the programme looked at the
difference between the number assigned for each char acteristic of the US product and those of the
possible matches. In the case of moisture content, if no product with the identical moisture content
was available, the computer would have chosen to match US sales of green lumber to sales of kiln-
wet lumber (4-3 = 1), the most similar comparison av ailable. Only if no possible match to kiln-wet
lumber was available, would it have matched to sales of dry lumber (4-1 = 3).28
37. Commerce took additional steps to further refine its matching methodology by using available
cost data. When matching similar, rather than id entical, grade or further processing characteristics, if
two equally similar matches were available, the com puter chose the match with the smallest variable
cost difference. With regard to all three di mensional characteristics, because there was no cost
difference, when two equally similar matches were available, both matches were selected and their
normal values averaged. For example, the US pr ice of an 8' board would be compared to the
weighted average normal value of a 6' and a 10' board, which were identical in every other respect.29

24 While Commerce accepted the sugg estions of the parties in this regard, this acceptance was not
dependent upon a demonstration of effect on price comparability.
25 See, e.g., 25 April 2002 Amended Final Margin computer programme for Weyerhaeuser
Corporation at line 2808-2809 (Exhibit US-66).
26 Final Determination, Comment 7 (Exhibit CDA-2).
27 See the 25 April 2002 Amended Final computer programme for Weyerhaeuser Corporation, at lines
3220-3362, assigning numeric values to each trait within each characteristic (Exhibit US-66).
28 See id. at lines 3306-3308.
29 Final Determination, Comment 7 (Exhibit CDA-2).

38. At a further suggestion of the Canadian parties, length was classified into the following length
bands: less than 16'; 16' - less than 22'; 22' and above.
30 Commerce first attempted to match within
each length band, and matched across length bands only when a similar match was not available
within the band. In order to accomplish this, Comme rce assigned lengths in the less than 16' category
numerical values ranging from 100-105, the 16' - 22' category was assigned numbers ranging from
200-202 and the over 22' category was assigned numbers over 300. Sales composed of various
lengths (random lengths) where the respondent was unable to separate the sale into its component
lengths, were assigned a code of 999. 31 Therefore, if no identical length piece was available, a
14' piece of softwood lumber would match to a 10' piece of lumber before matching to a 16' piece of
lumber.
39. Width and thickness were assigned sequential numbers based on ascending size. The
computer matched to the product with the smallest difference in numeric value ( i.e., the closest
number) first. One company, Weyerhaeuser, made sales of random widths and thicknesses and these
were assigned a numeric value of 999.
32
40. Identical matches account for [[ ]] per cent of all matches of export sales by volume.
Similar matches account for [[ ]] per cent and constructed value accounts for [[ ]] per cent.33
26. In the view of the Parties, does Arti cle 2.4 impose (or disallow) the use of any
specific methodology in order to determine the amount of an allowance for differences
in physical characteristics?

41. Article 2.4 does not impose or disallow any specific methodology regarding the determination
of the amount for a due allowance for differences in ph ysical characteristics. It requires a showing or
demonstration, "in each case, on its merits," that there is an effect on price comparability of the
difference in physical characteristics before a due allowance is made. However, the provision does
not address: (a) how an investigating authority will identify whether there is an effect on price
comparability, nor (b) how to measure the allowance due once that identification has been made.
27. Article 2.4 provides that: "[d]ue allowa nce shall be made in each case, on its
merits, for differences which affect price co mparability, including differences in (...)
physical characteristics." Could the text be interpreted to suggest that once differences
in physical characteristics have been found, price comparability is automatically
affected, or is there still a requirement that the effect on price comparability must be
shown in addition?

42. The text of Article 2.4 does not require an au tomatic adjustment based on the mere existence
of physical differences. Such an interpretation would render the terms "in each case, on its merits"
and “demonstrate” meaningless. These terms plainly require a case-by-case analysis to determine
whether the facts support any allowance for differences in physical characteristics due to an effect on
price comparability.

30 Id.
31 See Exhibit US-66 at lines 3310-3321.
32 See id. at lines 3323-3336 (thickness) and 3338-3351 (width).
33 See Exhibit US-68 (which summarizes the data) and Exhibit US-67 (which provides the computer
output from the record for each company from which the data was obtained). Commerce has used volume
(thousand board feet) in response to the Panel’s question because the dumping margins were weighted by
volume of export sales. Accordingly, only volume provides a meaningful indication of the relative “number of
comparisons” based on identical matches. Based on nu mber of comparisons, the identical matches accounted
for [[ ]] per cent of all export sales, similar matches accounted for [[ ]] per cent, and constructed value for
[[ ]] per cent. See Exhibit US-70.

43. Differences in physical characteristics are not necessarily reflected in differences in the
expenses or costs of the producer, nor are they necessar ily reflected in the price to the customer. For
example, a toy manufacturer may sell a series of toy trucks. Each toy truck may have different
working parts, and differ significantly in physical appearance and even toy function - one is a fire
truck, the other a dump truck, another a garbage colle ction truck. Yet all of these toys may have the
same costs of production, and may normally be sold fo r the same price. Therefore, a due allowance,
or appropriate adjustment, for differences in phy sical characteristics would not be warranted per se,
on the basis of physical differences. Additional ev idence would have to be presented to substantiate
the due allowance or appropriate adjustment. In or der to give the relevant terms of Article 2.4,
particularly “in each case, on it merits” and “demonstrate,” their ordinary meaning, the investigating
authority must first determine, based on record information, that differences in physical characteristics
affect price comparability, before making an adjustment.
44. The sentence from Article 2.4 quoted in the Pa nel’s question concludes with the phrase “and
any other differences which are also demonstrated to affect price co mparability.” The use of the term
“also demonstrated” confirms the need for a demonstration that the physical differences at issue affect
price comparability. We note the panel's statement in Egypt – Steel Rebar, in considering a due
allowance for imputed credit expenses (which results from a condition or term of sale) that "[i]n short,
where it is demonstrated by one or another party in a particular case, or by the data itself that a given
difference affects price comparability, an adjustment must be made."
34 The Canadian respondents in
this case did not demonstrate the effect on price comparability of differences in dimension.
F. Z EROING

To the US:

32. Could the US indicate which methodology was used by DOC when comparing
normal value to export price in the investigation at issue?

45. In this investigation, the United States ma de comparisons between normal value and export
price using the weighted average to weighted average comparison methodology consistent with
Article 2.4.2 of the AD Agreement. We note that in certain cases normal value was based on
constructed value.
33. In para. 31 of the EC' Third Party Submission, it is stated that:

"[t]he European Communities considers that the US methodology for
determining the numerator for the purposes of the weighted average
margin calculation in no way differs from the EC “zeroing” methodology
already found to be incompatible with Articles 2.4 and 2.4.2 of the Anti-
Dumping Agreement in European Communities – Bedlinen."

Does the US agree with the above proposition?

46. The United States does not have access to the co mputer programme and detailed calculation
methodologies utilized by the EC in the EC–Bed Linen case. Consequently, the United States is not in
a position to assess whether the methodology utilized by the United States in this investigation “in no
way differs” from that utilized by the EC.
34. Please comment on paras. 8-10 of Japan’s First Oral Statement.

34 Panel Report, Egypt – Steel Rebar, para. 7.352.

47. To fully address the statements made in th ese paragraphs, it is necessary to include a
discussion of paragraph 7, which sets up the basi s for Japan’s arguments in the subsequent
paragraphs.
48. In paragraph 7 of its First Oral Statement, Japan mis-characterizes th e US argument. The
United States does not suggest that Article 2.4.2 provides “for calculation of the margin of dumping
only on a model-specific basis”;
35 rather, the United States argues that model-specific, level-of-trade-
specific comparisons are permitted under Article 2.4.2. In fact, two of the three methodologies in
Article 2.4.2 provide for the calculation of transaction-specific margins of dumping. The third
methodology (weighted average to weighted average comparisons) refers to a comparison with “all
comparable export transactions.” Interpreting this phrase consistently with Article 2.4, an
investigating authority may calculate multiple margins of dumping.
49. Also in paragraph 7, Japan mis-quotes Article 2.4.2 of the AD Agreement. The word
“margin” – singular – does not appear in Article 2.4.2. Only the plural – “margins” – appears in that
provision.
50. In paragraph 8 of Japan’s First Oral Statemen t, Japan essentially makes the same point that
the United States made in paragraph 154 of its Fi rst Written Submission (albeit relying on a different
provision of the AD Agreement): that it is nece ssary to calculate an overall dumping margin for
investigated companies. While Japan referenced Article 6.10 and the United States referenced
Article 5.8, in either case, the need for an overa ll dumping margin is based on obligations separate
from those found in Article 2.4.2. Moreover, Article 2.4.2 of the AD Agreement does not specify the
methodology to be used to aggregate the “margins of dumping” into an overall dumping margin.
51. In paragraph 9, Japan appears to agree with much of the US position with respect to
Article 2.4.2. Although Japan suggests that multip le comparisons may occur under Article 2.4.2 as a
matter of “administrative convenience,” Japan also recognizes that such multiple comparisons may be
appropriate to take into account (among other th ings) differences in physical characteristics among
several models of the product under consideration. Japan recognizes that th is step, which occurs
pursuant to Article 2.4.2, is “in the middle of the entire process to calculate an individual margin of
dumping for an exporter/producer.” Moreover, Japan appears to recognize that Article 2.4.2 itself
does not establish any obligation as to how the margin s of dumping are aggregated. In any event, no
additional comparison occurs when an authority aggregates “all of these intermediate margins
obtained from multiple comparisons.” Therefore, Ar ticle 2.4.2, which addresses comparisons only,
does not speak to this process of aggregating margins.
52. In paragraph 9, Japan suggests that the lega l basis for offsetting dumping margins with non-
dumping amounts is the principle of good faith. Purs uant to this Panel’s terms of reference and
Articles 3.2, 7, and 19.2 of the DSU, this Panel’ s task is to review the consistency of the US
antidumping duty determination with the Antidumping Ag reement. Any review of the United States’
so-called “good faith” beyond the relevant provision s of the Antidumping Agreement is outside the
scope of WTO dispute settlement.
53. Also in paragraph 9, Japan uses the term “n egative margins.” Article 2.1 of the AD
Agreement provides that dumping occurs when a product is sold at less than its normal value. When a
proper comparison is made pursuant to the terms of Article 2.4.2 and the weighted average export
price is greater than the weighted average normal value, the transactions in question were not dumped.
The AD Agreement does not recognize “negative ma rgins,” and Japan cites no authority for this
concept.

35Japan First Oral Statement, para. 7 (emphasis added).

54. In paragraph 10, Japan mis-characterizes the pos ition of the United States with respect to the
issue of comparability. The determination of the scope of the product under c onsideration is distinct
from the determination of price comparability be tween weighted-average export transactions and
weighted-average normal values under Article 2.4.2. Japan incorrectly suggests that the United States
argued that not all softwood lumber was comparable for purposes of Article 2.4.2. As the
United States discussed in paragraphs 162 and 163 of its First Written Submission, sales of all models
at all levels of trade are not equally comparable. For example, if ther e is a home market sale of an
identical model at the same level of trade, th e United States would use that as the comparison
(comparing the weighed average normal value to the weighted average of all comparable (in this case,
identical, same level of trade) export transactions). Id entical models sold at different levels of trade
and non-identical models are nonetheless still “able to be compared.” However, their differences in
physical characteristics and level of trade would make them less comparable and, when those
differences affected price comparability, it would be appropriate to make due allowance for the
differences, pursuant to Article 2.4. Distinguishi ng among models and levels of trade is permissible
under Article 2.4.2 (as Japan seems to recognize in pa ragraph 9 of its First Oral Statement), but does
not require that the United States consider each m odel and level of trade to constitute a distinct
“product under consideration” for purposes of the AD Agreement.
35. Please comment on para. 20 of EC’s First Oral Statement.

55. Much of what the EC states in this para graph re-asserts the conclusion drawn in the EC – Bed
Linen case, and is premised on the reasoning of the A ppellate Body in that case. In its First Written
Submission
36 and in its Opening and Closing Statements at the first Panel meeting,37 the United States
explained why the EC – Bed Linen report is not binding on this Panel and why it should not be
followed in this case. The United States has nothing to add on this question at this time.
56. In the first sentence of paragraph 20, the EC appears to suggest that the issue of multiple
comparisons is only relevant to “a broad determination of the product under consideration and the like
domestic product.” The United States disagrees. Article 2.4 of the AD Agreement requires that other
differences that affect price comparability, beyond differences in physical characteristics, also be
taken into account when making comparisons. For ex ample, differences in level of trade are among
the differences that may affect price comparisons. Thus, even when there is only one “model” of the
“product under consideration,” it may still be approp riate to have multiple comparisons if there are
sales at multiple levels of trade in the markets be ing examined. In order to capture level of trade
distinctions, or model distinctions, if any, mu ltiple comparisons may be necessary and appropriate
under the weighted average to weighted average comparison methodology of Article 2.4.2 for
calculating margins of dumping on “comparable” export transactions.
57. We note that, like Japan, the EC relies upon th e term “negative dumping margins.” As
discussed in response to Question 34, above, the AD Agreement does not recognize “negative
dumping margins” and the EC cites no authority for this concept.

36See US First Written Submission, paras. 173-78.
37See Opening Statement of the United States at the first meeting of the Panel, para. 38; see also
Closing Statement of the United States at the first meeting of the Panel, para. 6.

G. COMPANY-SPECIFIC ISSUES

G.1 Common Questions on Various Company-Specific Issues

To the US:

41. With regard to each of the company-specific issues in its First Oral Statement ,
please address the comments made by Canada that the investigation was not conducted
in an unbiased and objective manner. Those comments should address, inter alia,

• Canada’s allegations in various paras. of its First Oral Statement that
statements containing factual data presented by the US in its First Written
Submission were incorrect (see for instance para. 94 of Canada’s First Oral
Statement) and

• Canada’s contention that DOC “did not consider the merits of the record
evidence” submitted by certain export ers concerning the company-specific
issues before the Panel (see for instance para. 79 of Canada’s First Oral
Statement).

58. The United States will first address Canada’s contention that Commerce did not conduct the
investigation in an unbiased and objective manner.
59. During the course of the lumber investigation, Commerce calculated costs for purposes of
determining whether sales were made below th e cost of production and, where necessary, for
constructing normal value. Canada argues that , in calculating these costs, Commerce ignored
evidence and automatically applied its standard co st methodologies without regard for the factual
circumstances of individual producers. However, as is clear from its Final Determination, Commerce
fully considered the lumber producers’ evidence and arguments and diligently followed the preference
in Article 2.2.1.1 for relying on a company’s own records where appropriate.
Abitibi G&A

60. In determining cost of production for a product un der investigation, it is necessary to attribute
to the product some part of the producer’s ge neral and administrative (G&A) costs, including
financial costs. While the AD Agreement does not prescribe a particular method for allocating these
costs, we have provided background on Commerce’s practice in response to Question 43. In the case
of respondent Abitibi, Commerce applied a “cost of goods sold” methodology in allocating the
company’s financial costs. While not objec ting to the “cost of goods sold” methodology per se ,
Canada contends that Commerce should have applied a different methodology, one based on the value
of assets in each of Abitibi’s divisions, in allocating financial cost.
61. Canada’s claim – that Commerce failed to cons ider all relevant evidence before selecting an
allocation method – is incorrect. As discussed fully in Comment 15 of the Final Determination,
Commerce declined to employ Abitibi’s suggested methodology af ter considering the facts and
arguments for and against it in an unbiased and obj ective manner. Commerce reasoned that money is
fungible, and interest costs, by definition, rela te to the overall borrowing needs of a company.
Borrowed money may be used for a full range of purposes, including financing fixed assets or
ongoing operations. There is no basis for allocating borrowed money to only one activity. In light of
this fact, the “cost of goods sold” methodology was a reasonable basis for allocating interest costs.
62. Moreover, contrary to Canada ’s contention, the “cost of goods sold” methodology does not
ignore asset values. Those values are reflected in th e depreciation costs included in the cost of goods

sold and the cost of manufacturing the like product to which the financial expe nse ratio is applied.
That is, greater depreciation costs will be allocated to more asset-heavy divisions of a company.
Tembec G&A

63. As discussed in the Final Determination, Commerce rejected Tembec’s division-specific
methodology, because G&A costs, by defin ition, relate to the company as a whole.
38 Canada argues
that Commerce should have calculated G&A costs on Tembec’s division-specific basis, rather than a
company-wide basis. However, Tembec’s proposed G&A methodology contradicts the general nature
of this cost. It is based on th e unsubstantiated premise that genera l costs are incurred on a divisional
rather than a company-wide basis. Moreover, Tembec’s methodology is based on unaudited amounts
of G&A costs. In sharp contrast, Commerce’ s methodology is based on the G&A reported in
Tembec’s audited financial statement, and is therefore consistent with Article 2.2.1.1.
Weyerhaeuser G&A

64. With respect to Weyerhaeuser, Commerce include d an allocated portion of certain litigation
settlement costs in Weyerhaeuser’s general and admi nistrative (G&A) costs. A parent company will
frequently incur general costs, such as these litigation settlement costs, that are costs of doing business
for all of the operations of the parent company. Where a subsidiary is a respondent producer/exporter
in an antidumping investigation, Commerce’s ordi nary practice is to a pportion the parent’s G&A
costs over sales of all merchandise produced by the entire company, provided the costs are general to
the operations of the entire company. This practice comports with Articles 2.2.1.1 and 2.2.2, and is
not disputed by Canada. Nor was it disputed by Weyerhaeuser during the investigation.
65. What is in dispute is Commerce’s decision to include in Weyerhaeuser’s G&A an apportioned
amount of the litigation settlement charges at issu e. Commerce did so based on its reasoning that
business charges of this nature should be allocated “o ver all products because they do not relate to an
[sic] production activity, but to the company as a whole.”
39 Information submitted by Weyerhaeuser
did not support a deviation from this practice. Weyerhaeuser’s own financial statement did not
classify the litigation expenses as part of the cost of products sold. 40 Instead, Weyerhaeuser recorded
the litigation settlement costs among its general costs, albeit in a separate line item. The general
nature of these litigation settlement costs is revealed by explanatory note 14 to the financial statement,
which states that such legal proceedings are “generally incidental to its business.”41

38Final Determination, Comment 33 (Exhibit CDA-2).
39Final Determination, Comment 48b, p. 134 (Exhibit CDA-2).
40Weyerhaeuser 2000 Annual Report, p. 53 (Exhibit CDA-101).
41Id. at p.75, n. 14 (Exhibit CDA-101). Because Canada suggested orally at the first Panel meeting that
this reference was not describing the litigation settlement claims at issue, it may be useful to review the
statement in full:

The company is a party to legal proceedings and environmental matters generally incidental to its
business. Although the final outcome of any legal proceeding or environmental matter is subject to a great
many variables and cannot be predicted with any degree of certainty, the company presently believes that the
ultimate outcome resulting from these proceedings and matters, including those described in this note, would not
have a material effect on the company’s current financial position, liquidity or results of operation; however, in
any given future reporting period, such proceedings or matters could have a material effect on results of such
operations.

Id. Thus, Weyerhaeuser’s own books and records support the conclusion that these litigation settlement
claims related to the operations of the company as a whole.

66. Canada makes two arguments on this issue. Fi rst, Canada states that the litigation settlement
costs were not included in the “G&A” line item on Weyerhaeuser’s books and records.
42 But this is
semantics. Simply because Weyerhaeuser broke this litigation cost out of G&A and reported it as a
separate line item does not justify excluding it from the company’s general costs. As described
above, note 14 to the firm’s own consolidated financial statement supported accounting for the costs
as general costs.
67. Second, Canada claims that the litigation settlement costs pertained to the production and sale
of hardboard siding. 43 However, simply because the settlement arose from claims relating to
hardboard siding does not make these costs of produci ng hardboard siding. In fact, these claims arose
years after the hardboard siding involved in the litig ation was produced. Moreover, Canada has failed
to provide any recognized alternative accounting cate gory for this cost that is consistent with
Weyerhaeuser’s own treatment of it in its audited financial statement. For these reasons, Commerce
properly included the litigation settlement costs in its calculation of total G&A, in accordance with
Articles 2.2.1.1 and 2.2.2.
By-Product Offset for Wood Chips

68. Canada’s next set of arguments concerns Commerce’s calculation of offsets to certain
respondents’ costs of production. Production of softwood lumber yields wood chips as a by-product.
Producers are able to sell the wood chips to pulp mill s. In calculating companies’ costs of producing
softwood lumber, Commerce took wood chip sales in to account as an offset. That is, Commerce
reduced a company’s cost of softwood lumber producti on by an amount determined to be the cost of
producing wood chips.
69. Canada challenges the methodologies Commerce u sed in valuing wood chip offsets. In
evaluating that claim, the appropriate starting point is Article 2.2.1.1 of the AD Agreement. As we
noted in discussing allocation of G&A expense, that provision does not prescribe particular
methodologies for calculating cost of production. However, Article 2.2.1.1 does state that
investigating authorities shall normally rely on a pro ducer’s records, provided that they are kept in
accordance with generally accepted accounting principl es and reasonably reflect costs associated with
production and sale of the product under consideration. For both of the companies at issue, that is
precisely what Commerce did.
West Fraser Wood Chips

70. Wood chips have no independent cost associated with their production, because they are a by-
product of lumber production. The task for Commer ce was to identify a reasonable value for this by-
product. In determining a wood chip offset fo r respondent West Fraser, Commerce reviewed West
Fraser’s sales to affiliated entities and compared that information to data on West Fraser’s sales to
unaffiliated parties, as a benchmark. The benchmark was used to determine whether sales to affiliated
entities were at market prices and to make adjustments as appropriate.
71. Arguing that this valuation method was in violation of the AD Agreement, Canada claims that
West Fraser's sales volumes to unaffiliated entities were “tiny.”
44 On the contrary, the amounts of
chips sold by the McBride and Pacific Island Mills were significant in terms of tonnage and value. 45
West Fraser never argued that the quantity of wood chips sold cast doubt on the reasonableness of the
value of those sales as a benchmark during the inves tigation. So long as the wood chip transactions

42See Canada’s First Oral Statement, para. 94.
43See id. at para. 93.
45See US First Written Submission, para. 219, n. 251; West Fraser Cost Verification Exhibit C5, WF-
Cost-007503 (Exhibit CDA-106).

were commercial in nature, the actual volume of those transactions is irrelevant. As the United States
explained in its First Written Submission, Canfor argued that some of its transactions were not
commercial in nature, and Commerce agreed with that assessment of those transaction and did not use
values derived from those transactions in its calcula tions. West Fraser, on the other hand, never made
such an argument.46
72. Canada’s arguments ignore the preference in Ar ticle 2.2.1.1 for basing cost calculations on a
company’s own records. If West Fraser’s records were somehow not representative of its sales, then
West Fraser had an obligation to demonstrate that fact. It did not do so.
Tembec Wood Chips

73. Tembec, unlike West Fraser, had no sales of wood chips to affiliated parties. Instead, it had
inter-divisional sales, which Commerce determined to be a reasonable basis for determining the value
that Tembec attributed to wood chips. Article 2. 2.1.1 obligates investigating authorities to use the
books and records of an investigated party in calcu lating costs if the value on the books and records
reasonably reflects a cost of production. The same obligation holds true for the valuation of a by-
product for purposes of an offset. Canada cha llenges Commerce’s use of Tembec’s actual valuation
of wood chips, and states a preference for using another value. However, the fact that Tembec’s
market transactions were valued higher than Tembec’s interdivis ional transfers does not undermine
the reasonableness of the value Tembec itself assigned to the by-products. Commerce reviewed these
amounts, and consistent with its obligations under Article 2.2.1.1 of the AD Agreement, it used these
figures.
74. Canada argues that Commerce should not have relied on Tembec’s records, because those
records showed that inter-divisiona l transaction values were arbitrary. 47 However, contrary to
Canada’s assertion, Commerce made no such determ ination, and the evidence does not support that
claim. In the end, Canada asks this Panel to dete rmine, in effect, that Tembec’s own valuation data
were arbitrary, and that Commerce’s rationale for using these data violated the AD Agreement. The
facts of the record do not support such a finding.
Slocan’s Profits from Futures Trading Contracts

75. Canada argues that Commerce failed to properly account for profits from respondent Slocan’s
sales of lumber futures contracts. But, as the United States said in paragraph 247 of its First Written
Submission, Slocan only requested two alternativ e treatments for these profits: (1) adjustment to
direct selling expense and (2) offset to financial co sts. If there was a third way to treat them – as
indirect selling expenses – that claim was never made.
76. Slocan unambiguously stated that the hedging pr ofits should be treated as an adjustment to
direct selling expenses in the US market for di fferences in the conditions and terms of sale.
48
However, the facts demonstrated that these profits were not direct selling expenses. They were not
directly related to particular softwood lumber sales.49
77. We disagree with Canada’s suggestion (First Oral Statement, paragraph 121) that Article 2.4
does not require a price adjustment to be dir ectly related to the actual sales transaction being
compared. An adjustment cannot be demonstrated to affect price comparability, as required under

46See US First Written Submission, para. 225, n. 268.
48See Slocan 23 July 2001 Section B, C, & D Questionnaire Response, C35-37; in the same
submission, Slocan unambiguously asserted that it did not incur indirect selling expenses.
49See Slocan Cost Verification Report at 26 (CDA-118); see Final Determination, Comment 21
(CDA 2).

Article 2.4, if it is not related to an actual tran saction. If Slocan’s futures contracts were indirect
selling expenses, Slocan had an obligation to make that claim, which it did not.
78. Slocan also asked that its hedging profits be treat ed as an offset to financing costs. However,
as an accounting matter, Slocan’s own books and reco rds treated the profits at issue as a type of
lumber revenue, albeit revenue that was not generated by actual sales of softwood lumber. Therefore,
it would have been inappropriate for Commerce to di sregard Slocan’s own treatment of the profits as
linked somehow to lumber sales and instead treat them as offsets to cost of production.
79. Next, the United States addresses certain specific and incorrect allegations made by Canada in
its Oral Statement.
• First Oral Statement, paragraph 18

80. Canada’s claim in paragraph 17 of its First Oral Statement that the application did not contain
“actual transaction information” is incorrect. Fo r elaboration on this issue, see US Response to
Question 14. Canada’s suggestion that acceptance of the application was not something “an objective
investigating authority assessing the evidence” would have done is also incorrect. The AD
Agreement does not require that the application c ontain information beyond what is sufficient to
support initiation.
• First Oral Statement, paragraph 20

81. Canada’s claim that the United States “cannot credibly argue . . . that Commerce conducted
an objective further examination of the informati on provided in the application” ignores the record
evidence regarding Commerce’s “further examination” of the application.
50 Instead, Canada bases
this charge on the premise that, had Commerce conduc ted an “objective further examination, it would
have discovered that the Petitioner was holding back extremely important and relevant evidence.” As
explained in the US First Written Submission, beca use the experience of one company could not have
negated evidence of dumping by other companie s, the Weldwood data could not have had the
significance Canada attaches to it.51
• First Oral Statement, paragraph 29

82. Weldwood placed certain sales data on the record when seeking to be considered a voluntary
respondent in the investigation. The fact that the United States did not analyze this data cannot justify
Canada’s suggestion that Commerce remained “will fully blind to evidence which would throw the
applicant’s application into doubt.” The United States demonstrated, at paragraphs 65-69 of its First
Written Submission , that the Weldwood data could have shown, at most , that Weldwood was not
dumping. It could not have negated the eviden ce of dumping in both eastern and western Canada
contained in the application. As such, the We ldwood data could not reasonably be described as
“evidence which would throw the applicant’s application into doubt.” Commerce did, in fact, decline
to analyze the data submitted by Weldwood after initiation. As a practical matter, Commerce could
only analyze data from six out of the hundreds of Canadian softwood lumber producers. It chose
which companies’ data to analyze according to the value of exports to the United States.
Documentation regarding Commerce’s handling of the Weldwood data remained part of the case
record throughout the investigation.52

50See US First Written Submission, paras. 63-64 and the documents cited therein.
51See US First Written Submission, paras. 70-76.
52See Exhibit US-64.

• First Oral Statement, paragraph 79

83. Canada continues to claim that the United Stat es failed to consider Abitibi’s evidence relating
to financial costs and asset values. This is in correct. Commerce explains why it rejected Abitibi’s
argument in the Final Determination , Comment 15. Specifically, Commerce explained that it did not
accept Abitibi’s basic premise that interest costs could be tied to partic ular expenditures. In addition,
Commerce explained that the methodology actually used accounted for the varying asset levels
through depreciation costs.53
• First Oral Statement, paragraph 89

84. Canada argues that the United States was factua lly incorrect when it stated that Tembec’s
“divisional G&A” had to be supplemented with “h eadquarter G&A.” Canada is incorrect. Canada
stipulated in its First Written Submission that Tembec’s suggested G&A methodology required the
allocation of some portion of “headquarter G&A” to Tembec’s softwood lumber division.
54 Thus,
Tembec’s methodology was not only based on the unaudited amount of G&A that Tembec claims was
specific to the softwood lumber division, it also included an unaudited amount for “headquarter
G&A.”
• First Oral Statement, paragraph 90

85. Canada claims that Tembec’s “division speci fic” G&A was in accordance with Canadian
GAAP. This is an unsubstantiated claim. Moreove r, the only evidence on the record indicates that
this “division specific” G&A was not audited.
55 Commerce’s methodology, in contrast, is based on an
allocated portion of the G&A found in Tembec’s a udited financial statement. Thus, Commerce’s
methodology is in accordance with Article 2.2.1.1. Moreover, Tembec’s methodology contradicts the
most basic definition of general costs, which are costs incurred on behalf of an entire company, rather
than a particular product.
56
• First Oral Statement, paragraph 94

86. Canada claims that Weyerhaeuser did not report its litigation cost as a general cost to the
company. Canada is incorrect. The US discussion of Weyerhaeuser at paragraphs 64-67 explains
Commerce’s basis for finding that Weyerhaeuser reported the litigation cost as a general cost.
• First Oral Statement, paragraph 95

87. Canada incorrectly asserts an absence of fact ual information that Weyerhaeuser’s litigation
costs were properly allocable to softwood lumber. The US discussion of Weyerhaeuser at paragraphs
64-67 explains Commerce’s basis for finding that the litigation cost was a general cost.
• First Oral Statement, paragraph 105

88. Canada claims that Commerce “ignored the record evidence of prices at which Tembec’s pulp
mills in Ontario and Quebec purchased wood chips from affiliated suppliers.” In fact, in the Final
Determination, Commerce specifically addressed those transactions, explaining that “the
documentation presented at verification” that cont ained these prices was “selectively provided by

53See also US First Written Submission, para. 194.
54See Canada’s First Written Submission, para. 209.
55See Tembec’s Annual Report, “Auditors Report,” p. 34 (Exhibit US-12 at 3).
56Joel G. Siegel and Jae K. Shim, Dictionary of Accounting Terms (Barron’s Educational Services, Inc.
2nd ed. 1995) (Exhibit US-47).

companies and not based on a sample chosen by the Department.”
57 Commerce added that “these
comparisons represented only a portion of the total wood chip purchases by [Tembec]’s pulp mills
and there is no record evidence to determine what the results might be if all mills were included.”
58
• First Oral Statement, paragraph 116

89. Canada claims that Commerce “unreasonably disregarded certain sales by West Fraser as
‘inflated’ even though it verified that those sales reflected market prices.” Commerce never verified
that those sales reflected market prices. In fact, it affirmatively determined that those affiliated sales
did not reflect market prices.59
• First Oral Statement, paragraph 120

90. Canada argues that Commerce rejected the Slocan futures profit data despite evidence that the
data related to lumber. See the US answer to Question 82 for a discussion of Commerce’s thorough
evaluation of the facts.
42. Please explain the methodology used with respect to treatment of by-product
revenue offsets, and the manner in which by -product revenues were offset in the case
before the Panel.

91. In the process of manufacturing softwood lu mber, wood chips are produced. These wood
chips are minor in value when co mpared to lumber or joint pr oducts from the lumber production
process, and they have no independent cost associated with their production. Therefore, by definition,
they are by-products. These wood chips are subseque ntly sold by lumber sawmills to pulp mills
through different types of transactions. Tembec’ s sawmills sold wood chips to Tembec’s pulp mills
through interdivisional transactions – sales within the same company. West Fraser, on the other hand,
sold wood chips to affiliated pulp mills. Finally, both Tembec and West Fraser sold wood chips to
mills with which they had no corporate relationship whatsoever.
92. In calculating a company’s cost of production of softwood lumber, Commerce will offset the
total pool of joint lumber production costs by revenue from wood chip sales. Article 2.2.1.1 of the
AD Agreement states that investigating authorities ha ve an obligation to use a company’s books and
records in its cost calculations if those books and records reasonably reflect the cost of production.
This also applies to the valuation of an offset to the cost of production calculation. For purposes of
the by-product offset, Commerce will use the actual valuation of a by-product from a company’s
books and records, unless it believes that amount does not reflect a reasonable valuation of that by-
product. In the case of the six respondents in th e investigation, Commerce used the valuation for
wood chips recorded by all of the companies except West Fraser.
93. West Fraser had sales to affiliated pulp mills a nd unaffiliated pulp mills. Unlike Tembec, it
had no interdivisional transfers of wood chips. In evaluating sales to affiliated entities, Commerce
applies as a benchmark sales to unaffiliated entities. In this way, Commerce determines whether an
amount reported for an affiliated sale is a reasonabl e reflection of the actual cost of production (or
actual value of a by-product in the case of a by-product offset). In the case of West Fraser’s Alberta
transactions, because these sales of wood chips involve d affiliated parties, Commerce compared them
to West Fraser’s unaffiliated sales in Alberta and determined that the prices of wood chips in affiliated
sales were appropriate to use in its calculations. With respect to the British Colombia transactions,
Commerce reviewed West Fraser’s unaffiliated transactions within British Colombia and found them
to be commercial transactions that reflected a market value. It then reviewed West Fraser’s affiliated

57Final Determination, Comment 11 (Exhibit CDA-2).
58Final Determination, Comment 11 (Exhibit CDA-2).
59US First Written Submission, para. 220 and exhibit cited therein.

transactions and determined that the prices for w ood chips paid by the affiliated parties did not
reasonably reflect a market value for wood chips. Thus, Commerce removed the affiliated valuations
in its calculations for West Fraser’s sales in British Columbia and valued them with the price of wood
chips in West Fraser’s unaffiliated transactions.
94. Canada now argues that Commerce should have used the prices for West Fraser’s affiliated
transactions, because most of the transactions in Br itish Columbia were with affiliated parties.
Canada also argues that some of the unaffiliated tr ansactions (from the McBride mill) were subject to
a contract that kept prices constant. However, Ca nada does not discuss the commercial validity of the
rest of the transactions (from the Pacific Island Resources mill).
95. West Fraser’s total unaffiliated transactions in volved a significant tonnage of wood chips to
separate unaffiliated parties, with a significant commercial value. 60 However, it is not the volume of
the transaction that makes it a market based transa ction, but the commercial setting and the details
surrounding the sale. In this case, West Fraser did not argue that its unaffiliated transactions were
either too small or not market-based. Thus, Commerce determined that there was no reason to
question the representativeness of these transactions , and it used the wood chip prices from these
transactions to value West Fraser’s by-product offset in its production costs.
96. With respect to Tembec, Cana da claims that Commerce s hould not have used Tembec’s
interdivisional wood chip valuations, because Comme rce (allegedly) verified that these prices were
arbitrary and that Tembec’s market sales were larg er than its interdivisional sales. As Commerce
explained in the Final Determination and the US First Written Submission, Commerce never verified
that Tembec’s interdivisional values were arbitrary,
61 and to the contrary, actually determined that
Tembec’s interdivisional value for wood chips reasonably reflected a value for that by-product.62
97. In determining a “reasonable” amount for valuing the by-product offset in interdivisional
transactions, Commerce uses the same methodology that it uses for valuing costs in interdivisional
transactions. As a standard corporate practice, inte rdivisional transfer values reflect actual costs of
production (since the company does not need to include a profit in its price to itself). With respect to
by-products, absent any independent costs, Commerc e normally takes the internal value assigned by
the company to a by-product as a surrogate for an a ppropriate value for the by-product, and then tests
that value for reasonableness, as done here. B ecause Commerce normally values interdivisional
transfers at actual cost, which is less than market value (because of the existence of profit in market
value), a value assigned to a by-product is also commonly less than market value.
98. Canada argues that this makes no sense, because if a by-product has no cost, then there can be
no “profit.” However, even a by-product with no independent cost can be assigned a company’s best
assessment of a surrogate for cost. This is what Te mbec did when it set its internal transfer price.

60West Fraser Cost Verification Exhibit C5, WF-Cost-007503 (Exhibit CDA-106).
61When evaluating Tembec’s British Columbia sawmills, Commerce stated:

We compared Tembec’s British Columbia (“BC”) sawmills’ internal transfer pri ces for wood chips to
the BC sawmills’ wood chip sales prices to unaffiliated purchasers (i.e., BC market prices). We found that the
company’s internal transfer prices did not give preferential treatment to the sawmills. Thus we relied on their
normal books and records for the final determination. (Emphasis added).

DOC Memorandum on Tembec Cost Calculation Adjustments for the Final Determination
(21 March 2002), at 2 (Exhibit US-58).
62In the Final Determination, Commerce “analyzed the wood chip sales transactions between Tembec’s
sawmills and its internal divisions to evaluate whether the internally set transfer prices (were) reasonable.”
Final Determination, Comment 11 (Exhibit CDA-2). Pursuant to this analysis, it found that the weighted
average transfer price between Tembec’s own British Colombia sawmills and pulp mills was a reasonable
surrogate for the actual cost of wood chips, and it therefore used this number as Tembec’s by-product offset. Id.

There are no easy methods to assess value under su ch conditions, but Commerce examined Tembec’s
assessment and found that it was reasonable. Tembec set an internal surrogate for cost, and it also had
an external market price; the di fference between the two is the equivalent of “profit” in the normal
setting where costs and sales prices are known.
99. Given these inherent difficulties, and contrary to Canada’s analysis that there could be no
“profit,” there also has not been an “arbitrary” valuation, because Commerce used the company’s own
valuation data to make its determination of a “reasonable” figure for a by-product offset.
43. When addressing Canada's compan y-specific issues relating to the
determination of the SG&A expenses of Ab itibi, Tembec and Weyerhaeuser, please
explain which of the methodologies were app lied by DOC to calculate the general and
administrative expenses of Abitibi, Tembec and Weyerhaeuser and how they are
consistent with the provisions of Article 2.2.2 of the Anti-Dumping Agreement.

100. In answering this question, the United States w ill first provide a general description of its
SG&A methodology.
101. In order to calculate SG&A, Commerce calculate s selling costs, general and administrative
costs, and interest costs. Direct selling costs, such as commissions, guarantees, and warranties, that
result from, and bear a direct relationship to, the particular sale in question are assigned on a
sales-specific basis to the extent possible.
102. Indirect selling costs, which do not result from a particular sale ( e.g., salesman's salaries,
office supplies) are allocated over all sales made by the sales unit incurring the costs, on the basis of
sales value.
103. Other than financial costs, general and admi nistrative (G&A) costs for the like product are
allocated to all sales by the producer, through app lication of a G&A ratio. The producer’s total G&A
is divided by the producer’s total cost of goods sold . If the producer is part of a consolidated entity,
Commerce includes in the calculation that portion (rati o) of the parent company’s G&A pertaining to
the producer under investigation. The resulting qu otient is the G&A ratio and represents the amount
of G&A incurred for each dollar of production cost. The G&A ratio is applied to the total cost of
production of the like product in order to determine the non-financial general and administrative costs
pertaining to the production of the like product.
104. Financial costs are also allocated to all sales by the producer (through a financial cost ratio).
The producer’s total interest cost is divided by the producer’s total cost of goods sold. Because
money is fungible, a dollar borrowed is not identifiabl e with any particular product within a company.
For example, money borrowed by a company produc ing several different products may be expended
as easily on lumber production as it is on paper produc tion. Accordingly, in calculating the financial
cost ratio, Commerce starts at the highest level of co rporate consolidation. Thus, if a corporate entity
consisted of a parent and several subsidiaries, Commerce would calculate its financial cost ratio based
on the total financial cost reported on the parent’s consolidated financial statement divided by the
parent company’s total cost of goods sold. The resulting quotient is the financial cost ratio and
represents the financial costs the producer incurs for each dollar of production cost. The financial cost
ratio is applied to the total cost of producing the like product in order to determine the financial costs
pertaining to the production of the like product.
105. Commerce employed the methodology described above in calculating G&A costs for Abitibi,
Weyerhaeuser, and Tembec. As this methodology w as based on the actual cost data provided by
Abitibi, Weyerhaeuser, and Tembec and was like product specific (
i.e. the financial cost ratio and the
G&A ratio were applied to the cost of produc ing softwood lumber), this methodology is fully
consistent with the chapeau of Article 2.2.2, and with Article 2.2.1.1.

To both parties:

44. What obligations does Article 2.2.1.1 impose: 1) in general on investigating
authorities, and 2) with respect to the determination of by-product revenue offsets?

106. Article 2.2.1.1 establishes obligations on inves tigating authorities with respect to their
consideration and use of cost data provided by res pondents in an investigation. It states that it is
“[f]or the purpose of paragraph 2", which means th at, in the context of Article 2.2, it covers “ cost of
production” and also “a reasonable amount for administrative, selling and general costs.” In
particular, investigating authorities are directed by this provision to:
(1) calculate costs normally on the basis of records kept by the exporter or producer
under investigation, provided that such r ecords are in accordance with the generally
accepted accounting principles of the expor ting country and reasonably reflect the
costs associated with the production and sale of the product under consideration;

(2) consider all available evidence on the pr oper allocation of costs, including that which
is made available by the exporter or producer. Emphasis should be placed on that
evidence which establishes appropriate am ortization and depreci ation periods and
allows for capital expenditures and other development costs; and

(3) adjust appropriately for non-recurring items of cost which benefit future and/or
current production, or for circumstances in which costs during the period of
investigation are affected by start-up opera tions (unless already re flected in the cost
allocations).

107. Article 2.2.1.1 provides no specific guidance on the question of determining the
reasonableness of the costs of by-products or by-product offsets.
63 It speaks more generally to the
cost of production of the product under investigation. Where an exporter’s cost records in accordance
with GAAP include a revenue offset, calculating a by-product offset can be a necessary step in
calculating the cost of producing the product unde r consideration. The general guidance in
Article 2.2.1.1 applies to each of the particular steps in calculating cost of production, including
calculation of a by-product offset.
45. For the terms "actual data pert aining to production and sales ( …) of the like
product" in Article 2.2.2, please explain the application of this sentence in general and in
light of the company-specific issues in this case.

108. The chapeau of Article 2.2.2 expresses a preference for basing the amounts for administrative,
selling and general costs and for profits on the actual amounts that pertain to the production and sale
in the ordinary course of trade of the like product. If a producer’s actual data pertaining to the
production of the like product is not available, or if sales of the like product have not been in the
ordinary course of trade, Article 2.2.2 provides three alternative methodologies for calculating SG&A
and profit.
109. Abitibi, Tembec, and Weyerhaeuser reported actual general and administrative costs that were
incurred on behalf of each company. As these gene ral and administrative costs, by definition, were

63Indeed, the United States notes that the AD Agreement contains no requirement to make a by-product
offset. The only issue is the extent to which an invest igating authority has found that the cost records for
production of the product under consideration are a reas onable reflection of the co sts associated with such
production. It becomes an issue, in most cases, where the GAAP of the exporting country allows an exporter’s
records to use the by-product revenue as an offset.

incurred on behalf of each company, in their entiret y, they pertained, in part, to the production and
sale of the like product for each company. Theref ore, a portion of each producer’s actual costs was
allocated to the like product by applying the G& A and financial cost ratios to the cost of
manufacturing the like product. Because the selling, general, and administrative costs were based on
each producer’s actual data, sales were in the ordinary course of trade, and the costs pertained to the
like product, these costs were calculated consistently with the chapeau of Article 2.2.2.
46. What is the relationship, if any, between Articles 2.2.1.1 and 2.2.2 of the Anti-
Dumping Agreement?

110. Article 2.2.1.1 and Article 2.2. 2 relate to the obligations of investigating authorities in
calculating a producer’s cost, including for purposes of determining whether the producer is selling
below the cost of production and also construc ting a normal value. Article 2.2.2 addresses
administrative, selling and general costs and profit in particular, while Article 2.2.1.1 addresses all
cost calculations (including G&A). Article 2.2. 2 expresses a preference for basing the calculation of
administrative, selling, and general costs and of profits on the actual amounts that pertain to the
production and sales in the ordinary course of trade of the like product and the actual profits realized.
However, if a producer’s actual data pertaini ng to the production of the like product cannot be
determined on this basis, Article 2.2.2 provides alternative methodologies for calculating these costs.
Article 2.2.1.1 expresses a preference for basing the calculation of all costs on the books and records
of the producer, provided that those books and record s are kept in accordance with the GAAP of the
country of production and that they reasonably refl ect the costs associated with the production and
sales of the like product. Thus, while both provis ions express a general preference for costs to be
calculated on a producer’s data pertaining to or a ssociated with the like product, Article 2.2.1.1
clarifies what kind of data an investiga ting authority is obligated to consider ( i.e., books and records
kept in accordance with the GAAP of the country of production and that reasonably reflect the cost
associated with the production and sales of the like product).
G.2 Calculation Financial Expenses of Abitibi

To Canada:

47. Please comment on the statements cont ained in p. 77 of DOC’s Memorandum of
21 March 2002 (Exhibit CDA-2):

"[t]he Department's method addresses Abit ibi's concern that those activities are
more capital intensive. Specifically, those activities would have a higher
depreciation expense on their equipment and assets. Thus, when the
consolidated financial expense rate is a pplied to the cost of manufacturing of
lumber products, less interest will be applied because the total cost of
manufacturing for lumber products includes a lower depreciation expense."

111. As the quoted passage indicates, Commerce’s me thodology reflects asset values, because the
cost of goods sold, upon which financial costs are allocated, as well as the cost of manufacturing the
like product to which the financial cost ratio is ap plied, both include depreciation values. Canada
argues that because certain types of assets are not depreciated ( e.g., land and goodwill), Commerce’s
methodology is unreasonable.
64 However, the vast majority of Abitibi’s assets (approximately
C$8 billion out of C$11 billion in total assets) were “capital assets” and were represented in
Commerce’s financial cost methodology through depreciation costs. 65 Moreover, contrary to

64See First Oral Statement of Canada, para. 84.
65See Abitibi 2000 Consolidated Financial Statement, p. 35 (Exhibit CDA-82).

Canada’s assertion in its First Oral Statement (paragraph 84), Commerce included an amortized
portion of goodwill in Abitibi’s cost of production.66

G.3 alculation of G&A Expenses of Tembec

To the US:

56. In paragraph 200 of its First Written Submission, the US states that:

"Commerce determined that, because the division-specific amount at
issue was unaudited, it was inherently less reliable than audited books
and records that had been certified to be consistent with Canadian
GAAP. There was greater certainty that audited GAAP-consistent
books and records would “reasonabl y reflect the costs.” Second,
Commerce determined that relying on division-specific costs was
inconsistent with the very nature of G&A expenses, which are, by
definition, company-wide expenses." (footnotes excluded)

Could the US please direct the Panel to where on the record
 did DOC make such
determinations? Please provide detailed references to relevant portions of documents as
well as copies thereof.

112. Commerce recognized in its Final Determination that Tembec reported its G&A based on an
“internal accounting methodology” rather th an on its audited financial statements. 67 Commerce also
stated that it was employing its standard G&A me thodology in order to avoid “any distortions that
may result if, for business reasons, greater amounts of company-wide general expenses are allocated
disproportionately between divisions.” 68 Finally, Commerce noted that its standard G&A
methodology “is consistent with Canadian GAAP’s tr eatment of such period costs. . .” Commerce’s
decision to reject this unaudited G&A amount was reasonable, because an unaudited amount is of
questionable reliability. The importance of the relia bility of cost data is clearly recognized in
Article 2.2.1.1, which states that an investigating authority should normally consider only those books
and records that are kept in accordance with th e GAAP of the country where the like product is
produced and reasonably reflect the cost associated with the production and sale of the like product.
113. Commerce also recognized in its Final Determinat ion that, consistent with the definition of
"general costs," G&A relates to the company as a whole rather than a particular product. Commerce
stated that its methodology was consistent "with th e general nature of [G&A] expenses and the fact
that they relate to the activities of the compan y as a whole rather than a particular production
process.”69 Tembec’s methodology contradicts this basic definition and is based on the
unsubstantiated premise that genera l and administrative costs are incurred primarily on a divisional
level.

66 Final Determination, Comment 16 (Exhibit CDA-2).
67 Id. at Comment 33; see also Verification Report on the Cost of Production and Constructed Value
Data Submitted by Tembec Inc., p. 26 (29 January 2002) (Exhibit US-73) (stating that Commerce tied Tembec’s
G&A costs to the audited financial statements).
68See Final Determination, Comment 33.
69 Id.

57. Could the US please indicate which of the methodologies in Article 2.2.2 did
DOC use to determine the SG&A for Tembec?

114. Commerce determined Tembec’s SG&A under the chapeau of Article 2.2.2. As discussed in
the answer to Question 43, Commerce calculated Tembec’s G&A by applying the company-wide
G&A ratio to the cost of manufacturing of the like product.
70 The resulting amount represents the
G&A cost that pertains to Tembec’s production and sale of the like product. As Commerce’s
methodology relied on Tembec’s own data and calcu lated SG&A specific to the like product under
investigation (i.e., the G&A ratio was applied to the cost of manufacturing the like product), it is fully
consistent with the chapeau of Article 2.2.2. Given the availability of Tembec’s actual data pertaining
to the production of the like product, there was no basis for Commerce to use the other methodologies
available under Article 2.2.2(i), (ii), and (iii).
G.4 Calculation of G&A (Legal Costs) of Weyerhaeuser

To Canada:

58. Could Canada please direct the Panel to where in the record it can find
Weyerhaeuser's arguments on the treatment of certain legal settlement claims incurred
by Weyerhaeuser US. Please include referenc es to documents on the record, identifying
with precision
 where on the document Weyerhaeuser's argument are to be found. Also
provide a concise summary of Weyerhaeuser's arguments.

115. One place on the record in which the Panel can find Weyerhaeuser’s arguments on this legal
settlement issue is in the Final Determination, Comment 48b (Exhibit CDA-2), where Weyerhaeuser’s
arguments, those of the petitioners, and Commerce’ s decision are fully summarized. This discussion
reflects Commerce’s consideration of all of th e arguments and evidence before reaching its
determination.
To the US:

61. In para. 227 of its First Written Submission, Canada states that:

"[w]ithout providing any citations or evidence to support its conclusion,
DOC simply stated that it "typically allocates business charges of this
nature over all products because they do not relate to an {sic} production
activity, but to the company as a whole."" (footnote omitted)

Could the US please comment on the above statement. In particular, could the US
explain in detail how DOC came to the conc lusion that it was justified to reject
Weyerhaeuser's request for exclusion of certain legal settlement claims and direct the
Panel to where in the record it could find the relevant DOC motivation?

116. In response to this question, the United St ates refers the Panel to the discussion of
“Weyerhaeuser G&A” in the US response to Question 41, paragraphs 65-67.
62. With respect to Weyerhaeuser's arguments relating the treatment of legal
settlement costs, it is stated in DOC's Memorandum of 21 March 2002 (Exhibit CDA-2)
that:

"[w]hile the costs relate to non-subject product, hardboard siding, the
Department typically allocates busin ess charges of this nature over all

70 See Section D Questionnaire - Cost of Production and Constructed Value, D-13 (Exhibit US-46).

products because they do not relate to an (sic) production activity, but to
the company as a whole."

In para. 211 of the US First Written Submission, it is stated that:

"[a]s in that case, the nexus here between the litigation costs at issue and
production of the product at issue (hardboard siding) was attenuated."

In light of DOC’s finding, could the US explain what the term "was attenuated" means
in this context? In replying to this question, could the US please refer to
documents/evidence on the record. Pl ease describe and motivate your standard
practice.

117. In describing the relationship between the litig ation costs and the production of hardboard
siding as "attenuated," the United States was stressing that any relationship was weak at best. As
explained in the US answer to Question 41, not only were these litigation expenses not of the type that
are production costs (i.e., the litigation does not make or help to make a product), but the expense was
incurred anywhere from one year to as long as eighteen years after production and sale of the products
at issue.
118. Canada’s argument confuses a cost being (possi bly) associated with a product and a cost
being related to the production of a product. The mere fact that litigation was about hardboard siding
does not mean that the litigation cost was a cost of producing hardboard siding.
119. When the United States used the word “attenua ted,” it was describing the weak link between
the litigation and the cost of producing hardboard siding. The United States was underscoring the
point that a long separation between production of a good and the incurring of a litigation expense
associated with the good argues strongly against allocating the expense to the current cost of
producing that good.
63. In Egypt – Steel Rebar, the panel found that a "relationship test" is articulated
in, inter alia, Articles 2.2.1.1 and 2.2.2 of the Anti-Dumping Agreement. Could the US
please comment on this? Is the US of the view that the fact that certain costs are found
to be part of the general and administra tive expenses of a company allows an
investigating authority to automatically allo cate a portion of such costs to the like
product, or is the investigating authority obligated to establish a relationship between
those costs and the production and sale of the like product?

120. Article 2.2.2 of the AD Agreement requires that amounts for administrative, selling, and
general costs be based on “actual data pertaining to production and sales in the ordinary course of
trade of the like product by the exporter or producer under investigation.” Article 2.2.1.1 requires that
costs (including G&A costs) normally be calculated on the basis of an exporter or producer’s records
where, inter alia, those records “reasonably reflect the costs associated with the production and sale of
the product under consideration.” The Egypt–Steel Rebar panel characterized these provisions as
setting forth a requirement that there be a “relations hip” between the interest income at issue (which
typically would be considered as part of G&A cost) and the costs of producing and selling the
product under consideration.
71
121. The United States does not disagree with the ge neral proposition that the words “associated
with” and “pertaining to” suggest some relationshi p between G&A costs and costs of producing and
selling the product under consideration. Where the United States disagrees with the Egypt-Steel
Rebar report, as the US understands it, is in the de gree of relationship required. The panel in Egypt-

71Egypt–Steel Rebar, para. 7.393.

Steel Rebar appeared to require that a given item of G&A expense – in that case, an offset to short-
term interest expense – be related exclusively to production and sale of the product under
consideration in order for it to be includable in that product’s cost of production.
122. It is important to recall the facts in Egypt-Steel Rebar. As the panel in that case observed,
“[T]he calculation of costs in any given investigatio n must be determined based on the merits, in the
light of the particular facts of that investigation.”
72 There, respondents were seeking an offset to cost
of production for short-term interest earned during the period of investigation. The investigating
authority found that the respondents had not shown a relationship between the interest earned and the
costs of selling and producing rebar. The panel ag reed, stating that it had not found “evidence of
record that would demonstrate any relationship of sh ort-term interest income to the cost of producing
rebar.”73
123. The panel in Egypt–Steel Rebar made a point of noting the respondents’ failure to respond to
the investigating authority’s information requests. 74 It is, therefore, unclear what evidence would
have satisfied the Panel of the existence of a rela tionship between short-term interest income and the
cost of producing rebar. What is puzzling about the panel’s finding is that it seems to require that an
element of G&A cost (in this case, a short-term interest offset) be related exclusively to the
production and sale of the product under consideration. It was not enough that the element was part
of G&A for the company producing the product. Th is is where the United States disagrees with the
panel’s reasoning.
124. The degree of relationship between G&A and cost of selling and production apparently
required by the Egypt–Steel Rebar panel runs contrary to the very concept of G&A. By definition,
G&A costs consist of expenses incurred on a compan y-wide basis for the benefit of the company as a
whole. In a company that produces multiple products, G&A costs are not exclusive to any one
product. They are related to all of the products and are allocated accordingly.
125. A requirement that any given element of G&A co st be associated exclusively with a single
product would lead to the absurd result of G&A cost never being allocable to a product where the
producer has several different product lines. Plainly, Articles 2.2.1.1 and 2.2.2 do not require that
absurd result.
126. In response to the second part of the Panel’s question, the United States is of the view that the
fact that certain costs are found to be part of the G&A expenses of a company allows an investigating
authority to automatically allocate a portion of such costs to the like product. Because general and
administrative expenses are incurred for the benefit of a company as a whole, including all lines of
production, they necessarily pertain to each particular line of production.
G.5 Calculation By-Product Revenue Offset – West Fraser

To the US:

68. Please comment on the following statements contained in para. 242 of Canada’s
First Written Submission:

"[f]or DOC to have disregarded the costs set out in West Fraser’s
records, DOC was required to determ ine that those records did not
reasonably reflect the costs associated with the production and sale of the
product under consideration. DOC did not make such a determination."

72Id.
73Id. at para. 7.426.
74Id.

127. Canada’s assertion is incorrect. Commerce did determine that West Fraser’s sales to
affiliated parties did not reasonably reflect the costs associated with the production and sale of wood
chips. Commerce reached this de termination by comparing West Fraser’s sales to affiliated parties
with its sales to unaffiliated parties, as recorded in West Fraser’s books. Having determined that West
Fraser’s sales to affiliates did not reflect market prices, Commerce used the average price for West
Fraser’s wood chip sales to unaffiliated customers to determine the value of the wood chip offset.
75
G.6 Calculation of By-Product Revenues – Tembec

To Canada:

70. Please explain the statement contained in para. 261 of Canada's First Written
Submission that:

"Article 2.2.1.1 of the Anti-Dumping Agreement reflects the requirement that
market price is the appropriate benc hmark for valuing by-product revenue
offsets."

128. Canada's statement is based on an incomplete reading of Article 2.2.1.1. The AD Agreement
expressly provides that an investigating authority must ordinarily base cost calculations on an exporter
or producer's books and records. This would includ e any valuation of the by-product reflected in the
books and records of the producer or exporter, "provi ded that such records ar e in accordance with the
generally accepted accounting principles of the e xporting country and reasonably reflect the costs
associated with the production and sale of the product."
129. It is entirely possible that a given item in a company’s books will reasonably reflect costs and
still be lower than market price. This is because cost will not include factors such as profit and selling
expense, which are elements of market price. Article 2.2.1.1 provides that cost calculations must
reasonably reflect the costs associated with the production and sale of the product, not the market
value of the product.
To the US:

74. Explain on which basis the different rules mentioned in para. 216 of the US First
Written Submission are consistent with Article 2.2.1.1.

130. In paragraph 216 of its First Written Submission, the United States discusses different
methods for valuing a by-product. There are three different scenarios: transactions between
unaffiliated parties, transactions be tween affiliated parties, and tran sactions between divisions of the
same corporate entity. For a detailed explanation of Commerce’s practice in each of these scenarios,
see the US answer to Question 42, above.
G.7 Futures Contracts

To Canada:

79. Please comment on the findings contained in para. 6.77 of the US – Stainless
Steel panel report:

"[i]n our view, the requirement to make due allowance for differences
that affect price comparability is in tended to neutralize differences in a

75 Final Determination, Comment 11 (Exhibit CDA-2).

transaction that an exporter could be expected to have reflected in his
pricing. A difference that could not reasonably have been anticipated
and thus taken into account by the exporter when determining the price
to be charged for the product in different markets or to different
customers is not a difference that affects the comparability of prices
within the meaning of Article 2.4." (footnote omitted)

131. The passage cited in this question refers to di fferences between home market sales and export
sales that may affect price comparability. It presu mes that the seller has identified differences that
affect particular sales. In this case, Slocan did not even show that the futures contracts at issue were
terms and conditions related to particular sales of lumber in the United States. It did not demonstrate
that the futures contracts amounted to a “difference” related to export sales, let alone a difference that
affected price comparability.
76
To the US:

81. Please comment on the following statem ent contained in para. 277 of Canada’s
First Written Submission:

"DOC could have treated the revenues as an offset to selling expenses, as
an offset to financial expenses, or as some other circumstance of sale
adjustment. DOC erred, however, when it failed to make any
adjustment to account for revenue generated by futures contract
revenues."

132. Slocan requested only two alternative treatments for its futures contract profits. If there was a
third way to treat them – as offsets to indirect selling expenses – Slocan did not make that claim.77
133. In its 23 July 2001 Questionnaire Response, Slocan unambiguously stated that the hedging
profits should be treated as an offset to direct se lling expenses in the US market, as an adjustment for
differences in the conditi ons and terms of sale. 78 It stated: “Sometimes Slocan will sell its short
positions and take the loss or profit between the sale and strike prices. These expenses or revenues are
linked to Slocan’s sales in the United States and so are being reported as direct selling expenses.”
79
Slocan failed to explain the link between these expe nses or revenues and any particular US sales of
lumber. It also said nothing about how its contracts mi ght affect prices to US customers. In the same

76It is evident from Slocan’s financial statements that futures profits are just another source of income
to the company. The record shows that, where no physical delivery of subject merchandise occurred, Slocan
records the profits or losses from these futures contracts as a sales-type revenue in its books and financial
statements. Slocan Case Brief at 70, n. 24 (Exhibit US-72). For all practical purposes in this case, since the
revenue was not profit from the sale of lumber, it could just as easily have been revenue from the sale of another
product. For example, profits from sales of pulp and paper in the United States are not a difference in
conditions and terms of sale for lumber. Similarly, in this case, hedging profits are not tied to any sale of
lumber.
77First, Slocan claimed that the futures contracts profits should be an offset to direct selling expenses.
Commerce found that Slocan’s futures contracts profits are not direct selling expenses, as they are not directly
related to specific sales of softwood lumber. US First Written Submission, para. 250; Final Determination,
Comment 21 (Exhibit CDA-2). Second, Slocan alternatively claimed that the futures contracts profits should be
an offset to financing costs included in the calculation of Slocan’s cost of production. Commerce found that
Slocan’s alternative argument also failed, because Slocan’s own books and records recorded futures profits as
sales revenues, not production expenses. US First Written Submission, para. 254; Final Determination,
Comment 21 (Exhibit CDA-2).
78R e s p o n s e o f S l o c a n F o r e s t P r o d u c t s L t d T o S e c t i o n s B , C , & D o f t h e D e p a r t m e n t o f C o m m e r c e
Antidumping Questionnaire, 23 July 2001, pp. C35-37 (Exhibit US-71).
79 Id. at pp. C-35-36 (Exhibit US-71).

submission, Slocan unambiguously asserted that it did not incur indirect selling expenses. 80 The facts
demonstrated that hedging profits were not direct selling expenses, because they were not directly
related to particular softwood lumber sales.81
134. The United States disagrees with Canada’s sugg estion (First Oral Statement, paragraph 121),
that Article 2.4 does not require a price adjustment to be directly related to the actual sales transaction
being compared. An adjustment for alleged diffe rences in conditions and te rms of sale cannot be
demonstrated to affect price comparability if it is not shown that the claimed difference is related to an
actual transaction.82
135. In its statements to the Panel, Canada appears to have articulated a claim that is broader than
the one Slocan made to Commerce. Slocan urged th at its futures contract revenues warranted either
an adjustment to “direct selling expense” or an offset to interest expense. Now, Canada argues that
the revenues warranted an adjustment to “selling expense,” significantly omitting the word “direct.”83
136. Omission of the word “direct” effectively draws in indirect selling expense. However, Slocan
never sought an adjustment to indirect selling expense. In fact, it stated that it had no indirect selling
expenses in the United States.84
137. Under Article 2.4, Commerce had no obligation to make an adjustment that the respondent
did not seek.85 Article 2.4 requires that “due allowance” be made “in each case, on its merits” where a
difference is “demonstrated” to affect price comp arability. Since Slocan did not even make the
argument for an adjustment to indirect selling expense, there was no basis for Commerce to determine
that the merits warranted such an adjustment.
138. Slocan also had asked in the investigation that its hedging profits be treated as an offset to
financing costs. However, as an accounting matte r, Slocan’s own books and records treated the
profits at issue as a type of lumber revenue, albe it revenue that was not generated by actual sales of
softwood lumber. Therefore, as noted in paragraph 246 of the US First Written Submission, it would
have been inappropriate for Commerce to disregard Slocan’s own treatment of the profits as linked,
albeit indirectly, to lumber sales and instead treat them as offsets to cost of production.
82. Please explain how DOC treated Slocan 's futures contracts revenues at issue
before the Panel in the various stages of the investigation, including whether or not any
form of adjustment was granted in DOC's Final Determination.

139. In its Preliminary Determination, Commerce found Slocan’s futures contracts to be a type of
investment activity. It did not grant an adjustment for direct selling expenses. 86 In a memorandum
issued at the time of its Preliminary Determination, Commerce explained,

80Id. at pp. C-37 (Exhibit US-71).
81See Slocan Cost Verification Report at 26 (Exhibit CDA-118); see Final Determination, Comment 21
(Exhibit CDA-2).
82See Panel Report, Antidumping Measures on Stainless Steel Plate in Coils and Stainless Steel Sheet
and Strip from Korea, WT/DS179/R, adopted 1 Feb. 2001, para. 6.77.
83See Canada’s June 17 First Oral Statement, para. 120; Canada’s First Written Submission, para. 277.
84See Slocan’s 23 July 2001 Section B, C, & D Questionnaire Response, p. C-37 (Exhibit US-71).
85See Panel Report, Egypt–Steel Rebar, para. 7.3 (“[W]here opportunities have been provided by the
authority for interested parties to submit into the record information and arguments on [a] point, the decision by
an interested party not to make such submissions is its own responsibility, and not that of the investigating
authority, and cannot later be reversed by a WTO dispute settlement panel.”).
86Preliminary Determination at 56,069 (Exhibit CDA-11).

In the field DIRSELU2 in the US sales datab ase, Slocan has reported the profit or loss
associated with sales made on th e futures market. We concluded that this is an investment
revenue, and should not be treated as a sales specific deduction/addition.
87

140. Also, in its Preliminary Determination, Comme rce treated the futures trading profits as an
offset to financial expenses.
88 Following verification and further argument, Commerce reversed its
treatment of the profits as an offset to financial expenses.89
141. Slocan disagreed with Commerce’s Prelimin ary Determination regarding direct selling
expenses, and argued the issue further in its briefs. 90 Also, Commerce’s verifications determined that
Slocan used futures contracts to hedge its sales in general, rather than specific transactions.91
142. In its case brief in response to the Preliminar y Determination, Slocan argued that Commerce
disallowed "an integral part of Slocan's US selli ng activity" by treating profits earned on futures
contracts as investment revenue instead of as a selling adjustment. 92 Specifically, Slocan argued that
because the company uses the futures market in an effort to protect itself from future downward price
trends, Commerce was mistaken in believing that Sl ocan uses the market for strictly speculative
purposes. Slocan stated that "sin ce every futures contract entered in to by Slocan with the CME [the
Chicago Mercantile Exchange] carries with it the obligation to deliver the actual lumber specified in
the contract at the time and place specified, Slocan at all times keeps track of the contracts in relation
to its other selling activity, in order to be sure of having the ability to deliver the 'underlying Physical'
out of its own inventory." Slocan also cited to Commerce’s verification report to support its
argument.93
143. Slocan argued that “the futures profits are more appropriately treated as short-term
investments” and should be treated as an offset to the company's financial expenses. Slocan argued
that this situation is “unique from previous s ituations in which the Department has disallowed
investment income on the grounds that the income is not related to the operations of the company,”
because this income is not generated by investment; ra ther, this income results from Slocan's “regular
lumber sales philosophy.”94
Commerce concluded:

Department's Position : Slocan's sales on the Chicago Mercantile Exchange (CME) can be
divided into two categories: those that result in the shipment of subject merchandise, and
those that do not. Any sales of subject merchandise that occurred during the POI as a result of
a futures contract have been included in Slo can's reported sales list. However, we have not
included in our analysis profits on the sale of futures contracts that did not result in the
shipment of subject merchandise. Such profit is realized from Slocan's position on the CME
and as a producer of softwood lumber, but not from its actual sale of subject merchandise.

We also have not applied these profits as an offset to Slocan's direct selling expenses.
Section 773(a)(6)(C)(iii) of the Act directs the Department to make circumstance of sales
adjustments only for direct selling expenses and assumed expenses. Section 351.410(c)

87DOC Analysis Memorandum for Slocan Forest Products, Ltd. at 7, 30 October 2001 (Exhibit CDA-
116).
88Preliminary Determination at 56,069 (Exhibit CDA-11).
89Final Determination, Comment 21 (Exhibit CDA-2).
90Final Determination, Comment 21 (Exhibit CDA-2); Slocan Case Brief at 69-72 (Exhibit US-72).
91 See Cost Verification Report, Memorandum from Michael P. Harrison to Neal M. Halper,
21 February 2002, p. 26 (Exhibit CDA-118).
92Slocan Case Brief at 71 (Exhibit US-72).
93Final Determination, Comment 21 (Exhibit CDA-2); Slocan Case Brief at 71 (Exhibit US-72).
94Final Determination, Comment 21 (Exhibit CDA-2); Slocan Case Brief at 72 (Exhibit US-72).

defines direct selling expenses as "expenses . . . that result from and bear a direct relationship
to the particular sale in question." Accord ingly, where no sale of subject merchandise
occurred, there can be no circumstance of sale adjustment for direct selling expenses.

Slocan suggests that as an alternative, the Department apply the profits as an offset to Slocan's
financial expenses. In support of this argument, Slocan disputes the Department's statement in
its preliminary determination calculation memo that these profits are "investment revenues"
by stating that Slocan is engaging in hedging rather then speculative activity, and that sales on
the futures market are integral parts of the company's normal sales and distribution process.
While we agree that Slocan's lumber futures he dging activity is related to its core business of
selling lumber as opposed to speculative investment activity, it is for this very reason that we
disagree that the futures contracts are related to Slocan's financing activity. As such, the
futures profits should not be used to offset the company's interest expense.
95

144. Accordingly, having heard the parties’ argumen ts, verified the evidence, and evaluated the
record for the Final Determination, Commerce did not accept either of Slocan’s proposed adjustments.
83. The Panel notes the following statement contained in para. 249 of the US First
Written Submission:

"[t]he adjustment that Canada claims should have been made here is an
adjustment for conditions and terms of sale."

On which basis does the US conclude that th e adjustment that Canada claims, "should
have been made here", is an adjustment for conditions and terms of sale?

145. The basis for the quoted statemen t is Slocan’s request for an o ffset to direct selling expenses
for sales of US lumber.
96 An adjustment for direct selling e xpenses, by definiti on, is a type of
adjustment for differences in conditions and terms of sale.97
84. Could the US indicate whether DOC examined if the requested adjustment was
justified under the following language of Article 2.4: "and any other differences which

95Final Determination, Comment 21 (Exhibit CDA-2).
96Final Determination, Comment 21 (Exhibit CDA-2) (“[W]here no sale of subject merchandise
occurred, there can be no circumstance of sale adjustment for direct expenses.”).
97Differences in circumstances of sale are the US la w equivalent to the AD Agreement’s reference to
differences in conditions and terms of sale. Under US la w, an adjustment for direct selling expenses is a sub-
category of an adjustment for differences in circumstances of sale. Section 773(a)(6)(C)(iii) of the Tariff Act of
1930 (Exhibit CDA-7) deals with circumstances of sales adjustments:

(6) Adjustments. The price described in paragraph (1)(B) shall be...
(C) increased or decreased by the amount of any difference (or lack thereof) between the export price
or constructed export price and the price described in paragraph (1)(B) (other than a difference for which
allowance is otherwise provided under this section) that is established to the satisf action of the administering
authority to be wholly or partly due to
... (iii) other differences in the circumstances of sale. (Emphasis supplied).

The specific circumstances of sale adjustment th at Slocan requested was for profits from futures
contracts to be used to offset “direct selling expens es.” Commerce’s regulations, 19 CFR Section 351.410(c),
define “direct selling expenses”:

(c) Direct selling expenses. “Direct selling expens es” are expenses, such as commissions, credit
expenses, guarantees, and warranties, that result from, and bear a direct relationship to, the particular sale in
question. (Emphasis supplied).

are also demonstrated to affect price comparability"? If so, what were DOC's
conclusions? Please identify the relevant documents on the record.

146. Commerce examined only those bases for adjustme nt that Slocan requested. The quoted text
from Article 2.4 presumes a request for such an adjustment, as well as a demonstration of effect on
price comparability. Absent both a request and a demonstration, there is nothing to examine.
Article 2.4 does not require an investigating authorit y, independent of evidence and argument by an
interested party, to find bases for a price ad justment. The only attempt Slocan made at a
demonstration of effect on price comparability was with respect to direct selling expense. For the
reasons described in our response to Question 81, Commerce found no effect on price comparability
to have been “demonstrated” in this case.

ANNEX A-3

RESPONSES OF THE EUROPEAN COMMUNITIES TO
QUESTIONS POSED IN THE CONTEXT OF THE FIRST
SUBSTANTIVE MEETING OF THE PANEL

(30 June 2003)

 1. Please comment on the findings contained in para. 7.3 of the Egypt – Steel Rebar
panel report:

 "the actions of an interested party during the course of an investigation
are critical to its
 protection of its rights under the AD Agreement. As the
Appellate Body observed in US – Hot-Rolled Steel, "in order to complete
their investigations, investigating authorities are entitled to expect a very
significant degree of effort to the best of their abilities from investigated
exporters". The Appellate Body went on to state that "co-operation is
indeed a two-way process involving joint effort". In the context of this
two-way process of developing the information on which determinations
ultimately are based, where an investigating authority has an obligation
to "provide opportunities" to int erested parties to present evidence
and/or arguments on a given issue, and the interested parties themselves
have made no effort during the investigation to present such evidence
and/or arguments, there may be no factual basis in the record on which a
panel could judge whether or not an "opportunity" either was not
"provided" or was denied. Similarly, where a given point is left by the
AD Agreement to the judgement and discretion of the investigating
authority to resolve on the basis of the record before it, and where
opportunities have been provided by the authority for interested parties
to submit into the record information and arguments on that point, the
decision by an interested party not to make such submissions is its own
responsibility, and not that of the investigating authority, and cannot
later be reversed by a WTO dispute settlement panel.” (footnotes
excluded)
1. The EC notes from the outset that the Panel made its findings unrelated to any specific
provision under the Anti-Dumping Agreement ("AD Agreement") However, the exact obligations of
the investigating authority and interested parties ha ve to be determined on the basis of a relevant
particular provision. In this respect overarc hing principles may have a certain bearing on the
interpretation of a given obligation but they do not stand independently thereof.
2. This being said, the EC would recall that the Panel draw a distinction between two different
sets of procedural obligations on an investigating authority:
- first, "those that are stated explicitly and in detail, and which have to be performed in
a particular way in every investigation".

- second, "those that establish certain due process or procedural principles, but leave to
the discretion of the investigating authority exactly how they will be performed."
1

 According to the Panel, the cited conclusions only apply to the second set of obligations.
3. The EC would caution on the accurateness of this distinction, in particular insofar as it would
mean that general due process or procedural princi ples would not have any ra mifications on explicit
procedural obligations. Indeed, a detailed procedural obligation may be the concrete expression of the
due process or good faith requirement and it may also be interpreted in the light thereof.
4. Turning to the specific Panel findings, the EC notes first that the Appellate Body's quotation
from US- Hot-Rolled Steel was made in the context of Article 6 paragraph 8 in connection with
paragraphs 2 to 5 of Annex II of the AD Agreement regarding the use of best information available as
well as Article 6.13 of the AD Agreement. Yet, both provisions are not within the terms of reference
of this Panel.
5. Second, the EC would be somewhat concerned by the Panel's statement that in case an
interested party did not respond to a procedural ob ligation on the investigating authorities to "provide
opportunities" to present evidence and or arguments, "t here may be no factual basis in the record on
which a panel could judge whether or not an 'opport unity' either was not 'provided' or was denied".
Indeed, the EC would not endorse an interpretati on of the Panel's statement according to which
"adverse inferences" could be drawn from a "lack of factual basis" in the record concerning the
provision or denial of an opportunity to present evidence or arguments. To the contrary, it would
appear to the EC that in the case that an interested party did not respond a Member may generally be
presumed to have acted in accordance with its treat y obligations and thus as having provided such a
respective opportunity.
6. As to the last sentence of the Panel's findings, one has to distinguish two separate issues:
 - first, under which conditions the investig ating authorities may use best information
available and

 - second, the consequences of such use for the Panel proceedings.

7. As to the first aspect, Article 6.8 of the Anti-Dumping Agreement gives a proper indication on
the use of best information available. The first sentence reads as follows:
In cases in which an interested pa rty refuses access to, or otherwise
does not provide, necessary information within a reasonable period or
significantly impedes the investigation, preliminary and final
determinations, affirmative or negative, may be made on the basis of
the facts available.
 Thus, a prerequisite for the application of Article 6.8 of the Anti-Dumping Agreement is the
non-cooperation of the interested party. Thus, an interested party has an interest in cooperating
actively with the investigating authority.

8. With regard to the second aspect, the EC would caution that a Panel would be per se
precluded in reversing an investigating authority's decision if best available information had been
used. The standard of review for Panel proceed ings under the Anti-Dumping Agreement is set out
under Article 17.6(i). Yet, whethe r an investigating authority came to a conclusion on the basis of a

1 Panel Report, Egypt - Definitive Anti-Dumping Measures on Steel Rebar from Turkey , WT/DS211/R,
adopted 1 October 2002, para. 7.2.

fully co-operative respondent or on the basis of best available information does not affect this
standard. Indeed, even if an interested party did not cooperate, an investigating authority might have
come to a conclusion on the basis of best information available that were in violation of the Anti-
Dumping Agreement.
 2. What obligations does Article 2.2.1.1 impose in general on investigating
authorities?

9. Article 2.2.1.1 of the AD Agreement contains a general obligation on investigating authorities
to rely primarily on the operator's record when calculating its costs. However, as evidenced in this
article, this does not mean just any information by the operator but only those that meet certain
standards, such as for instance the generally accepted accounting principles of the exporting countries.
The ultimate purpose of Article 2.2.1.1 of the AD Agreement is, therefore, to reach a conclusion on
costs that is as objective and reasonable as possible.
 3. For the terms "actual data pertaining to production and sales (…) of the like
product" in Article 2.2.2, please explain the application of this sentence in
general.

10. Article 2.2.2 of the AD Agreement provides relevant guidance for the calculation of
administrative, selling and general costs and for profits in case of a constructed normal value under
Article 2.2 of the AD Agreement. The investigating authorities will u se the respective data of the like
product to the extent that they are available.
4. What is the relationship, if any, between Articles 2.2.1.1 and 2.2.2 of the Anti-
Dumping Agreement?

11. Article 2.2.2 and Article 2.2.1.1 of the AD Agreement do both apply within the context of
paragraph 2 regarding the calculation of costs. Speci fically, Article 2.2.2 deals with costs in relation
to SGA and profits in case of the construction of normal value whereas Article 2.2.1.1 of the AD
Agreement is a sub-paragraph to Article 2.2.1 of the AD Agreement. This provision in turn is relevant
for the question whether sales in the domestic market and to third countries are made in the ordinary
course of trade.
 5. Please comment on the statement contained in para. 185 of the US First Written
Submission:

"[t]his Panel should reject Canada’s arguments that attempt to
interpret the general language of the cost calculation provisions
of the AD Agreement as requiring use of particular
methodologies."
12. The EC would in principle agree with the US' statement. In this context, the Panel should
also respect the limitations as set out in Article 17.6(i) of the AD Agreement. In the absence of
specific requirements under the AD Ag reement to use certain methodologies it is not for the Panel to
make a de novo determination. However, this being said, the EC does not take a position for either
side in this particular case.
 6. Please comment on the statement contained in para. 221 of the US First Written
Submission:

“[t]he AD Agreement is silent as to how to assess affiliated party
transactions relating to costs.”

13. The US made its statement in the context of Article 2.2.1.1 of the AD Agreement. The EC
would agree with the US that this provision does not provide any special rule for the assessment of
costs of affiliated party transactions.
14. The objective of the cost calculation under Article 2.2.1.1 of the AD Agreement is to
"reasonably reflect the costs associated with the production and sale of the product under
consideration". However, it is clear that affiliated party transactions are often made at distorted prices
thus not giving a proper guidance on the "real" costs as formulated under Article 2.2.1.1 of the AD
Agreement. It may, therefore, be more reasonable to disregard them. Yet, the EC does not take a
position whether in the present case the US correctly dismissed the informati on on affiliated sales at
hand.
 7. Please comment on the statements contained in para. 228 of the US First Written
Submission:

“Canada asserts that Commerce’s calculation of West Fraser’s
wood chip offset also violated its obligation to make a “fair
comparison.” This argument confuses obligations regarding
determination of normal value with obligations regarding the
comparison between normal value and export price. As the
panel in Egypt - Rebar confirmed, Article 2.4 is concerned
exclusively with the comparison
 between normal value and
export price, not with determination of normal value.” (footnote
excluded)
15. Without taking a position in this particular case, the EC considers that the first sentence of
Article 2.4 of the AD Agreement is unequivocal. It reads:
 A fair comparison shall be made betwee n the export price and the normal value.

 Thus, on its face the comparison re quirement under Article 2.4 of the AD Agreement does not
concern the calculation of the normal value. This has also been confirmed in the Panel report EC -
Malleable fittings where the Panel rejected Brazil' claim of a violation of Article 2.4 on the basis that:

 Brazil's arguments with respect to the calcula tion of constructed normal value in this case
relate to the identification of normal value unde r Article 2.2 and 2.2.2, rather than to the
requirement to ensure a fair comparison with export price under Article 2.4.
2

2 Panel Report, EC-Anti-Dumping Duties On Malleable Fittings Cast iron Tube or Pipe Fittings from
Brazil, WT/DS219/R, not yet adopted, para. 7.140.

ANNEX A-4

RESPONSES OF JAPAN TO QUESTIONS POSED IN THE
CONTEXT OF THE FIRST SUBSTANTIVE
MEETING OF THE PANEL

 1. Please comment on the findings contained in para. 7.3 of the Egypt – Steel Rebar
panel report:

 "the actions of an interested party during the course of an investigation
are critical to its protection of its rights under the AD Agreement. As the
Appellate Body observed in US – Hot-Rolled Steel, "in order to complete
their investigations, investigating authorities are entitled to expect a very
significant degree of effort to the best of their abilities from investigated
exporters". The Appellate Body went on to state that "cooperation is
indeed a two-way process involving joint effort". In the context of this
two-way process of developing the information on which determinations
ultimately are based, where an investigating authority has an obligation
to "provide opportunities" to int erested parties to present evidence
and/or arguments on a given issue, and the interested parties themselves
have made no effort during the investigation to present such evidence
and/or arguments, there may be no factual basis in the record on which a
panel could judge whether or not an "opportunity" either was not
"provided" or was denied. Similarly, where a given point is left by the
AD Agreement to the judgement and discretion of the investigating
authority to resolve on the basis of the record before it, and where
opportunities have been provided by the authority for interested parties
to submit into the record information and arguments on that point, the
decision by an interested party not to make such submissions is its own
responsibility, and not that of the investigating authority, and cannot
later be reversed by a WTO dispute settlement panel.” (footnotes
excluded)
Reply

The authorities have general obligations to make efforts to collect from interested parties
information that the authorities need for their dumpi ng and injury determinations. For this purpose,
the authorities must notify each interested party of in formation in detail, which the authorities need to
receive. Article 6.1 of the AD Agreement provides that “all interested parties in an anti-dumping
investigation shall be given notice of the informa tion.” Paragraph 1 of Annex II further provides “as
soon as possible after the initiation of the investigati on, the investigating authorities should specify in
detail the information required from any interested party.” The authorities may use facts available
from other sources than the interested party, only where the party, whom the authorities made such
request, “refuses access to, or otherwise do es not provide, necessary information.” See Article 6.8 of
the AD Agreement. In this context, the Appellate Body stated that “cooperation is indeed a two-way
process involving joint efforts,” not a one-sided obligation on a responding party.
We would like to note that a Member may present to the panel its claims and arguments that
parties in the investigation did not raise during th e process of the investigation. Parties argue the

authorities’ consistency with their national laws during the process of the investigation, while a
Member claims and argues in a WTO dispute settleme nt consistency of the authorities’ practice with
the AD Agreement. Thus, claims and arguments in a WTO dispute settlement differ by its nature
from arguments in the investigation process. It is particularly the case where the issue before the
Panel is related to the administratively long-estab lished and statutorily-approved rules, such as the
zeroing, SG&A calculation, and revaluation of affiliated party transaction prices. The Appellate Body
has confirmed this in Thailand – H-Beams
1, in which it has stated “it cannot be assumed that the range
of issues raised in an anti-dumping investigation will be the same as the claims that a Member
chooses to bring before the WTO in a dispute.”2
 2. What obligations does Article 2.2.1.1 impose in general on investigating
authorities?

Reply
Article 2.2.1.1 imposes on the authorities gene ral obligations that the authorities shall
normally use a respondent’s production costs as maintained in its accounting records for the
calculation of costs and sales of the product under consideration. The term “normally” in the first
sentence of this Article clarifies that this is the ge neral rule, and there is an exception for this general
rule. Article 2.2.1.1 provides the exception that the authorities may deviate their cost calculation from
the respondent’s recorded costs, if the recorded co sts are either not in accordance with the generally
accepted accounting principle (“GAAP”) of the expor ting country, or do not reasonably reflect the
costs associated with the production and sale of the product under consideration. In other words, the
authorities must find either of these two conditions is not met before the authorities decide to deviate
their calculation of costs, or selling, general or administrative expenses from the respondent’s
accounting records.
The authorities’ finding on either of these cond itions must be based on all available evidence
on the proper allocation of costs, including that that is made available by the exporter or producer.
3 In
accordance with Article 17.6(i), such finding must be based on evaluation of facts in an unbiased and
objective manner. Thus, in order for the authorities to exercise their discretion to apply an exception
to a respondent, the authorities must establis h in an unbiased and objective manner that the
respondent’s recorded costs do not reasonably reflect the production or sales of the product or are not
in accordance with the GAAP.
The exercise by the authorities of such discretion is not unfettered. As discussed in our
previous statements 4, the general principle of good faith inst ructs that the authorities must exercise
their discretion in an even-handed, fair, unbiased, and objective manner without giving unfair
advantage to one interested party. The authorities would act inconsistently with the WTO Agreement,
if the authorities would calculate costs of production of a respondent’s product in a manner that gives
disadvantage to the other interested party.

1 Thailand – Anti-Dumping Duties on Angles, Shapes and Sections of Iron or Non-Alloy Steel and H-
Beams form Poland, WT/DS122/AB/R, adopted on 12 March 2001.
2 Id., at para. 94.
3 See Article 2.2.1.1. of the AD Agreement (“Author ities shall consider all available evidence on the
proper allocation of costs, including that which is made available by the exporter or producer in the course of
the investigation.”)
4 See Oral Statement of Japan at the First Substantive Meeting, Third Party Session, at paras. 2-4, 16-
19. See also Third Party Submission of the Government of Japan, 19 May 2003, at paras. 24-27.

 3. For the terms "actual data pertaining to production and sales (…) of the like
product" in Article 2.2.2, please explain the application of this sentence in
general.

Reply

The first sentence of Article 2.2.2 obliges the authorities to base per-unit SG&A on the
“actual data” relating to sales by an responding party of like products in the exporting country, if the
responding party’s normal value is based on sales in the export country. If the normal value is based
on sales to the third country, the authorities must base the SG&A on actual data relating to sales of
like products to a third country. This sentence also instructs that the SG&A for the constructed value
also must be based on the actual data.
“Actual data” under Article 2.2.2 conform to th e provisions of Article 2.2.1.1 because such
actual data can be found only in the respondent’s accounting book.
This sentence, however, does not provide how th e authorities shall allocate the “actual data”
of SG&A to the product under consideration. Th e authorities must comply with provisions of
Article 2.2.1.1 with respect to the allocation.
 4. What is the relationship, if any, between Articles 2.2.1.1 and 2.2.2 of the Anti-
Dumping Agreement?

Reply

The respondent’s recorded costs under Article 2.2.1.1, as discussed in our answer to the
question 2 above, mean the production costs calc ulated, and maintained, in the respondent’s
accounting records in accordance with its ordina ry accounting methodologies. These methodologies
include valuation, accumulation, and allocation of c onsumed raw materials, by-product credits, direct
labour, and variable and fixed factory overheads, and SG&A. Valuation of by-products and per-unit
value of finished product inventory as shown in the respondent’s accounting records, for examples,
are ones of respondent’s recorded costs under Article 2.2.1.1.
As discussed in our answer to the question 3, th e first sentence of Article 2.2.2 instructs that
the authorities shall base SG&A on “actual data”. Article 2.2.1.1 applies to the allocation
methodologies of the SG&A.
 5. Please comment on the statement contained in para. 185 of the US First Written
Submission:

"[t]his Panel should reject Canada’s arguments that attempt to
interpret the general language of the cost calculation provisions
of the AD Agreement as requiring use of particular
methodologies."
Reply

The authorities are required to accept a res pondent’s cost calculation methodology unless
certain conditions are met, as discussed in our answ er to the question 2 above. When such conditions
are met, the authorities may exercise their discretion to calculate the per-unit cost of production of the
product under consideration. The AD Agreement does not specify any particular methodologies that
the authorities should use in such situations. Also as discussed in our answer to the question 2 above,
however, the AD Agreement requires that the authoriti es exercise such discretion in an even-handed,
fair, unbiased, and objective manner without giving unfair advantage to one interested party.

 6. Please comment on the statement contained in para. 221 of the US First Written
Submission:

“[t]he AD Agreement is silent as to how to assess affiliated party
transactions relating to costs.”
Reply

Article 2.2.1.1 of the AD Agreement, as inform ed by Article 17.6(i) thereof and the general
principle of good faith under the Vienna Conventio n of Law of Treaties, provides how the authorities
shall assess the cost of production of the product unde r consideration. Please see our answer to the
question 2 above for further discussion on this issue. In order for the authorities to revaluate the
respondent’s recorded affiliated party transaction valu e, therefore, the authorities first must find that
such recorded value does not “reasonably reflect” the costs. Article 2.2.1.1, in conjunction with
Article 17.6 (i) thereof and the general principle of good faith, further dictates that the authorities,
upon such finding, must exercise their discretion to assess affiliated party transaction value in an
even-handed, fair, unbiased, and objective manner w ithout giving unfair advantage to one interested
party. The fact that Article 2.2.1.1 does not specify any particular methodologies relating to costs
between affiliated parties does not relieve the authorities from these obligations.
As discussed in our previous submissions, the United States failed to exercise its discretion in
an unbiased and objective manner in the anti-dumpi ng investigation in question. First, the
United States determined, erroneously, that the recorded value is unreasonable based only on the sales
prices by respondents to affiliated parties and to unaffiliated party.
5 The United States ignored all
other evidence showing other factors affecting sal es prices to various purchasers, for example, sales
volume, regions, and the terms and dates of the sal es. Such determination is inconsistent with
Article 2.2.1.1 in conjunction with Article 17.6(i), as the United States failed to evaluate all evidence
in an unbiased and objective manner.
Second, the United States’ exercise of its discretion to revaluate the affiliated party
transaction value is also inconsistent with Article 2.2.1.1 of the AD Agreement in conjunction with
Article 17.6(i) thereof and the general principl e of good faith. As discussed in our previous
submissions, the United States devaluated a respondent ’s recorded by-product value, when such value
was based on sales price to affiliated parties, an d was higher than the sales price to unaffiliated
parties.6 The United States did not revaluate the by-p roduct value, which was based on sales prices to
affiliated parties, if the value was lower than the sales price to unaffiliated parties. 7 By doing so, the
United States exercised its discretion only to decrea se the by-product value, accordingly, to increase
the production cost of softwood lumber to create and increase the margin of dumping of the
respondent. The US’s exercise of the discretion in such manner was not even-handed, and did give
unfair advantage to parties who have adverse interests to responding parties. If the United States were
to exercise its discretion, it should have revaluated in both cases. The manner in which the
United States exercised its discretion in connectio n with valuation of by-product, therefore, is
inconsistent with 2.2.1.1. in conjunction with Article 17.6(i) and the general principle of good faith.

5 US First Written Submission, at para. 219 (“Commerce applied its standard affiliated party
transaction methodology to West Fraser, using West Fraser’s own sales to unaffiliated parties as a benchmark.”)
6 See, e.g., West Fraser's sales of wood chips to affiliated parties in British Columbia. Final
Determination, Comment 11 (Exhibit CDA-2), as quoted in US First Written Submission, at para. 221.
7 See, e.g., West Fraser's sales of wood chips to affiliated parties in Alberta during the POI. Id.

 7. Please comment on the statements contained in para. 228 of the US First Written
Submission:

“Canada asserts that Commerce’s calculation of West Fraser’s
wood chip offset also violated its obligation to make a “fair
comparison.” This argument confuses obligations regarding
determination of normal value with obligations regarding the
comparison between normal value and export price. As the
panel in Egypt - Rebar confirmed, Article 2.4 is concerned
exclusively with the comparison
 between normal value and
export price, not with determination of normal value.” (footnote
excluded)
Reply

 We agree with previous panels in Egypt – Rebar , at para. 7.335, and in Argentina – Poultry,
at para. 7.265, that Article 2.4 deals with a “fair comparison” between the export price and the normal
value. The issue of Article 2.4 in connection with the revaluation by the United States of wood chip
value, however, is moot because the establishment by the United States of the normal value is
inconsistent with Article 2.2.1.1. The Panel, thus, does not need to reach the question on Article 2.4.