UNITED STATES – FINAL COUNTERVAILING DUTY DETERMINATION WITH RESPECT TO CERTAIN SOFTWOOD LUMBER FROM CANADA
Document: Report of the Panel
Date: 29 August 2003
Document codes: WT/DS257/R
Complainant: Canada
Respondent: U.S.
Third parties: China, EU, India, Japan
Dispute stage: Mutually Agreed Solution
Agreements cited: Art. 10, 11, 32, 1, 2, 12, 14, 19, 22  Subsidies and Countervailing Measures (SCM)Art. VI, X:3  GATT 1994Art. 21  Subsidies and Countervailing Measures (SCM)

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

Report of the Panel

The Report of the Panel on is being circulated to all Members, pursuant to the DSU. The
report is being circulated as an unrestricted document from 29 August 2003 pursuant to the
Procedures for the Circulation and Derestrictio n of WTO Documents (WT/L/160/Rev.1). Members
are reminded that in accor dance with the DSU only parties to the dispute may appeal a panel report.
An appeal shall be limited to issues of law cove red in the Panel report and legal interpretations
developed by the Panel. There shall be no ex parte communications with the Panel or Appellate Body
concerning matters under consideration by the Panel or Appellate Body.

Note by the Secretariat : This Panel Report shall be adopted by the Dispute Settlement Body (DSB) within
60 days after the date of its circulation unless a party to the dispute decides to appeal or the DSB decides by
consensus not to adopt the report. If the Panel Report is appealed to the Appellate Body, it shall not be
considered for adoption by the DSB until after the completion of the appeal. Information on the current status
of the Panel Report is available from the WTO Secretariat.

I. INTRODUCTION
A. COMPLAINT OF CANADA
1.1 On 3 May 2002, Canada requested consultations with the United States pursuant to Article 4
of the Dispute Settlement Understanding ("the DS U"), Article XXII of the General Agreement on
Tariffs and Trade 1994 ("GATT 1994"), and Article 30 of the Agreement on Subsidies and
Countervailing Measures ("the SCM Agreement"), concerning the final affirmative countervailing
duty determination by the US Department of Co mmerce ("USDOC") (File No. C-122839) issued on
25 March 2002, with respect to certain softwood lumber from Canada.1
1.2 On 18 June 2002, Canada and the United States ("the US") held the requested consultations,
but failed to reach a mutually satisfactory resolution of the matter.
1.3 On 18 July 2002, Canada requested the establishment of a panel to examine the matter. 2
Canada subsequently withdrew that request, and on 19 August 2002 made a new request for
establishment of a panel to examine the matter.3
B. ESTABLISHMENT AND COMPOSITION OF THE PANEL
1.4 At its meeting of 1 October 2002, the DSB established a panel in accordance with Article 6 of
the DSU and pursuant to the request made by Canada in document WT/DS257/3.4
1.5 At that meeting, the parties to the dispute also agreed that the Panel should have standard
terms of reference. The terms of reference are, therefore, the following:
"To examine, in the light of the relevant provisions of the covered agreements cited
by Canada in document WT/DS257/3, the matter referred by Canada to the DSB in
that document, and to make such findings as will assist the DSB in making the
recommendations or in giving the rulings provided for in those agreements".
1.6 On 4 November 2002, Canada requested the Di rector-General to determine the composition
of the Panel, pursuant to paragraph 7 of Article 8 of the DSU. This paragraph provides:
"If there is no agreement on the panelists within 20 days after the date of the
establishment of a Panel, at the request of either party, the Director-General, in
consultation with the Chairman of the DSB and the Chairman of the relevant Council
or Committee, shall determ ine the composition of the panel by appointing the
panelists whom the Director-General considers most appropriate in accordance with
any relevant special or additional rules or procedures of the covered agreement or
covered agreements which are at issue in the dispute, after consulting with the parties
to the dispute. The Chairman of the DSB shall inform the Members of the
composition of the panel thus formed no later than 10 days after the date the
Chairman receives such a request".

1 WT/DS257/1.
2 WT/DS/257/2.
3 WT/DS/257/3.
4 WT/DS/257/4.

1.7 On 8 November 2002, the Director-General accordingly composed the Panel as follows:
Chairman: Mr. Elbio O. Rosselli
 Members: Mr. Wieslaw Karsz
 Mr. Remo Moretta

1.8 The European Communities, India and Japan reserved their third-party rights.
C.
PANEL PROCEEDINGS
1.9 The Panel met with the parties on 11-12 Febr uary 2003 and 25 March 2003. The Panel met
with third parties on 12 February 2003.
II. FACTUAL ASPECTS
A. THE USDOC INVESTIGATION
2.1 This dispute concerns the final counterva iling duty determination made by USDOC on
21 March 2002 in respect of certain softwood lumb er imports from Canada, classified under headings
4407.1000, 4409.1010, 4409.1090, and 4409.1020.
2.2 The investigation was initiated by USDOC on 30 April 2001, pursuant to an application filed
with USDOC on 2 April 2001 (amended 20 April 2001 to add certain applicants). The applicants
were the Coalition for Fair Lumber Imports Executive Committee; the United Brotherhood of
Carpenters and Joiners; the Paper, Allied-Industrial, Chemical and Energy Workers International
Union; Moose River Lumber Co., Inc.; Shearer Lumber Products; Shuqualak Lumber Co.; and
Tolleson Lumber Co., Inc.
2.3 On 17 August 2001, USDOC published in the Federal Register a notice of preliminary
affirmative countervailing duty determination, preliminary affirmative critical circumstances
determination, and alignment of final countervailing duty determination with final antidumping duty
determination. Provisional meas ures were imposed on the basis of a preliminary subsidy rate of
19.31 per cent.
2.4 On 2 April 2002, USDOC published in the Fede ral Register a notice of final affirmative
countervailing duty determination. Definitive measures were imposed on the basis of a final subsidy
rate of 19.34 per cent, with 19.25 per cent being the amount attributable to stumpage programmes.
On 22 May 2002, USDOC published in the Federal Register a notice of amended final affirmative
countervailing determination and notice of counte rvailing duty order, which decreased the final
subsidy rate to 18.79 per cent as a result of corr ections for ministerial errors. Of this amount,
18.70 per cent was attributable to stumpage programmes.
B.
RELATED WTO PROCEEDINGS
2.5 At its meeting of 5 December 2001, the DSB es tablished a panel, pursuant to a request by
Canada, in respect of USDOC's preliminary determinations in the investigation at issue in this dispute.
On 27 September 2002, that panel's report, United States – Preliminary Determinations with Respect
to Certain Softwood Lumber from Canada (WT/DS236/R), was circulated to all WTO Members.5

5 Panel Report, US – Softwood Lumber III.

III. PARTIES' REQUESTS FOR FINDINGS AND RECOMMENDATIONS
A. REQUEST OF CANADA
3.1 Canada requests the Panel to:
• find that the initiation of USDOC's investigation and the definitive countervailing duties imposed
as a result violate Articles 10, 11.4, and 32.1 of SCM Agreement;

• find that USDOC's investigation and the Final Determination, and the definitive countervailing
duties imposed as a result violate Articles 1.2, 10, 12.1, 12.3, 12.8, 14, 14(d), 19.1, 19.4 and 32.1
of SCM Agreement and Article VI:3 of GATT 1994; and

• recommend that the US bring its measures into conformity with its WTO obligations, including
by revoking the countervailing duty order, ceasing to impose countervailing duties and refunding
the countervailing duties imposed as a result of the Lumber IV investigation and the Final
Determination.

B. REQUEST OF THE UNITED STATES
3.2 The United States requests that the Panel reject Canada's claims in their entirety.

IV. ARGUMENTS OF THE PARTIES
4.1 The arguments of the parties are set out in thei r written and oral submissions to the Panel, and
in their answers to questions. The parties' arguments as pres ented in their submissions are
summarized in this section. The parties' written answers to questions are set out in full as Annexes to
this report. (See, List of Annexes, page v).
A. FIRST WRITTEN SUBMISSION OF CANADA
4.2 The following summarizes Canada's arguments in its first written submission.
4.3 At issue in this dispute are countervailing du ties on certain softwood lumber products from
Canada imposed on 21 March 2002, by USDOC pursuant to a final affirmative countervailing duty
determination
1. The US Imposed Countervailing Duties On Practices That Are Not Countervailable
Subsidies
4.4 Article 1.1 sets out the exclusive definition fo r what constitutes a subsidy for the purposes of
the SCM Agreement. A subsidy has two discrete elements: (i) a financial contribution that (ii) confers
a benefit. The US has not established the existence of a subsidy for the following reasons.
4.5 USDOC erred in determining that provincial stumpage programmes “provide goods”.
The US has imposed countervailing duties on practices that do not constitute a “financial
contribution” within the meaning of Article 1.1(a)(1)(iii). In Canada , natural resources are, for the
most part, the property of provincial governments. Many of these resources have traditionally been
managed through the transfer of real property interests and exploitation rights. Forests are one among
many of these resources; harvesting trees is but one aspect of the overall management of forestry
resources. At issue in this dispute is the legal characterization of these forestry resources management
systems.

4.6 Forestry management regimes in Canada reflect three critical considerations: (1) the land is
publicly owned; (2) forestry resources such as air, water, wildlife, plants, trees and parkland may be
put to a variety of uses; and (3) forestry resources must be carefully managed in the best interests of
the public. Forestry resources are managed through a system of interlocking rights and obligations
between the Crown and timber harvesters. This system of resource management is based most
frequently on tenure and licensing agreements. Th e details of such tenure and licensing agreements
vary, but they are all similar in that they are a complex bundle of rights and obligations, containing at
a minimum: the right to harvest standing ti mber on Crown land or “stumpage”; service and
maintenance obligations ( e.g., road-building, protection against fire, disease, and insects);
implementation of forestry management and c onservation measures, including silviculture; and
payment of a volumetric “stumpage charge” that is levied upon the exercise of the harvesting right.
4.7 Stumpage takes two different forms in Canada: a real property right (generally referred to as a
profit à prendre) or a licence to harvest standing timber. A profit à prendre is a form of real property
right that conveys a non-possessory interest in the land to the recipient. A licence is a revocable right
to do something on, or to the detriment of, the land of another that would otherwise not be permitted –
in this case, the right to harvest standing timber.
4.8 A “financial contribution” exists where “a gove rnment provides goods or services other than
general infrastructure”. Interpre ted in accordance with the principles of treaty interpretation in
customary international law, “goods” refers to trad able items that are capa ble of bearing a tariff
heading.
4.9 The ordinary meaning of “goods” is “tangibl e or movable personal property other than
money; [especially] articles of trade or items of merchandise ‹goods and services›”. The term
“goods” excludes resources such as intangible property, i.e., property rights, and real property. A
profit à prendre, for example, is a real property right. The panel in US – Softwood Lumber III agreed
that the ordinary meaning of “goods” is “tangible or movable personal property, other than money.”
Despite this, the panel adopted an interpretation of “goods” that was broader than the ordinary
meaning of the term. Article 1.1(a)(1) (financial contribution) is drafted in precise terms.
Article 1.1 (a)(1)(iii) does not refer to provision of “economic resources” or “property”, but rather to
“goods or services”. As well, “goods or services” are not examples or species belonging to a bigger
genus “economic resources”. Real property and ot her resources or instruments of value do not fall
under subparagraph (iii) unless they fit within the terms, “goods” or “services other than general
infrastructure”.
4.10 Article 3.1 provides relevant context. It defines “prohibited” subsidies as “subsidies within
the meaning of Article 1”. Article 3.1(b) includes the phrase “subsidies contingent … upon the use of
domestic over imported goods” (emphasis added) in defining a particular prohibited subsidy. The use
of the adjective “imported” to modify “goods” im plies that the “goods” so modified may only be
items that are capable of being “imported” – that is , traded across international borders or tradable
items with an actual or potential customs classification. The proper conclusion is that the meaning of
“goods” in both provisions is identical: tradable items with an actual or potential customs
classification. Further, Parts III and V of the SCM Agreement refer to “products” or “imports”.
Given that Article 1.2 ties Article 1.1 to Parts III and V, the “products” or “imports” referred to in
these Parts may not be interpreted to be different fro m the “goods” referred to in Articles 1 or 3 of the
SCM Agreement.
4.11
 The WTO Agreement also provides instructive context. Countervailing measures are
provided for in Article VI of GATT 1994, as an exception to Article II. Therefore, the coverage of
Part V of the SCM Agreement which imposes disc iplines on countervailing duties and that of
Article II of GATT 1994 must be the same. The SC M Agreement is one of th e agreements set out in
Annex 1A to the WTO Agreement. Annex 1A sets out “multilateral agreements on trade in goods”.
More important, the interpretative note to that Annex provides a rule of conflict between GATT 1994

and the covered agreements. A rule of conflict suggests a possibility of conflict and implies that the
subjects or scope of coverage of the agreements are the same. Thus coverage of GATT 1994 and the
agreements on trade in goods, including the SCM Ag reement, must have the same scope. The panel
in US – Softwood Lumber III used only one contextual element to support its view that “goods” has an
“unqualified meaning”. The panel believed that the only exception in Article 1.1(a)(1)(iii) is general
infrastructure and this reinforced its view “concerning the unqualified meaning of the term goods.”
The panel rejected the contextual guidance offered by the use of “goods” and “products” in the SCM
Agreement and the WTO Agreements as a whole.
4.12 The term “goods” in Article 1.1(a)(1)(iii) is equivalent to “products”, and these terms are used
throughout GATT 1994, the SCM Agreement and the other covered agreements to mean items on
which tariff concessions may be given under Article II of GATT 1994. This is confirmed by the
object and purpose of the SCM Agreement. The cla ss of activity defined in Article 1.1(a)(1)(iii) to
constitute a financial contribution within Article 1.1( a)(1) is discrete and carefully delineated. This
demonstrates that the scope of Article 1.1(a)(1)(iii) is limited; the object of this provision is not to
capture all potential in-kind transfers of economic resources that a government may provide.
Furthermore, Article 1.1 provides a definition of a subsidy for the purposes of the SCM Agreement,
and Article 1.1(a)(1) provides that a “financial contribution” is a constituent element of a subsidy.
Subparagraphs (i) to (iv) of Article 1.1(a)(1) set out categories of activity that constitute a financial
contribution for the purposes of the subsidy definition. Subparagraphs (i) to (iv) are carefully crafted
and use precise terminology. If the object and purpose of Article 1.1(a)(1) were to bring all transfers
of economic resources within the ambit of “financial contribution”, there would have been no need to
delineate specific categories of activity.
4.13 USDOC erroneously found that Canadian st umpage programmes c onstituted a financial
contribution. Specifically, USDOC held that pr ovincial tenure systems provide lumber producers
with standing timber and that standing timber is a “good”. According to USDOC even a license or
right to harvest timber would constitute the provision of a good, because “goods” encompasses “all a
person’s legal rights of whatever description.”
4.14 First, stumpage programmes involve the granting of rights to harvest standing timber pursuant
to tenure and license agreements. “Goods” refers to tradable items with an actual or potential customs
classification. Rights to harvest, the only thing provided by governments through stumpage
programmes, are not “goods”. Even assuming th at stumpage programmes provide standing timber,
stumpage programmes do not involve a financial contribution. Standing timber – i.e., trees firmly
rooted in the ground – is not a “good” within the meaning of Article 1.1(a)(1)(iii). Properly
understood, a profit à prendre and a license to harvest standing timber are economic resources that are
not “goods” within the meaning of Article 1. “Stumpage” – the right to exploit an in situ natural
resource – is akin to the right to extract oil from pu blic lands, quotas to harvest fish, or the right to
exploit inland water and water curr ents. Second, standing timber is not a “good” within the meaning
of Article 1.1(a)(1)(iii). Standing timber is an in situ natural resource that is not capable of being
traded across borders.
4.15 The term “goods” in Article 1.1(a)(1)(iii) cannot be interpreted to include rights such as
“stumpage”, profits à prendre , and timber harvesting licenses. USDOC erred in determining that
provincial governments provide goods to lumber pr oducers and erred specifically in finding that
standing timber is a “good”. As stumpage does not involve a “financial contribution” USDOC’s
subsidy determination and the imposition of counterv ailing duties violates Articles 10, 19.1, 19.4 and
32.1 of the SCM Agreement and Article VI:3 of GATT 1994.
4.16 USDOC’s Use of “Cross-Border” Benchmarks to Determine and Measure a “Benefit”
Violates the SCM Agreement. Having concluded that the provinces provided goods, USDOC
determined that this alleged financial contribution conferred a benefit by using selected short-term
auction prices for the right to cut standing timber on specific tracts of public lands in the US or, in the

case of Québec, private timber sales in Maine, as benchmarks for comparison to Canadian provincial
stumpage charges. Articles 1.1(b) and 14(d) of th e SCM Agreement require the US to use in-country
benchmarks to determine the existence and measurement of any alleged benefit. The Agreement does
not permit the investigating authority to use cross- border (out-of-country) benchmarks, nor to reject
benchmarks from within the country under investigation.
4.17 In the Preliminary Determination ("PD"), US DOC purported to establish that Canadian
stumpage programmes conferred a benefit by comparing: (1) stumpage charges related to the exercise
of the right to harvest; with (2) alleged prices for sh ort term rights to cut standing timber on selected
US public lands and private timber sales in Ma ine. USDOC did not modify this cross-border
methodology in any material respect for purposes of the Final Determination ("FD"). In the FD,
USDOC determined that Article 14(d) does not re strict the market benchmark to the country of
export, but was intended to require that adequacy of remuneration be determined with reference to
“comparable” market-based transactions.
4.18 USDOC sought to avoid the plain meaning of the Article 14(d) by focusing on the phrase “in
relation to”. It concluded that “in relation to” me ans “taking account of”. USDOC also referred to
the purported context provided by the illustrative list of conditions of purchase or sale set out in
Article 14(d). After concluding that cross-border benchmarks were acceptable for determining
“benefit”, USDOC then rejected evidence of in-country benchmarks and asserted that US stumpage
was a “reasonable benchmark”. USDOC argued, err oneously: (1) Private prices in Canada are not
market-based and cannot be used as benchmarks because a government-dominated market will distort
the market; (2) US stumpage is an acceptable benchmark because it is commercially reasonable for
Canadian producers to bid on US stumpage (that is, a natural resour ce not located within the political
boundaries of Canada), and producers located within Canada “have access to US prices of stumpage”;
and (3) US stumpage prices are world market prices that are available to Canadian producers.
USDOC determined that the US benchmark prices were higher than the charges levied by Canadian
provinces and concluded, as it had done in the PD , that Canadian stumpage charges conferred a
benefit.
4.19 Article 1.1 of the SCM Agreement provides that a subsidy exists where there is a financial
contribution by a government and “a benefit is th ereby conferred”. The Appellate Body considered
the meaning of “benefit” in Artic le 1 of the SCM Agreement in Canada – Aircraft and found that a
benefit under Article 1.1(b) suggests some form of comparison. The Appellate Body indicated that
there could be no “benefit” unless this comparison demonstrated that the recipient was made “better
off” than it would have been absent that cont ribution. Article 14(d) sets out guidelines for
determining whether a benefit exists and how the amount of the benefit should be measured in cases
involving the provision of goods. The text of Article 14(d) is unambiguous: “In the country of
provision or purchase” means “in the country of provision or purchase.” Nothing in the context,
object and purpose or the negotiating history of Article 14 permits reading “in” as anything other than
“in”.
4.20 The recent panel report in US – Softwood Lumber III , confirms this interpretation. In that
case, the panel found that the adequacy of remuneration in Article 14(d) must be determined in
relation to prevailing market conditions for the good or service in question in the country of provision
or purchase. According to the panel, this means that Artic le 14(d) requires that the prevailing market
conditions to be used as a benchmark are those “in the country of provision” of the goods. The panel
concluded that no other meaning could be ascribed to the reference to market conditions “in the
country of provision”. Therefore, the only benchmarks that may be used in a provision of goods
context are those determined on the basis of prevailing market conditions in the country of provision.
USDOC sought to avoid the plain meaning of “prevailing market conditions … in the country of
provision” by interpreting the phr ase “in relation to” to mean “tak ing account of”. However, the
panel in US – Softwood Lumber III
 disagreed with this interpretation. It found the phrase means “on
the basis of” or “in comparison with”. USDOC’s in terpretation effectively read out of the text of

Article 14(d) the clear and explicit reference to “in the country of provision”, and turned the
mandatory “shall” in Article 14(d) into the discre tionary “may”. Finally, any determination under
Article 14(d) must consider the ordinary meaning of “adequate remuneration”. The ordinary meaning
of “adequate” is sufficient or satisfactory, not “maximum”.
4.21 USDOC rejected evidence concerning in-Canada benchmarks for the alleged good, based on:
(1) its unfounded assumption that it could legally reject in-country benchmarks; and (2) the
unsupported factual conclusion that there are no usable market determined prices because prices were
suppressed as a result of government involvement. USDOC also sought to avoid the prohibition in
Article 14(d) against using out-of-country benchmarks by arguing that US stumpage prices are world
market prices for stumpage available in Canada, and are therefore part of in-country prevailing market
conditions. This conclusion is without foundation for three reasons.
4.22 First, USDOC asserted that US stumpage was purportedly available in Canada. Although a
small quantity of logs harvested from some US comparison areas is expor ted to some Canadian
provinces this, does not mean that the right to harvest US timber is somehow imported into Canada.
USDOC consistently blurs the distinction between st anding timber and logs. The record makes clear,
however, that what is provided is either timber harvesting rights or “standing timber”. Neither may be
“imported” into Canada and neither is “available” in Canada. In fact, logs harvested from standing
timber in the US comparison areas for over half of the exports subject to countervailing duties cannot
be exported to Canada. Second, USDOC conceded that no world market price for stumpage existed
when it found that there was not a single US price for stumpage or even a single price within
individual US states. Third, prices outside the country of provision do not become acceptable because
such prices are available in another country with allegedly “comparable market conditions.” Even if
market conditions in the US were “comparable”, USDOC must base its determination on prevailing
market conditions “in” the country.
4.23 The panel in US – Softwood Lumber III
 concluded that although “conditions of purchase or
sale” and “availability” were listed as market conditions in Article 14(d) this did not mean that US
stumpage was available to Canadian producers. It found that the fact that a good may also be bought
on a market outside the country of provision, did not imply that the prices for that good in the other
country become part of the market conditions “in the country of provision”. The panel further noted
that acceptance of the US argument would mean that the phrase “prevailing market conditions in the
country of provision” refers to world market conditio ns. As the text of Article 14(d) did not support
this conclusion it could not be correct. Instead the panel indicated that “availability” was an aspect of
the market conditions existing in the country of provision. Finally, the panel noted that the US
interpretation would effectively r ead out of the SCM Agreement the explicit reference to the country
of provision, thereby violating the principle of effectiveness.
4.24 The US recourse to the same cross-border met hodology in the FD consists again of simply
substituting “prevailing market conditions” in the US for “prevailing market conditions” in Canada.
This is the only way the US was able to determine the existence of a “benefit” and construct a subsidy
rate of nearly 20 per cent.
4.25 A treaty interpreter must ensure that its interpre tation of a treaty provision does not give rise
to absurd or unreasonable results. An interpreta tion of Article 14(d) that would permit the use of
cross-border comparisons would give rise to such unreasonable results for several reasons.
4.26 International borders affect market conditions and, in particular, prices; these effects are
substantial and notoriously difficult to quantify. Political boundaries drive differences in government
regulatory regimes, tax regimes, investment regi mes, currency, banking and financial systems,
business practices, and business climate. Govern ment policies and other factors in different
jurisdictions affect economic conditions, including wa ge rates, taxes, capital costs, labour costs and
exchange rates.

4.27 Cross-border comparisons also do not reflect the effect of differences in the natural resource
endowments between two countries. Prices of goods and services will ge nerally differ between
countries for reasons relating to comparative advantage. In US – Softwood Lumber III
 the panel found
that USDOC’s methodology for determining a benefit would lead to an automatic determination of
subsidization in a resource-rich exporting country, even where the perceived price difference simply
reflected the exporting country’s comparative advantage.
4.28 A wide variety of other factors also affect fo restry resources in different countries. These
factors include differences in: timber characteris tics and operating conditions such as the type, mix,
quality and location of forest resources as well as costs of harvesting and transporting timber;
measurement systems; and the rights and obligations associated with tenures such as the duration of
harvesting rights and obligations associated with silviculture, road building and forest management
responsibilities.
4.29 USDOC itself confirmed that cross-border comparisons are illogical in its own previous
determinations in Lumber I, II and III. In each of these prior lumber cases, USDOC rejected the use
of such comparisons on the basis that they simply could not be done. In particular, in Lumber I
USDOC found that cross-border comparisons were “arbitrary and capricious” and that no unified
North American market for stumpage existed. In this proceeding USDOC dismissed these decisions
by claiming that they were made “in the context of a different legal framework.” The change in law is
irrelevant, however. All of the f acts that led USDOC to reject the use of cross-border comparisons in
the past still exist today.
4.30 In the FD, USDOC concluded there were no usable benchmarks in Canada that would allow
USDOC to analyze whether Canadian stumpage programmes provided a benefit to the softwood
lumber producers. This conclusion is contradict ed by the record, which provided several in-country
benchmarks as well as economic analysis of the adequacy of remuneration charged by provincial
governments. This information included private timber sales, cost-revenue comparisons, an economic
analysis of provincial stumpage charges, competitive auction prices, and private sector assessments of
timber value.
4.31 Private Timber Sales
 - Canada provided substantial inform ation regarding in-country sales of
private stumpage, including private stumpage prices in Québec. In Québec, private forest lands
account for 17 per cent of the total softwood sa wmill supply. Private stumpage transactions in
Québec are the basis for that province’s parity appr oach, which Québec uses to determine the market
value of standing timber on public land. The evidence before USDOC included three years of annual
private stumpage surveys and the original survey results reporting private forest stumpage
transactions in Québec. In response to questions from USDOC about the private forest in Québec,
comprehensive economic data and analyses were submitted showing that private forest stumpage
transactions in Québec occur in a large, open market consisting of hundreds of well-informed buyers
and sellers, including competing private timber sources outside Québec.
4.32 Similarly, the information for Ontario demonstrated that the volume of private sales was
significant, representing 7 per cent of total softwo od stumpage sales. Canada submitted an expert
study by Resource Information Systems Inc. (RISI) that provided a detailed assessment of the private
market in Ontario. The RISI Study found that the private market in Ontario was competitive,
efficient, and independent from the market for Crown timber. Another study of the private market in
Ontario, prepared by Charles River Associates Inc., evaluated the market conditions for private timber
sales, concluded that the prices for private timber were established by the “marginal” price for timber,
and calculated the average price for private timber purchased by sawmills.
4.33 Competitive Auctions
 - The record also included information on competitive sales of
stumpage by provincial governments, including information from B.C. on the volume and value of

competitive sales of stumpage through the Small Business Forest Enterprise Programme, which are
made through competitive auction to the highest bidder.
4.34 Private Sector Assessments of Timber Value - Canada also provided information regarding
the market values for standing timber based on an amalgam of public bid and private sale values.
These market values are known as “timber damage assessments” (TDAs). Three industry sectors in
Alberta, the oil and gas sector, the mining sector and the forest sector, jointly developed the TDA
methodology. After a series of negotiations, all parties agreed on a TDA methodology to provide a
fair and balanced estimate of the market value of Alberta’s standing timber. The TDA data represent
the full value of the resource, both because they co me from this arm’s-length process and because the
prices used to develop TDA are from market transactions between unrelated buyers and sellers where
each participant is free to decide not to buy or sell.
4.35 Evidence Demonstrating Consistency With Market Principles
 - Canada submitted information
demonstrating that provincial stumpage systems coll ected more than adequate remuneration and were
consistent with market principles. This information established that substantial profits were earned
from the provision of timber harvesting rights. Evidence demonstrated, for example, that B.C.
received adequate remuneration because it produced a re turn of 75 per cent of expenditures on its
timber harvesting system. Consistent with mark et principles, this enormous profit on timber
harvesting operations demonstrated that harvesters cannot be said to be receiving stumpage for “less
than adequate remuneration”. The other major producing provinces also showed substantial profits
on their stumpage programmes – 35 per cent for Ontario, 67 per cent for Québec, and 25 per cent for
Alberta.
4.36 Cost-revenue comparisons provided USDOC with in-country information to evaluate the
adequacy of remuneration collected for rights to harvest Crown timber. As USDOC's existing
practice and regulations confirm, th is information is relevant to USDOC’s adequacy of remuneration
determinations. This analysis is consistent with th e requirement in Article 14(d) that the provision of
a good be for “adequate,” not “maximum,” remuneration. In addition, an analysis of the economics of
B.C.’s stumpage system demonstrated that the province’s stumpage system is administered consistent
with market principles. B.C. stumpage charges ar e a volumetric levy imposed upon the exercise of
previously conferred timber harvesting rights. The economic analysis shows that a profit-maximizing
forestland owner would not impose a volumetric charge upon the exercise of those rights. Further, the
tenure system imposes costs on tenure holders that they would not bear in a competitive market.
Therefore, consistent with market principles, harvesters again cannot be said to be receiving stumpage
for “less than adequate remuneration”.
4.37 In the FD USDOC rejected “transaction-based” in-country Canadian benchmarks because of
alleged “price suppression” allegedly resulting from government involvement in the marketplace.
There is no basis for the rejection of in-country benchmarks in the SCM Agreement. Article 14(d)
refers to “prevailing” market conditions. In this context, the meaning of “prevailing” is “as they
exist”. Nothing in the context, object and purpose or negotiating history of the SCM Agreement
suggests that the “market conditions” referred to are those of a perfectly competitive market. In US –
Softwood Lumber III
 the panel found that even if the alleged “price suppression” existed, this would
not permit USDOC to reject in-country benchmarks. The panel concluded that Article 14(d) SCM
Agreement did not require that prevailing market cond itions be those of an “undistorted” market. It
also concluded that USDOC provided no acceptable ra tionale for rejecting Canadian stumpage prices.
Even assuming, arguendo, that Article 14(d) permitted the re jection of in-country benchmarks
because of “price suppression”, USDOC’s evidence and analysis was clearly inadequate to establish
that such distortion existed.
4.38 For these reasons USDOC’s rejection of in-cou ntry Canadian benchmarks and reliance on
“cross-border” US benchmarks is inconsistent with Articles 1.1(b) an d 14(d) of the SCM Agreement.
The US has therefore imposed countervailing duties in the absence of the required finding of

“subsidy” in violation of Articles 10, 14, 14(d), 19.1, 19.4 and 32.1 of the SCM Agreement and
Article VI:3 of GATT 1994.
4.39 Evidence demonstrating no trade advantage
 - USDOC also had before it substantial evidence
demonstrating that the provincial stumpage charges imposed in Canada do not increase the production
of logs or lumber or lower their prices, or increase the quantity or lower the prices of lumber exports
to the US, in comparison with th e outcome in a market in which government is not involved. The
SCM Agreement requires the investigating authorit y to consider the existence of a benefit and
adequacy of remuneration in relation to the “prevailing market conditions” for the good in the country
of provision. The prevailing market for standing timber is a natural resource market, which is an
economic rent market. Rent markets have different characteristics than many other markets. This
must be taken into account in making any determination of whether provincial stumpage systems
confer a benefit.
4.40 Analyzing benefit in the particular market contex t under investigation is consistent with panel
and Appellate Body interpretations of Article 1.1(b) and the object and purpose of the Agreement,
which is to discipline subsidies, as defined in the SCM Agreement, that distort trade. All panel and
Appellate Body decisions concerning Article 1.1( b) confirm that the word “benefit” implies a
comparison that is market-based. As the Appellate Body has stated, this permits identification of any
“trade-distorting potential.” The analysis of remuneration in relation to prevailing market conditions
in this case should therefore include a review of whether provincial stumpa ge fees or charges are
capable of causing trade distortion in downstream markets. USDOC asserted that “the whole point”
of the investigation was to “quantify and remedy” al leged distortion of the US market. In reaching
these determinations, USDOC by its own admission ignored the economic evidence offered by
Canada. Had USDOC analyzed, rather than assu med, the existence of trade distortion in the
downstream markets for logs and lumber, it would have found that not only is there no benefit as
measured by existing market comparators, but that economic analysis shows that there is no trade-
distorting potential from provincial stumpage programmes, because positive stumpage charges neither
increase production of logs and lumber nor lower their prices relative to a private competitive market.
4.41 The FD impermissibly assumes a pass-t hrough of an alleged subsidy. This case requires
an analysis of whether and to what extent alleged upstream subsidies benefited downstream
producers. A significant portion of logs is sold by timber harvesters to unrelated lumber producers
and other entities at arm’s length. In addition, a great number of sales of logs and lumber inputs occur
at arm’s length between unrelated producers of subject merchandise.
4.42 In the FD, USDOC concluded that no subsidy pass-through analysis of any kind was required
because the alleged subsidy is a subsidy “to the produ ction of lumber rather than the production of
timber or logs”. With respect to producers of remanufactured lumber that do not hold provincial
stumpage rights and that purchase lumber from stumpage holders at arm’s length, USDOC concluded
that as the case was conducted on an aggregate basis, “a review is the appropriate avenue to determine
if there are specific companies that do not receive countervailable benefits.”
4.43 Under the SCM Agreement, a “direct subsidy” exists where government makes a financial
contribution that confers a benefit to the recipient of that contribution. Similarly, an “indirect
subsidy” exists where a government “entrusts or directs” a private body to provide a financial
contribution that confers a benefit to the recipient. If the recipient of a subsidy enters into transactions
with other entities, an investigating authority may not presume that those other entities have benefited
from the alleged subsidy. An investigating author ity must always establish that both elements of the
subsidy definition exist. In US – Lead and Bismuth II , the Appellate Body found that an authority
must establish that a benefit has been conferred upon the recipient of the alleged subsidy, and may not
irrebuttably presume that the benefit has been passed through a subsequent transaction. This analysis
is even more apt in respect of original determinat ions where an investigating authority must establish

each element of a subsidy. In transactions that take place in the market and at arm’s-length, the
applicable presumption is that fair market value has been paid.
4.44 USDOC was required to find that the alleged subsidy to a harvester of timber was passed
through to the downstream producer of su bject merchandise. USDOC did not provide any analysis of
either requirement of Article 1 in respect of downst ream producers. USDOC did not establish that
any “financial contribution” by government had been made to lumber producers or remanufacturers in
respect of the inputs they purchased at arm’s-le ngth. USDOC also did not find that the alleged
“benefit” was conferred to lumber producers or remanufacturers through downstream purchases.
4.45 Moreover, there was substantial evidence demons trating arm's-length transactions between
timber harvesters and lumber producers, and between lumber producer s and remanufacturers,
including: (1) In B.C. approximately 24 per cent of the timber from Crown licenses was harvested by
companies that did not own sawmills. Similarly, in Ontario approximately 30 per cent of the
softwood timber harvested from Crown lands was sold by tenure holders to third parties for
processing; (2) At least 18 per cent of the volume of logs harvested in B.C. from Crown lands were
purchased at arm’s length; and (3) Numerous comp any exclusions filings demonstrated that arm’s-
length purchases of logs and lumber were signif icant. On this basis 230 companies applied for
exclusion.
4.46 In US – Softwood Lumber III the US indicated that it knew that a portion of the logging
companies did not own sawmills, and sell their logs in arm’s-length transactions. The panel found
that the US had conceded that pass-through analysis was required; it found that the US had violated its
obligations under the SCM Agreement because USDOC had failed to consider evidence regarding
arm’s-length transactions and because an authorit y may not assume that a subsidy provided to
producers of the “upstream” input product automatica lly benefits unrelated producers of downstream
products (especially where there is evidence of arm’ s-length transactions betw een these entities). In
the FD, USDOC ignored these facts and presumed that all producers of subject merchandise received
countervailable subsidies in all cases. USDOC had the data to calculate and correctly deduct from the
numerator the alleged benefit incorr ectly attributed to arm’s-length log and lumber sales. USDOC
instead chose to presume the existence of a subsidy ar ising from such sales, and as a result, overstated
the amount of the alleged subsidy (and the subsidy rate).
4.47 USDOC has therefore failed to establish the elem ents of a subsidy by failing to demonstrate a
pass-through of financial contribution and benefit. Accordingly, the US has violated Articles 10,
19.1, 19.4 and 32.1 of the SCM Agreement and Article VI:3 of GATT 1994.
2. Canadian provincial stumpage programmes are not specific to certain enterprises
4.48 USDOC concluded that recipients under provin cial stumpage programmes are limited to a
group of industries; it found that this factor alone established the programmes as specific in fact.
USDOC’s finding was based on its de finition of the term “group of industries”, by which it meant
those companies and individuals that use the programme.
4.49 Under Article 2, a subsidy may be determined to be specific to an enterprise, industry or
group of enterprises or industries (certain enterprises) either in law or in fact . A subsidy is specific in
law where a government expressly limits access to that programme to certain enterprises. Where a
subsidy is not specific in law, a Member may still determine that it is specific to certain enterprises
based on evidence of the factors listed in Article 2. 1(c), subject to consideration of the diversification
of economic activities in the jurisdiction and the length of time the programme has been in operation.
Where these factors do not indicate that a Member is deliberately limiting access, the programme is
not specific. Article 2.4 requires that any specificity determina tion be “clearly es tablished” on the
basis of “positive evidence”. Th is exacting burden of proof requir es both reasoned analysis and
“positive evidence” supporting the factual conclusi on. An investigating authority must therefore

correctly analyze and weigh all evidence of the factors set out in Article 2.1(c), as applied in a given
case, in the light of the standard in Article 2.4.
4.50 The term “certain enterprises” is a defined term for the purposes of Article 2: “an enterprise,
industry, or group of enterprises or industries”. At issue in this case is the meaning of the terms
“industry” and in particular “group of… industries”. The meaning of “industry” is “[a] particular
form or branch of productive labour; a trade, a manufacture”. In the context of the WTO Agreement
and the SCM Agreement this requires an examinati on of product-based criteria. Part V of the SCM
Agreement provides that the term “domestic indust ry” “shall … be interpreted as referring to the
domestic producers as a whole of the like products or to those of them whose collective output of the
products constitutes a major proportion of the tota l domestic production of those products …”
[emphasis added]. The term “domestic industry” thus refers to the producers on the basis of
“products”. The logical inquiry to be undertaken by the investigating authority of an importing
Member is therefore whether the parallel foreign in dustry is subsidized on a specific basis.
Accordingly, an “industry” in the sense of Article 2 is properly interpreted to refer to enterprises
engaged in the manufacture of similar products. The nature of the output products is also an
important link that holds “a group of enterprises or industries” together; in the absence of a product-
based identification of industries, no “group of industries” may be found.
4.51 USDOC explained that the label “limited group of wood products industries” identified “pulp
and paper mills and the saw mills and remanufacturer s which are producing the subject merchandise”.
In concluding that the alleged benefits of stumpage programmes are limited to those entities
specifically authorized to cut timber on Cr own lands, USDOC’s determination amounts to the
statement that “stumpage is specific to those usin g stumpage”, and assumes the ultimate conclusion
under the “limited users” factor. USDOC’s finding renders the specificity requirement redundant and
inutile. This is achieved also by USDOC’s use of the entire Canadian economy as a benchmark and
finding that the majority of compan ies and industries in Canada do not receive benefits under these
programmes. As a result of its circular reasoning, USDOC failed in particular to accurately determine
the actual users of stumpage programmes and failed to address the record evidence that established
that many enterprises and industries use stumpage programmes. USDOC also failed to analyze the
industries that use stumpage programmes, based on the types of enterprises, in order to determine
whether they properly constitute a “group of industries”.
4.52 Canada submitted significant evidence pertinent to the specificity issue, including voluminous
questionnaire responses and expert studies on factual issues relevant to specificity. These studies
considered the number and types of industries using stumpage, the types of products produced by
stumpage users, and the proportionate distribution of the wood fibre harvested in Canada to various
product categories. These studies demonstrated that there were 23 separate classes of industries,
producing over 200 products, that used stumpage programmes. They also showed that softwood
lumber was not the dominant end use. Many producers of subject merchandise also produce products
not subject to the investigation, and other stumpage users include, inter alia, producers of pulp and
paper products, hardwood products, shakes and shingles, kitchen cabinets, furniture, and sporting
gear. Moreover, by arguing that a subsidy programme that does not subsidize the “vast majority of
companies and industries” is “specific”, USDOC is stating a negative rather than determining the
required positive – that the government has deliberately limited access to the programme to certain
industries.
4.53 USDOC also failed to analyze whether stumpage programmes were specific in fact within the
context of all four factors found in Article 2.1(c). In an analysis under Article 2.1(c), evidence must
be analyzed and factors must be weighed in the light of differing explanations. The US has, by its
own admission, recognized that it is the inherent characteristics of the alleged good that limit the
number of users of the programme, rather than any deliberate government favouritism. In the light of
the nature of the forestry resource in question, it is untenable to base a specificity finding on the
“limited users” factor alone. To hold otherwis e impermissibly merges the tests of Articles 1

(provision of a good) and 2 (government favouri tism), by rendering the specificity requirement
superfluous where the provision of a natural resource has been found to be a subsidy under
Article 1.1.
4.54 The US specificity finding in the FD amounts to an irrebuttable presumption, based on the
nature of the subject merchandise and the allege d “good” provided, that the alleged subsidy is
specific. A determination of de facto specificity under Article 2.1(c) in this case would have required
at a minimum examination of the other listed factors. Moreover, Article 2.1(c) mandates the
consideration of economic diversification. Eviden ce of economic diversification in the Canadian
provinces, and in particular in B.C., greatly reduc es the weight to be given to the “limited users”
factor in this case. When account is taken of th e evidence of the diversity of provincial economies,
the correct conclusion under the first factor is that, (1) stumpage programmes are not used only by
two or three industries and, to the contrary, (2) stumpage programmes are widely available to more
than a limited number of industries. Even if this we re not the case, the lack of diversity of provincial
economies and the inherent characteristics of stumpage would provide the reason.
3. USDOC’s Calculation Methodology Impermissibly Inflates the Rate of the Alleged
Subsidy and the Countervailing Duty
4.55 The US imposed countervailing duties in excess of the amount of the alleged subsidy to the
subject merchandise. First, USDOC inflated the alleged subsidy rate by adopting an outdated and
factually unsupportable “national” factor for conv erting US log volume measurements into Canadian
log measurements in order to determine comparis on prices for its illegal cross-border analysis.
Second, USDOC calculated the total alleged benefit based on all Crown logs entering sawmills, rather
than basing the alleged benefit on the log volume (l ess than 40 per cent of the total) that becomes
softwood lumber, and then allocated that alleged be nefit over the sales value of only certain products
produced from the logs. The effect, again, was to overstate the alleged subsidy. Third, USDOC
inflated the duty rate by understating the sales valu e of subject merchandise; it purported to calculate
the subsidy rate on a “final mill” basis (including sales of remanufacturers), but contrary to the record
evidence, devised a final mill sales estimate that la rgely excluded such sales. All of these actions
inflated the amount of the alleged subsidy, thereby violating the SCM Agreement.
4.56 Countervailing duties may not be imposed in an amount that exceeds the subsidy.
Article 19.4 of the SCM Agreem ent and Article VI:3 of GATT 1994 establish this fundamental
discipline on countervailing duties. A countervailing duty so imposed also violates Articles 10 and
32.1, which provide that a countervailing duty may only be imposed in accordance with the provisions
of the SCM Agreement and GATT 1994.
4. Conduct of the Investigation
4.57 In conducting the investigation, the US failed to provide the interested parties with critical
information and evidence, failed to give notice of its use of information highly relevant to its
determination, and failed to give interested pa rties an opportunity to present evidence, make
presentations, and otherwise defend their interests. In imposing countervailing duties pursuant to an
investigation that did not conform with Articles 12.1, 12.3 and 12.8 of the SCM Agreement, the US
violated Articles 10 and 32.1 of the SCM Agreement.
4.58 As noted, in its illegal cross-bo rder comparisons, USDOC used prices for short-term cutting
rights on US state lands as the benchmarks against which to compare Canadian provincial stumpage
charges, making the choice of a particular comparator state central to the determination of an alleged
provincial subsidy. Yet in the cases of Albert a and Saskatchewan, USDOC switched the comparator
state from Montana in the PD to Minnesota in th e FD, without any notice to interested parties or
opportunity to provide evidence or argument c oncerning the inappropria teness of the Minnesota
benchmark. As the Guatemala – Cement II panel reasoned, “[d]isclosur e of the ‘essential facts’

forming the basis of a preliminary determination is clearly inadequate in circumstances where the
factual basis of the provisional measure is signif icantly different from the factual basis of the
definitive measure.”
4.59 Similarly, USDOC failed to give interested pa rties the opportunity to present full evidence
and arguments concerning information that was highly relevant to the calculation of the US
benchmark price applied to Québec. Specifically, USDOC requested and obtained timely information
from the Maine Forest Products Council (MFPC), yet withheld it from the record until Quebec
formally demanded its production. USDOC then ch aracterized the MFPC information as “untimely”,
yet subsequently accepted and relied upon two repo rts submitted by the petitioner to reject the MFPC
information. Interested parties were given no opportunity to rebut the petitioner’s reports.
5. Initiation of the Lumber IV Investigation
4.60 USDOC initiated the Lumber IV investigation, based on a finding that 67 per cent of the US
softwood lumber producing industry supported the petition. Softwood lumber producers that brought
or supported the petition are eligible to receive cash payments under the Dumping and Subsidy Offset
Act of 2000 (Byrd Amendment) for supporting the petition. Counsel for the petitioner, the Coalition
for Fair Lumber Imports Executive Committee, used the prospect of Byrd Amendment payments as
inducement to garner support for the petition. The investigation was therefore initiated on the basis of
domestic producer support that was actively solicited by promise and prospect of a direct payment by
the US government.
4.61 Article 11.4 requires Members to conduct an “exam ination” of the degree of support for an
application and to “determine”, on the basis of that examination, that the application has been made
by or on behalf of the domestic industry. The words “determine” and “examination” denote, singly
and collectively, an active consideration, assessment or weighing of evidence that results in a
conclusion. This plain reading of the words is fu rther confirmed by the context. In addition to
“quantitative thresholds”, Article 11 also provides th at the original complaint of alleged injury to an
industry must contain evidence that has to be substantiated. The obligation under 11.4 is therefore not
simply on the applicants to present evidence of domestic industry support, but also on the
investigating authority to conduct an objective determination and examination of the level of that
support. The panel in US – Offset Act (Byrd Amendment) described the object and purpose of
Article 11.4 as requiring an authority to examine th e degree of support which exists for an application
and to determine whether the application was thus filed by or on behalf of the domestic industry.
4.62 If Article 11.4 is to have any meaning, the “examination” of the degree of support for the
petition and determination that the petition was made by or on behalf of the domestic industry must be
objective and impartial. The counte rvailing duty order resulting from the Lumber IV investigation is
subject to the Byrd Amendment. As payments by the US under the Byrd Amendment induce domestic
producers to support such petitions, the US is precluded from making an objective and impartial
examination and determination of the level of support among domes tic producers for such petitions.
This is consistent with the finding of the panel in US – Offset Act (Byrd Amendment) . That panel
found that the low costs of supporting a petition coupled with the strong likelihood that all producers
would feel obliged to keep open their eligibility for offset payments would mean that the vast majority
of petitions would achieve the required level of support. The panel concluded that by requiring
support for the petition as a prerequisite for receiving offset payments, the CDSOA in effect mandates
domestic producers to support the application a nd renders the threshold test of Article 11.4
meaningless. Since the initiation of
Lumber IV is inconsistent with Article 11.4, the US has, as a
consequence, imposed countervailing measures in violation of Articles 10 and 32.1 of the SCM
Agreement.

6. Administrative Reviews
4.63 Canada raised certain questions concerning the operation of US law on administrative reviews
in the course of consultations. In particular, Canada asked whether individual producers and
exporters may request and receive company-specific administrative reviews under US law. In its
panel request, Canada claimed US law relating to administrative revi ews violated Articles 10, 19.3,
19.4, 21.1, 21.2 and 32.1 of the Agreement and Arti cle VI:3 of GATT 1994. Canada raised similar
issues in the US – Softwood Lumber III case. In that proceeding, the US took issue with Canada’s
characterization of its law and stated that it had the discretion to co nduct company-specific
administrative reviews. The panel in US – Softwood Lumber III made findings in this regard
substantially endorsing the US explanation of the source and extent of USDOC’s discretion. The US
confirmed these statements in the consultations held for this case. In the light of the foregoing
statements and findings, it is Canada’s understanding that the US possesses and will use discretion in
the conduct of administrative reviews in a WTO-cons istent manner. Canada reserves the right to
advance additional arguments in respect of these claims, if its understanding of the US position is
incorrect.
B.
FIRST WRITTEN SUBMISSION OF THE UNITED STATES
4.64 The following summarizes the United States' arguments in its first written submission.
1. Introduction
4.65 The recurring theme of Canada’s case is succ inctly presented in its assertion that no
countervailing duties may be imposed on government programmes “that are adopted in the context of
a Member’s broader economic and social policy fram ework, such as the sustainable exploitation of
natural resources.” Canada’s assertion rings hollow when compared to the obligations undertaken by
Members in the SCM Agreement.
4.66 Over 60 per cent of Canada’s subsidized lumber is exported to the US. The countervailing
duty provisions of the SCM are designed to ensure that, when Canada chooses to subsidize the
production of lumber in the interest of social polic y, the US lumber industry is not required to pay the
price. The United States’ right to impose counte rvailing duties to offset the subsidy on billions of
dollars of injurious imports of Canadian lumber is protected in the SCM and, therefore, should not be
denied.
2. Standard Of Review
4.67 Article 11 of the DSU sets forth the standard of review that applies to this case. Article 11
requires a panel to make an objective assessment of the matter before it and determine whether the
identified measure is consistent with the provisi ons of the WTO agreement upon which the claim is
based. In that regard, it is important to bear in mind that panels cannot add to or diminish the rights
and obligations provided in the SCM or the GATT 1994. It is also well settled that a panel must not
conduct a de novo review of the evidence nor substitute its judgment for that of the competent
authority.
3. Argument
(a) Canada Bears the Burden of Proving Its Claim
4.68 The complainant in a WTO dispute bears the burden of proof. This means, as an initial
matter, that Canada, as the complainant, bears th e burden of coming forward with evidence and
argument that establish a prima facie case of a violation. It also means that, if the balance of evidence

is inconclusive with respect to a particular claim, Ca nada must be held to have failed to establish that
claim.
(b) The Final Countervailing Duty Determination Is Consistent with the SCM
(i) USDOC Properly Determined That Provin cial Stumpage Programmes Constitute a
“Financial Contribution"
Timber Is a Good within Article 1.1(a)(1)(iii) of the SCM

4.69 Article 1.1(a)(1)(iii) states that a financial contribution shall be deemed to exist where the
government “provides goods or services other th an general infrastructure.” The SCM does not
specifically define the meaning of “provides” or “goods.” The Panel therefore should look to the
ordinary meaning of these terms. The dictionary de finition that Canada itself cites explicitly defines
the term “goods” as encompassing all “property or possessions,” including “growing crops, and other
identified things to be severed from real property.” “Goods” is similarly defined under Canadian law.
Through their tenure systems, the Canadian province s provide an “identified thing to be severed from
real property,” i.e., timber.
4.70 Canada makes the extraordinary contention that a good must be a tradeable product. Canada
bases this conclusion on logically flawed argument s, and ignores the basic principles of treaty
interpretation reflected in Article 31 of the Vienna Convention on the Law of Treaties . Canada asks
the Panel to infer, from the use of the phrase “imported goods” in Article 3.1(b) of the SCM and the
word “products” in Parts III and V of the SCM Agr eement, that “goods” can only mean traded goods
that fall within the GATT 1994 Article II schedules. The fact that “products” are goods and
“imported goods” are goods does not, however, logically give rise to the inference that nothing else
can come within the meaning of “goods.”
Provincial Tenures “Provide” Timber
4.71 Canada argues that provincial governments are not providing timber to lumber producers, but
rather are merely granting certain property rights in the timber: the right of access to, or the right to
harvest, the timber. According to the New Shorter Oxford English Dictionary , however, “provides”
means to “make available” in addition to “supply or furnish for use.” Thus, even if provincial tenures
are viewed as simply providing the right to access or harvest the timber rather than providing the
timber itself, such a provision would still constitute the provision of a good within the meaning of
Article 1.1(a)(1)(iii) of the SCM be cause the government is making the timber available to lumber
producers.
4.72 A review of the facts further demonstrates that Canada is attempting to elevate form over
substance. USDOC found, and the US – Softwood Lumber III
 panel agreed, 6 that from the tenure
holder’s point of view, there is no difference between the government granting a right to harvest
timber and the government actually supplying the timber through the holder’s exercise of this right.
In fact, the only way to provide standing timber (t he good in question) is by providing the right to
harvest the timber. It should be beyond dispute that when a government gives a company the right to
take a good, whether it is the right to take widge ts from a government warehouse or timber from
government land, the government is “providing” that good within the meaning of Article 1.1(a)(1)(iii)
of the SCM Agreement.

6 See Panel Report, US – Softwood Lumber III , para. 7.17.

(ii) The United States Properly Determined That Provincial Stumpage Programmes Provide a
Benefit
A Benefit Is Something More Favorable Than the Market Would Provide Absent the Financial
Contribution
4.73 The US, having properly determined that a fina ncial contribution was provided to Canadian
softwood lumber producers, was required to dete rmine whether a benefit was “thereby conferred”
within the meaning of Article 1.1(b) of the SCM Agreement. The SCM Agreement does not define
the term “benefit.” The meaning of the term as used in Article 1.1(b) has, however, been explored by
previous WTO panels and the Appellate Body, which have established that a benefit is something
better than the market would otherwise provide, absent the financial contribution, and that “the
‘market’ to which reference must be made is the commercial market, i.e., a market undistorted by
government intervention.”7
Comparing the Government’s Price for a Good to th e Fair Market Value of the Good in the Country
of Provision Is Consistent with Article 14(d) of the SCM
4.74 Article 14 of the SCM contains guidelines for calculating a subsidy benefit, providing that
“the provision of goods or services . . . by a government shall not be considered as conferring a
benefit unless the provision is made for less than adequate remuneration.” “Adequate remuneration”
is not defined in the text of the SCM Agreement. In the context of Article 14(d), however, “adequate”
remuneration must mean remuneration that is sufficient to eliminate any benefit. As discussed above,
a benefit is something more favorable than would otherwise be available in the commercial market,
i.e., fair market value. Logically, therefore, “adequate” remuneration is fair market value.
Article 14(d) therefore provides that the benefit should be measured by comparing the government’s
price for goods or services with the fair market value of the goods or services in the country of
provision.
4.75 The issue is what evidence may be used to establish that fair market value pursuant to the
guidance in Article 14(d) of the SCM that adequate remuneration must be measured “in relation to
prevailing market conditions . . . in the countr y of provision.” Article 14(d) does not address the
type of evidence to be used in evaluating the question of benefit. Observed prices in Canada were
either unavailable or unreliable indicators of fair market value. Thus, after a thorough analysis to
ensure comparability, the US used market prices for timber from the northern US border states as the
starting point for the calculation of fair market be nchmarks for each of the provinces, then analyzed
the prevailing market conditions in Canada (e.g., ob ligations for road building, silviculture, and fire
and disease protection) and adjusted the benchmark calculation accordingly to arrive at the fair market
value of timber in Canada.
4.76 Canada itself acknowledged that price data from sources outside of the country of provision
can be used as the basis for assessing fair market value in the country of provision. The issue at the
heart of Canada’s complaint is thus not whether Article 14(d) precludes the use of “out of country”
prices (e.g., import prices) to assess fair market value in the country of provision. Rather, the issues at
the heart of Canada’s claim are questions of fact: (1) did the US have a reasonable basis to reject
private prices in Canada as a basis for assessing fair market value; and (2) could price data for
comparable timber in the northern United States provide a reasonable factual basis for assessing the
fair market value of timber in Canada. As discus sed below, the answer to both inquiries is yes;
therefore, Canada’s claim must fail.

7 Panel Report, Brazil – Aircraft (Article 21.5 – Canada II ), para. 5.29 (emphasis in original).

Private Prices in Canada Did Not Provide a Reliable Basis to Determine Fair Market Value

4.77 As noted above, the Appellate Body and previous WTO panels have found that “the
marketplace provides an appropriate basis for comparison” 8 and that “the ‘market’ to which reference
must be made is the commercial market, i.e., a market undistorted by government intervention.” 9
Prices suppressed by the government’s financial co ntribution do not represent a commercial market
price against which a benefit can be measured because they do not represent a “market undistorted by
government intervention.”
4.78 In the present case, the US sought evidence on non-government prices for Canadian timber.
The record evidence demonstrates, however, that the limited non-government price data submitted by
the Canadian parties was inadequate and that such pr ices were significantly affected by the financial
contribution itself, i.e., the supply of provincial government timber. These observed prices were
therefore simply uninformative of adequate remuneration, i.e., fair market value.
Prices for Comparable Timber in Northern US States, Properly Adjusted, Provide a Reasonable Basis
for Assessing the Fair Market Value of Timber in Canada
4.79 As discussed above, there was no appropriate market price data from Canadian sources on
which to base a fair market value assessment. Ca nada’s claims notwithstanding, starting with prices
for comparable timber of the same species immedi ately across the border and adjusting those prices,
as appropriate, for provincial market conditions is a reasonable basis to assess the fair market value of
timber in Canada. An examination of the underlying facts and the assessment performed by the US in
this case demonstrates this point.
4.80 It is undisputed that the North American market for lumber is highly integrated. Canada, in
fact, exports over 60 per cent of its softwood lumber to the US. US and Canadian timber are therefore
supplying the same North American demand for lu mber products. Thus, because of the derived
nature of timber prices, market prices for US timb er are a logical and reasonable starting point for an
assessment of the fair market value of Canadian timbe r. US timber is also commercially available to
lumber producers in Canada. Canada does not co ntest the fact that Canadian mills actually do
purchase US timber – both on the stump and as logs – and consume it in their mills in Canada.
4.81 To compensate for any differences in species mix, the US calculated species-specific fair
market value benchmarks. The US also used averages – an average, species-specific fair market value
benchmark for each province and an average administered price for each province – to account for
other differences that may affect the value of specific stands of timber. The use of averages is an
accepted and widespread aspect of Canadian stumpage systems. In addition, the US made appropriate
adjustments to the US price data to arrive at an assessment of the fair market value of timber in
Canada. As evidenced in the Final Determination, 10 the US conducted a thorough analysis of the
conditions of sale in Canada and made necessary adjustments for obligations such as road building
and silviculture that are conditions of sale in Ca nada. The result was a reasonable assessment of the
fair market value of timber in Canada that is entirely consistent with Article 14(d) of the SCM
Agreement.

8 Appellate Body Report, Canada – Aircraft, para. 157.
9 Panel Report, Brazil – Aircraft (Article 21.5 – Canada II ), para. 5.29 (emphasis in original).
10 See Notice of Final Affirmative Countervailing Duty Determination and Final Negative Critical
Circumstances Determination: Certain Softwood Lumber Products From Canada, 67 Fed. Reg. 15545
(2 April 2002) (“Final Determination”) (US - 2).

The SCM Does Not Define “Benefit” in Terms of Increased Output or Lower Prices for the Subject
Merchandise and Does Not Create an Exception for Natural Resource Inputs
4.82 Without any justification in the text of the WTO agreements, Canada asserts that the Panel
should graft onto the SCM a special rule for financial contributions that take the form of a government
provision of a natural resource that is fixed in supply. According to Canada, the conditions that
prevail in such a market are such that no failure by the government to collect adequate remuneration
can result in increased output or have an adverse trad e impact. Thus, Canada claims that “any benefit
analysis should assess” the trade effects of the subsidy.
4.83 This argument is completely without foundation in the SCM Agreement. Article 14, which is
titled “Calculation of the Amount of a Subsidy in Terms of the Benefit to the Recipient,” provides that
the existence of a benefit to the recipient, not the existence of demonstrable trade effects, is
determinative of whether a benefit exists for purposes of Article 1.1. Nothin g in Article 14 describes
benefit in terms of the effect on the output of the recipient. If the government makes a financial
contribution, and the recipient obtains a benefit, then the definition of a subsidy in the SCM
Agreement is fulfilled. What Canada asserts “should” be added to this definition cannot supersede the
actual text of the SCM Agreement.
(iii) The United States Calculated the Subsidy Rate in a Manner Consistent with the SCM and
GATT 1994
4.84 In industries, such as softwood lumber, with an extremely large number of producers, it is not
feasible, in an investigation, to examine the subsidies received by each individual producer. As
reflected in Article 19.3 of the SCM Agreement, Members are accorded th e flexibility to conduct
investigations other than on a company-specific basis. In this case, rather than investigate specific
producers, the US examined the government subsidy programmes at issue and, based on data supplied
by the provincial and federal governments, calcul ated the aggregate amount of all subsidies to
producers of the subject merchandise (the numerator). The US then allocated the aggregate subsidies
over all sales of merchandise that benefitted from the subsidies (the denominator).
4.85 This type of aggregate subsidy investigation is entirely consistent with the SCM Agreement,
and Canada does not argue to the contrary. Rather , Canada argues that the manner in which the US
calculated the countervailing duty is inconsistent with Articles 19.1 and 19.4 of the SCM Agreement,
and Article VI:3 of GATT 1994. Canada has failed, however, to make a prima facie case.
4.86 Article 19.1 of the SCM require s a final determination of the amount of the subsidy and a
final determination of injury as pre-conditions to the imposition of a countervailing duty. Article 19.1
does not, however, establish any requirements concerning how a subsidy or injury is to be determined.
Those obligations are found elsewhere in the SCM Agreement.
4.87 Article 19.4 of the SCM establishes an upper limit on the amount of the countervailing duty
that may be levied, i.e., the amount of the subsidy found to exist. The issue addressed by Article 19.4
expressly is the levying of duties after a subsidy has been “found to exist.” The sole calculation
requirement in Article 19.4 is a requ irement to calculate the subsidy on a per-unit basis. Article 19.4
does not establish any other requirements concerning how the subsidy is to be calculated. 11 Canada,
in fact, concedes that its claim under Article 19.4 is dependent upon the existence of an inconsistency
with some other provision of the SCM that imposes obligations with respect to the subsidy
calculation.

11 Similarly, Article VI:3 of GATT 1994 establishes that the amount of the subsidy found is the upper
limit on the amount of the countervailing duty that may be levied. Article VI:3 of GATT 1994 does not address
how the subsidy is to be calculated.

4.88 Article 19.3 of the SCM establishes two obliga tions: (1) when countervailing duties are
“imposed,” they must be “levied” on a non-discriminatory basis; and (2) when an uninvestigated
exporter is “subject to” countervailing duties, th e exporter is entitled to an expedited review to
establish an individual countervailing duty rate. Nothing in the text of Article 19.3 establishes any
obligations concerning the methodology used to calc ulate the amount of the subsidy, either in the
aggregate or with respect to a specific exporter.
4.89 Thus, while other provisions of the SCM contain obligations regarding the calculation of the
benefit, Canada has failed to identify any such ob ligations in Article 19 or GATT 1994 in support of
its claims concerning the subsidy calculation. It has, therefore, failed to establish a prima facie case
of a violation.
4.90 Furthermore, to the extent Canada’s claims re late to factual findings used to support the US
methodology, the Panel may, of course, make an objective assessment of the facts. The Panel is not,
however, charged with conducting a de novo review of the facts. Rath er the Panel is to determine
whether the US “evaluated all relevant factors , and . . . provided a reasoned and adequate
explanation of how the facts support [its] determination.”
12 The US findings of facts in this case were
well supported and well reasoned.
(iv) Canadian Provincial Stumpage Subsidies Are Specific within the Meaning of the SCM
4.91 Under the SCM Agreement, a subsidy “shall be deemed to exist” where “there is a financial
contribution by a government or any public body within the territory of a Member” and a benefit is
thereby conferred. Pursuant to Article 1.2 of th e SCM Agreement, a programme that otherwise meets
the definition of a subsidy shall be subject to count ervailing measures if it is “specific” within the
meaning of Article 2 of the SC M Agreement. Article 2.1 of the SCM Agreement provides three
principles that must be applied to determine whether a subsidy is specific to “an enterprise or industry
or group of enterprises or industries” — referred to collectively by the SCM Agreement as “certain
enterprises” — within the jurisdic tion of the granting authority.
4.92 First, a subsidy is specific as a matt er of law if the granting authority explicitly limits access
to a subsidy to certain enterprises. Second, a subsidy is not specific as a matter of law where the
granting authority establishes objective criteria or c onditions governing eligibility for, and the amount
of, a subsidy, provided that eligibility is automatic and the criteria or conditions are strictly adhered
to. Third, even where the law under which the granti ng authority operates does not appear to create a
de jure specific subsidy under the first two steps of th e analysis, Article 2.1(c) of the SCM provides
that other factors may be considered to determine if the subsidy is, in fact , specific. Thus,
Article 2.1(c) establishes that, even if a subsid y has the “appearance” of being widely available
throughout an economy, it may nevertheless be specific if, as a matter of fact, the subsidy is used only
or predominantly or disproportionately by a limited number of certain enterprises.
4.93 The US acted consistently with its obligations under the SCM in finding that Canada’s
provincial stumpage programmes are specific. The subsidy at issue in this case is the provision of
Crown timber to lumber manufacturers at below- market prices. Thus, the proper inquiry under
Article 2.1(c) of the SCM is whet her the actual recipients of Crown timber, whether considered on an
enterprise, industry, or group basis, are limited.
4.94 The record clearly demonstrates that provinci al stumpage subsidy programmes were used by
a “limited number of certain enterprises” within th e meaning of Article 2.1(c). The SCM does not
define the term “limited number.” As a factual matter, USDOC found that stumpage subsidy
programmes were used by a single group of industries, comprised of pulp and paper mills, and the

12 Appellate Body Report, US – Lamb, para.103.

saw mills and remanufacturers that produce the subject merchandise. Such a small number of users
would count as “limited” by any reasonable definition.
4.95 Canada does not deny that there are no recipients of timber outside of the lumber and pulp
and paper industries. Instead, it attempts to redefi ne the specificity test. Canada would have this
Panel ignore the plain language of the SCM Ag reement, and instead establish obligations and
requirements that exist nowhere in the SCM Agreement. First, Canada attempts to read an intent
requirement into the SCM Agreement, notwithstandin g that nothing in the text requires any findings
as to the granting authority’s intent to limit a subsidy. To the contrary, the very purpose of
Article 2.1(c) is to let the facts speak for themselves . Article 2.1(c) refers simply to whether a limited
number of enterprises use a subsidy, not why that is so. Next, without any foundation in the SCM
Agreement, Canada claims that subsidies are not sp ecific if they are “adopted in the context of a
Member’s broader economic and social policy fram ework, such as the sust ainable exploitation of
natural resources.” A “policy” exception would, however, obliterate the specificity requirement to the
extent that all subsidies fall within some broader social or economic policy framework. Finally,
Canada seeks to create an excepti on to Article 2 that would explain away a finding of specificity
where “the inherent characteristics of the alleged good . . . limit the number of users of the
programme, rather than any deliberate govern ment favouritism.” Ho wever, the “inherent
characteristics” of the subsidized good are also not a factor under Article 2.1. The fact that a
subsidized input has economic utility for a limited number of potential recipients does not and cannot
exempt it from the disciplines of the SCM Agreement.
4.96 Canada also claims that the US undercounted th e number of industries that used stumpage
subsidies because it used an improper definition of the word “industry.” Canada seeks to constrict the
natural meaning of “industry” such that an indust ry would be identified not by the general class of
products it produces, but by a particular product or na rrow set of products. Canada further claims that
a “group of industries” is similarly restricted to individual members that make similar products.
There is absolutely no basis in the text, or logic, for Canada’s argument. Canada’s reading contradicts
the ordinary meaning of the word “group,” which in the context of Article 2.1 plainly and simply
means “one or more” enterprises or industries; it doe s not require that all of its members be identical,
or even similar, to be called a group.
4.97 The Panel should likewise reject Canada’s argu ment that the term “domestic industry,” as
defined in Article 16.1 of the SCM Agreement, fo rms the context for understanding what is meant by
“industry” in Article 2.1. Article 16.1 define s “domestic industry” within the context of the
determination of the domestic “lik e product,” whereas spec ificity determinations under Article 2 are
not limited to particular “like products.” Th ere is no logical connection between defining the
domestic industry that is injured by a specific imported product and determining whether a subsidy is
limited to certain enterprises or industries.
4.98 Finally, the US explicitly found that “the subsidies provided by the[] stumpage programmes
are not ‘broadly available and widely used.’ The vast majority of companies and industries in Canada
does not receive benefits under these programmes.”
13 No matter how Canada attempts to subdivide or
redefine the industries that received the subsidy, the simple fact remains that the Canadian economy
as a whole and each of the provincial economies are large and diversified, and provincial stumpage
programmes are used by a single group of forest pr oduct industries within those diverse economies.
Canada’s claims with respect to the economic diversification provisions of Article 2.1(c) therefore
should be rejected by the Panel.

13 Issues and Decision Memorandum: Final Results of the Countervailing Duty Investigation of
Certain Softwood Lumber Products from Canada, 52 (emphasis added) (21 March 2002) (CDA-1).

(c) The Conduct of This Investigation Was Consistent with the Obligations of Article 12 of the
SCM
4.99 The US conducted this investigation in full comp liance with the obligati ons in Article 12 of
the SCM Agreement. The US ensured that all par ties were given notice of the information it required
for the investigation, had ample opportunity to submit relevant information, had access to all
information submitted to the US during the course of the investigation, and were informed of the
essential facts under consideration. The US thus ensured that all interested parties had ample
opportunity to defend their interests. Neither of Canada’s two claims of error bears scrutiny under the
facts of record.
4.100 The US fully complied with Articles 12.1, 12.3 , and 12.8 of the SCM Agreement with regard
to the selection of the benchmark for the stumpage programmes of Alberta and Saskatchewan.
Consistent with Article 12.1, all interested parties were informed that the US required information on
the US northern border states in order to choose appropriate benchmarks for the Canadian stumpage
programmes. Because all information submitted to the US was actually served on all of the interested
parties participating in the inves tigation, the US procedures were consistent with Article 12.3.
Because the Preliminary Determination
14 announced that the United States was using US northern
border states as the benchmarks for the Canadian stumpage programmes, set forth the criteria the US
used in selecting the benchmarks, identified Minne sota as one alternative USDOC might use, and
because all information submitted to the US regarding Minnesota was pr ovided to all of the interested
parties, the US informed the in terested parties of the “essential facts under consideration” and
therefore acted consistently with Article 12.8.
4.101 The US conduct was also in full compliance with the SCM with regard to the Maine Forest
Products Council (“MFPC”) letter. The US provided copies of th e MFPC letter to all interested
parties and afforded them the opportu nity to submit information “that clarifies, corrects or rebuts” the
information contained in that letter. By providing c opies of the letter to all of the interested parties,
the US ensured that it met the requirements of Ar ticle 12.1. Moreover, the opportunities to comment
on and rebut the information more than met the requirements of Article 12.3. Beyond the
requirements of Article 12.8, the US specifically identified the information contained in the MFPC
letter as “important to certain issues in the proceeding, and relate[d] to an ongoing exchange of expert
advice on a technical matter.” The US, therefore, informed the interested parties that the information
in the MFPC letter was part of th e “essential facts under consideration,” and specifically provided
them with the opportunity to use this information in the presentation of their case, or to submit
additional information to clarify, co rrect, or rebut this information. Thus, the disclosure took place in
sufficient time for parties to defend their interests.
(d) The United States Initiated the Softwood Lumber Investigation Based on Adequate Domestic
Industry Support Consistent with the Requirements of Article 11.4 of the SCM
4.102 The softwood lumber petition co ntained uncontested evidence establishing that US softwood
lumber producers representing 67 per cent of total US softwood lumber production supported the
petition. That level of industry support unquestiona bly satisfies the criteria in Article 11.4 of the
SCM Agreement. Canada does not contest this fact.
4.103 Canada is not challenging the provisions of US law governing industry support, but rather the
specific factual determination of industry support in this case. Nevertheless, the sole argument
presented by Canada is the unsubstantiated claim that the very existence of the Continued Dumping

14 Notice of Preliminary Affirmative Countervailing Duty Determinations, Preliminary Affirmative
Critical Circumstances Determination, and Alignment of Final Countervailing Duty Determination with Final
Antidumping Duty Determination: Certain Softwood Lumber Products from Canada, 66 Fed. Reg. 43186
(17 August 2001) (CDA-20) (“Preliminary Determination”).

Subsidy Offset Act of 2002 induced support fo r the petition, thereby precluding an objective
determination of industry support. In effect, Canada would inject a requirement into the SCM
Agreement that investigating authorities examine the motives of prospective petitioners. In US –
Offset Act (Byrd Amendment) , however, the Appellate Body unequi vocally rejected this argument.
Canada’s claim is therefore without any support in the text of Article 11.4 or the facts of record.
4. Conclusion
4.104 Thus, the United States requests that the Panel reject Canada’s claims in their entirety.
C. FIRST ORAL STATEMENT OF CANADA
4.105 The following summarizes Canada's arguments in its first oral statement.
1. Financial Contribution
4.106 “Stumpage” refers to the right of a harvester to enter into a forest owned by a province, select
a tree and harvest it. Provincial governments transfer stumpage to harvesters through tenure
agreements or licences. Timber refers to the standing tree. Ha rvesters cut down timber and process
it into logs that are processed furt her to produce softwood lumber and a wide variety of other
products. Lumber and certain products manufactu red from lumber are the subject merchandise.
Lumber and logs, which are physical, tradable items, are goods. Standing trees and timber-harvesting
rights are not tradable or physical items; they are not goods. The fact that from each of these rights a
good may be produced does not make the right a good in itself.
4.107 In general, the provinces own forests and trees and enter into tenure or licence agreements to
transfer to private persons the right to harvest trees. In return for this right, these agreements require
tree harvesters to undertake a broad range of fo rest management responsibilities and significant in-
kind costs, as well as the payment of stumpage fees upon harvest.
4.108 At issue in this case, is the interpretatio n of the phrase “provision of goods” in
Article 1.1(a)(1)(iii). The plain meaning of the word “goods” is movable, tangible personal property.
In ordinary usage the term “goods” does not cover intangibles, such as intellectual property rights, or
real property interests. “Goods” does not include all property, or everything that has economic value
or is an economic resource.
4.109 This plain meaning of “goods” is further supported by the context of this term. Nothing in the
WTO Agreement justifies interpreting “goods” to encompass everything of economic value. Equally,
nothing in the object and purpose of the SCM Agreement requires this Panel to interpret the word
“goods” as anything other than its ordinary meaning. As the panel in United States – Export
Restraints noted, the SCM Agreement regulates certain government actions, but not others. The
objective of the SCM Agreement in general and Article 1 in particular, was not to govern all transfers
of economic resources by a government.
4.110 As a matter of law, “goods” are movable personal property; for the purposes of the WTO
Agreement, they are tradable items that are capable of bearing a tariff classification.
4.111 In the facts of this case, timber harvesting right s are intangible real pr operty interests. As
such, they do not fall under the “provision of goods” heading of Article 1.1(a)(1). The only way to fit
the rights in question, or indeed standing trees, into the term “goods” is to suggest that the term
encompasses all a person’s legal rights of what ever description. The WTO Agreement does not
support this proposition.

4.112 A right to harvest standing timber cannot bear a tariff classification, as it cannot be traded
across borders. The transfer of stumpage rights does not constitute the provision of goods.
2. Benefit
4.113 In the CVD FD, USDOC compared provincial stumpage charges with stumpage prices on
selected lands in its own territory. USDOC found US prices to be higher and concluded that the
stumpage charges conferred a benefit through this cross-border comparison.
4.114 This approach to determining and measuring benefit violates the SCM Agreement. The plain
meaning Article 14(d) requires that benefit must be determined and measured on the basis of
prevailing market conditions in the country of provision. This is a legal issue. It is not a factual
debate.
4.115 Canada’s position is based on the ordinary mean ing of Article 14(d), which provides that:
“[A]dequacy of remuneration shall be determined in relation to prevailing market conditions for the
good … in the country of provision… ”[emphasis added]. Nothing in the context, object and purpose
or the negotiating history of Article 14 permits readin g “in” as anything other than “in”. As the panel
in US – Softwood Lumber III
 found: “Article 14 (d) does not just refer to “market conditions” in
general, but explicitly to those prevailing “in the country of provision” of the good.”
4.116 Article 14(d) requires the use of “prevailing market conditions … in the country of provision”
to determine adequacy of remuneration. The ordina ry meaning of the term “prevailing” is “as they
exist”. This requirement cannot be avoided by in terpreting “in relation to” to mean “taking account
of”.
4.117 The SCM Agreement does not provide an authority with the discretion to reject in-country
benchmarks. Instead, Article 14(d) requires the use of “prevailing market conditions … in the country
of provision”. Notwithstanding this requirement, USDOC rejected in-country benchmarks arguing
that government involvement allegedly suppresses private market prices making them unusable.
4.118 The US argues that (1) the information submitted was “limited” and that (2) the “observed
prices were simply uninformative of adequate remuneration” because th ey were “significantly
affected by the financial contribution itself.” Both arguments are without merit.
4.119 First, there is no question that USDOC had before it extensive evidence regarding the
prevailing market conditions in Québec, Ontario, Al berta and BC. This evidence was not “limited”.
Canada also submitted information demonstrating th at stumpage systems are operated in a manner
consistent with market principles. This informa tion showed that all of the provinces were making
substantial profits on the management of their forests.
4.120 Second, the SCM Agreement does not permit disp ensing with prevailing market benchmarks
because of “price suppression”. This was confirmed by the panel US – Softwood Lumber III .
Moreover, the US did no analysis to arrive at the conclusion that price suppression existed.
4.121 The United States’ most recent attempt to justif y its cross-border comparisons consists of an
entirely new argument that relies on word substituti ons, and on so called “logic” to replace the law.
The argument – that Article 14(d) requires is that the “fair market value” (“FMV”) of timber in
Canada is the appropriate benchmark for measuring the benefit – is wholly new. It is found nowhere
in the Preliminary or Final Determinations, US law or in the SCM Agreement.
4.122 The argument is the latest in a series of chan ging positions that the US has taken over the
course of this dispute. In US – Softwood Lumber III, the US moved from arguing “in” means “out” to

arguing “out” really means “in”. In anther attempt to argue for the use of US prices as an appropriate
benchmark the US again asserts that “out” really means “in” – but this time with several twists.
4.123 The US begins by arguing that a benefit determin ation is a “but for” analysis that involves
comparing the government’s price for a good with what the price for that good would have been
absent the financial contribution. In a provision of goods context, however, the marketplace is the
prevailing market as it exists. The panel in US – Softwood Lumber III confirmed this interpretation.
4.124 Building on this erroneous understanding of “benefit”, the US turns to Article 14(d) itself and
argues that: “[A] benefit is something more favo rable than would otherwise be available in the
commercial market, i.e., fair market value. Logica lly, therefore, “adequate” remuneration is fair
market value.” It then argues that it had to look elsewhere for prices to calculate FMV benchmarks
because prevailing market conditions in Canada are “unreliable indicators” of FMV. In doing so it
turns Article 14(d) into a provision that measur es adequacy of remuneration by comparing the
government price to a constructed FMV, rather than to in-country prevailing market conditions.
4.125 In a final effort to refashion the requirements for a determination of “adequate remuneration”,
the US asserts that FMV “must” be determined “in relation to” “conditions of sale”. The replacement
of “prevailing market conditions ” by “conditions of sale”, is just another attempt by the US to again
evade the plain meaning of “prevailing” which is “as they exist”. The text of the agreement demands
a determination that is grounded in existing Canadian market factors, not an adjustment to US prices
based on an erroneous interpretation of “conditions of sale”.
4.126 Interwoven through this is the now familiar argument that “in relation to” means “taking
account of.” Although the reasons for the US ar gument have changed, Canada’s response is the
same. The ordinary meaning of “in relation to” is “on the basis of”. It is not “taking account of”.
4.127 These word substitutions allow the US to interpret Article 14(d) as if it read: The fair market
value shall be determined using a benchmark derived from a market undistorted by government
intervention, taking account of conditions of sale for the good … in the country of provision.
4.128 According to the US, this metamorphosis is so compelling that there is “no dispute” about any
of it. Every step of this so-called “logic” is in dispute. No amount of word substitution can change
the fact that Article 14(d) requires a determinati on of adequacy of remuneration using in-country
prevailing market conditions.
4.129 USDOC also improperly rejected economic analysis that demonstrates that stumpage charges
provide no trade advantage to lumber producers or harvesters. USDOC explained in its CVD FD that
its task was to “quantify and remedy” distortion of the US market that was at “the heart of this
inquiry”. In response, Canada provided USDOC with detailed economic evidence that demonstrated
that stumpage programmes do not cause trade distortion.
4.130 USDOC then claimed that it could not examine this evidence because of its “complexity”.
The US now contradicts its own inve stigating authority by claiming that the evidence is not relevant
to a “benefit” determination and that Canada is attempting to “graft” a special rule onto the SCM
Agreement. Canada is doing no such thing. Rath er, Canada provided evidence to USDOC regarding
an issue that USDOC itself stated was central to this case.
4.131 Any benefit determination relating to stumpage systems must take into account the fact that
the market in this case is a rent market. This ap proach is consistent with panel and Appellate Body
interpretations of Article 1.1(b) and the object a nd purpose of the Agreement. The Appellate Body
has confirmed that the word “benef it” implies a comparison that is market-based and stated that this
allows for identification of any “trade-distorting potential.” As such, the analysis of remuneration in

relation to prevailing market conditions in this case should include consideration of whether stumpage
charges are capable of causing trade distortion.
3. Pass-through
4.132 The US purports to have determined that provinces subsidize those who harvest standing
timber. The US has imposed countervailing duties on lumber. Record evidence demonstrates, and
the US does not contest, that there are lumber pr oducers who obtained log or lumber inputs from
unrelated sources other than government. The question before the Panel therefore is whether the US
may legally presume, as it did , that such producers benefited from an alleged timber harvesting
subsidy.
4.133 Under Article 1, to establish that a person is “subsidized” an investigating authority must
establish that the person received a financial contribution, and that this confers a benefit. Where
lumber producers do not harvest timber but obtain inputs from upstream producers, any alleged
subsidy is by definition indirect. An indirect subs idy is established by demo nstrating the existence of
both an indirect financial contribution under Article 1.1(a)(1)(iv), and a benefit under Article 1.1(b).
The Appellate Body has confirmed that in a countervailing duty investigation, the existence of any
subsidy may never be presumed. The panel in the US – Softwood Lumber III
 case came to the same
conclusion, finding that the obligation to establis h the existence of a subsidy is not excused by
conducting an investigation on an aggregate basis. Articles 10, 32.1, 19.1 and 19.4 of the SCM
Agreement require the US to establish the existe nce of a subsidy before it imposes countervailing
duties.
4. Specificity
4.134 In the CVD FD, USDOC found stumpage to be specific in fact by relying solely on an
incorrect and perfunctory application of the “limited users” factor under Article 2.1(c) of the SCM
Agreement. The phrase “is specific to” in Article 2 establishes a legal stan dard. The standard is
whether government is limiting access to a programme, in law or in fact, to certain enterprises.
Analyzing whether a subsidy is specific in fact under Article 2 is not different from analyzing whether
a subsidy is contingent on export performance in fact under Article 3.1(a). A member may find
specificity in fact only where the total configurati on of facts allows it to infer that government is
deliberately limiting access to the programme.
4.135 As a threshold issue, the US determination on th e “limited users” factor is wrong. First, it
assumes the conclusion. The CVD FD asserts that stumpage programmes “are limited to those
companies and individuals specifically authoriz ed to cut timber on Crown lands.” USDOC’s
determination says nothing regarding the indust ries that actually use stumpage, and more
fundamentally, whether their number was limited.
4.136 Second, it fails to provide any legal analysis of the meaning of the terms “industry” or “group
of industries”. The record evidence demonstrates that the many industries in which these companies
operate are not the only users of stumpage and that the actual users are not limited in number.
Moreover, an industry must be identified for the purpo ses of specificity with reference to the products
it produces. The US argument amounts to an assertion that the term “industry” means whatever it
needs to find a programme specific.
4.137 Third, it compares the purportedly sole users of stumpage to the entire Canadian economy.
Using the entire economy as a benchmark misinterpret s Article 2, as it ignores the fact that the
universe of eligible users under Article 2.1(b) can be something less than “everyone”. The benchmark
is the universe of eligible users.

4.138 The determination is wrong on the facts be cause record evidence demonstrates that
enterprises in more than 23 classes of industries manufacturing 201 distinct products use stumpage.
Finally, even if the US had been correct in finding that stumpage was used by a limited number of
industries, that finding by itself could not establish per se that the programmes are specific in this
case, as the US is required to provide legal and factual analysis on this point. As Canada
demonstrated in its First Written Submission, the US failed to address in the CVD FD that the
purported finding of “limited users” is explained by the nature of the alleged “good” and the nature of
the economic diversification of provincial economies.
5. Calculations
4.139 Where the amount of a subsidy has been improperly calculated and illegally inflated, a
countervailing duty imposed in that amount vi olates Article 19.4 of the SCM Agreement and
Article VI:3 of GATT 1994. The US violated these obligations in three ways.
4.140 First, the US nearly doubled the amount of the alleged subsidy by using wrong conversion
factors when comparing Canadian stumpage rates, cal culated in dollars per cubic metre, to US timber
prices, determined in dollars per thousand board feet.
4.141 Second, the US inflated the amount of the su bsidy by considering the total volume of logs
entering sawmill establishments as subsidized inputs into subject merchandise, even though not all of
the output was subject merchandise. The US s hould have determined based on evidence the amount
of the subsidy attributable to the volume of the log that actually goes into the production of the subject
merchandise.
4.142 Third, the US inflated the per unit subsid y rate, and therefore the countervailing duties
imposed by approximately US$120 million per year , by spreading the alle ged subsidy over an
incorrectly determined low sales value.
6. Conduct of the Investigation
4.143 In the CVD PD, the US used data from Montana to establish a benchmark rate for Alberta
and Saskatchewan. These provinces objected to this choice, both on legal and factual grounds. In the
CVD FD, USDOC selected Minnesota as the benchmark state. At no point were the affected
provinces made aware of USDOC’s choice of Minnesota as the benchmark state. As a consequence,
the US violated Articles 12.1, 12.3 and 12.8.
4.144 With respect to Québec, the investigation was inc onsistent with Article 12.3 in two respects.
First, USDOC itself requested and received important information from the Maine Forest Products
Council concerning its benchmark determination for Québec. It sat on that information for two
months. This denied parties the opportunity to see relevant information. Second, USDOC accepted
and relied upon new factual information submitted by the petitioners criticizing the Council’s
information. Interested parties we re then denied the opportunity to prepare presentations on the basis
of this relevant information.
7. Initiation
4.145 Canada does not consider it appropriate to pre ss its claim set out in paragraph 1 of its panel
request.
8. Administrative Reviews
4.146 Canada has not abandoned the claim in paragr aph 3(b) of its panel request. Canada
understands that the US believes that it has the discretion to conduct company-specific administrative

reviews in this case; that the US will use its discretion to conduct such reviews of requesting
exporters; that rates obtained by individual export ers in expedited reviews will not be superseded by
an aggregate rate in an administrative review. Canada may advance additional arguments if its
understanding of the US position is incorrect.
D.
FIRST ORAL STATEMENT OF THE UNITED STATES
4.147 The following summarizes the United States' arguments in its first oral statement.
1. Opening Statement of the United States of America at the First Meeting of the Panel
(a) Financial Contribution
4.148 The first legal issue in this dispute is whether Canadian provincial timber sales systems
constitute the provision of a “good” within the meaning of Article 1.1(a)(1)(iii) of the SCM
Agreement. The text and context of Article 1.1( a)(1)(iii), and the object and purpose of the SCM
Agreement, all lead inexorably to the conclusion that standing timber is a “good.”
4.149 Canada argues that “goods” is limited to items that are tradeable across borders and subject to
tariff classification. To the contrary, the ordinary meaning of “goods” is broad, encompassing all
property and possessions, including things to be se vered from the land, such as standing timber. The
sole exclusion in Article 1.1(a)(1)(iii) for “gener al infrastructure” underscores the intent that the
provision sweep broadly. “Infrastructure” is not tradeable across borders. Nevertheless,
infrastructure that is not “general” must fall within Article 1.1(a) (1)(iii). To conclude otherwise is to
render the explicit exclusion for infrastructure that is “general” entirely meaningless.
4.150 The uncontested facts leave no doubt that the provinces sell timber. There is one reason and
one reason only that companies enter into provincial timber contracts, which we generally refer to as
“tenures.” They do so to obtain the government-o wned timber for their mills . Through tenures, the
provinces are providing a good – timber – to lumber producers. Accordingly, the provinces provide a
financial contribution within the meaning of Article 1.1(a)(1)(iii) of the SCM Agreement.
(b) Benefit
4.151 We turn to the methodology used to determine whether and to what extent the provinces
confer a benefit on lumber producers through the sale of timber for less than adequate remuneration.
This methodology poses two distinct issues. First, there is a question of legal interpretation of
“benefit” within the meaning of the SCM Agreement. Second, there is the issue of the application of
that legal concept to the particular facts of this case. It is imperative to examine the legal question
before turning to the facts.
4.152 A financial contribution confers a “benefit” if it “makes the recipient ‘better off’ than it would
otherwise have been, absent that contribution.” 15 In determining whether a benefit has been
conferred, the “marketplace” is the appropriate basis for comparison, i.e., the issue is whether “the
recipient has received a ‘financial contribution’ on terms more favourable than those available to the
recipient in the market.”16
4.153 The guidelines in Article 14(d) of the SCM state that a benefit is conferred if the government
provides the good for “less than adequate remuneration.” Article 14(d) also states that the adequacy
of remuneration shall be determined in relation to “prevailing market conditions” for the good in the
country of provision. The concept of a comparison “market” therefore is ce ntral to the concept of

15 Appellate Body Report, Canada – Aircraft, para. 157.
16 Id.

“benefit” generally, and to adequate remuneration specifically. The Brazil–Aircraft panel concluded
that the concept of a comparison market necessarily means a “ commercial market, i.e., a market
undistorted by government intervention.”17 The United States agrees.
4.154 As the EC states in its third-party submissi on, “market” conditions exist where prices are
“determined by independent operators following the principles of supply and demand.” Thus, as the
EC implicitly acknowledges, not all observed prices are necessarily “market” prices. We agree.
“Market” prices are prices between independent buyers and sellers in a competitive market where
prices are determined by the forces of supply and demand. Such prices represent what is commonly
referred to as “fair market value.” It therefore follows logically that adeq uate remuneration is fair
market value. That is also how the term adequate remuneration is defined in Canadian law.
4.155 Article 14(d) sets forth the principle underlyi ng the adequate remuneration inquiry – it must
be made “in relation to prevailing market conditions” in the country of provision. However,
Article 14(d) does not set out rules governing the specific types of data that may be used in
conducting that analysis.
4.156 Where reliable commercial market prices are av ailable in the country of provision, ignoring
such prices would be inconsistent with Article 14(d). Where, however, no such prices exist or are
unreliable, an investigating authority may use prices commercially available on world markets as the
basis for an assessment of the adequacy of remunera tion, provided that those prices are informative as
to the fair market value of the goods in the country of provision.
4.157 There is no real dispute that there are circumstances under which an investigating authority
may look to sources outside the country of provision for data to assess the fair market value of goods
in the country of provision. The US – Softwood Lumber III panel,18 Canada, the EC and Japan have all
implicitly or explicitly acknowledged this. The real issue in this dispute is what factual circumstances
warrant the use of price data from sources outside the country of provision to determine the fair
market value of goods in the country of provision.
4.158 To determine the adequacy of remuneration in the underlying investigation, the United States
calculated province-specific, species-specific market benchmark prices for stumpage. The
United States requested data on private market transactions for stumpage in each province for the
purpose of calculating those market benchmark prices. Three of the six provinces – Alberta,
Manitoba and Saskatchewan – did not provide any data on private market prices for stumpage. Thus,
there should be no dispute that the United States acted consistently with Article 14(d) in using
commercially available prices from sources outside Canada to determine the fair market value of
timber in those provinces.
4.159 British Columbia (“B.C.”) submitted a survey containing a few average prices. The volume
of the private timber on which those averages were based, however, represented less than one-half of
one per cent of the total timber harvested by the survey respondents. Moreover, the survey did not
contain the detail or underlying support that would be necessary to calculate market benchmark
prices. Ontario provided a limited survey and anal ysis of private stumpage sales in the province.
Similarly, Quebec submitted an average price for pr ivate stumpage in the province, which was based
on a survey.
4.160 The United States determined that there were no commercial market conditions – that is, a
market undistorted by the government’s financial contribution – in any of the provinces. The
evidence, including the governments’ dominant market share, the lack of incentive for sawmills to
pay more for private stumpage than they pay the government, and statements by provincial officials

17 Panel Report, Brazil – Aircraft (Article 21.5 – Canada II ), para. 5.29 (emphasis in original).
18 See Panel Report, US – Softwood Lumber III , para. 7.48.

and forestry economists concerning the impact of the government prices on the sale of private timber,
is more than adequate to support that determinatio n. Thus, although there is data on observed prices
in certain provinces, the record demonstrates that those observed prices are not commercial market
prices. Therefore, the United States acted consistent ly with Article 14(d) in using data from sources
outside of Canada as the starting point for determin ing the fair market value of timber in Canada.
Moreover, numerous adjustments were made to reflect conditions of sale in Canada.
(c) Calculation Issues
4.161 Canada claims that the United States was required under Article 19 of the SCM and
Article VI:3 of the GATT 1994 to conduct an “upstream” subsidy analysis. Canada makes this claim
with respect to two distinct situations.
4.162 With respect to remanufacturers: The United States determined the total amount of the
benefit, but did not determine what portion of th e benefit individual sawmills or remanufacturers
received. The United States allocated the total subs idy benefit over all sales of the products resulting
from the lumber production process. The total amount of the subsidy benefit does not change,
however, regardless of how the bene fit is allocated. Thus, allocating a portion of the benefit to
remanufacturers cannot overstate the total subsidy be nefit. Moreover, nothing in Article 19 precludes
this method of calculation. Article 19.3 specifically contemplates that a producer’s exports may be
subject to countervailing duties without knowing whet her or to what extent that particular producer
received a benefit. Article 19.3 simply obligates Members to provide expedited reviews for such
exporters to calculate individual subsidy rates.
4.163 With respect to the second “upstream” subsidy situation, i.e., the alleged independent loggers:
This is the only situation that could have any impact on the calculation – rather than the allocation –
of the total amount of the benefit to producers of the subject merchandise. The record evidence
indicates, however, that sales by independent loggers could only account for a very small portion of
the volume of Crown timber entering sawmills. In addition, the evidence suggests that all or most of
the sales by independent loggers may not be at arm’s-length. Moreover, an upstream subsidy analysis
requires company-specific data and analysis. Canada ’s claim that the United States was required to
conduct this type of company-specific analysis in the investigation is without foundation in Article 19
of the SCM or Article VI:3 of GATT 1994.
(d) Specificity
4.164 Pursuant to Article 2.1(c) of the SCM Ag reement, a subsidy is specific when the users of the
subsidy are limited to certain enterprises or industries or to a limited group of enterprises or industries.
The users of provincial stumpage are limited to ti mber processing facilities, which constitute a very
limited group of industries. In accordance with Ar ticle 2.1, therefore, the subsidy from provincial
stumpage is specific. Canada’s claims to the co ntrary are based on its own definition of specificity,
not the definition in Article 2.1. Article 2.1 does not require an investigation into the motives of
Members that provide subsidies, does not require an analysis of the number of products made by the
users of the subsidy, and does not require that a subsidy be limited to the producers of the subject
merchandise, or that a “group of industries” must share common characteristics.
2. Closing Statement of the United States of America at the First Meeting of the Panel
(a) Financial Contribution
4.165 Canada criticizes the United States’ reliance on the definition of “goods” in Black’s Law
Dictionary, which cross-references the US Uniform Comm ercial Code (“UCC”). Canada, however,
relies on that same definition. Nevertheless, Canada states that the UCC provision cross-referenced in
Black’s “expressly excludes” standing timber, “except in certain limited circumstances that do not

apply here.” The UCC is, of course, not controlling in this forum. However, the relevant provision
reveals that sales of standing timber are expre ssly “included” – not “excluded” – from the term
“goods” as used in the UCC. We also refer the Panel to our first written submission, which quotes a
similar definition of “goods” in the British Columbia Sale of Goods Act.
(b) Benefit
4.166 With respect to record evidence concerning private stumpage prices, Canada makes a number
of statements at the first Panel meeting which we would like to comment on:
4.167 Canada asserts that Timber Damage Assessments are based on private transactions
representing approximately 6 per cent of Albert a’s timber harvest. According to Alberta’s
questionnaire response, however, only 1 per cent of the harvest in Alberta comes from private land.
4.168 Canada states that B.C. submitted evidence that demonstrates that B.C. operates its
stumpage system consistent with market principles. That evidence merely established that B.C. made
a profit on its timber sales, which does not mean that it is receiving adequate remuneration.
4.169 Regarding paragraph 58 of Canada’s oral statement, we have several comments:
4.170 The Final Determination analyzes the reliability of Canadian private timber prices in detail.
4.171 The Economists, Inc. study that the United States relied on concludes that the “existence of an
administered market that is willing to supply the preponderance of market demand at an artificially
low price drives the price that can be attained in the non-administrative sector below the level that
would obtain if the administered market were not subsidized.”
4.172 The student thesis Canada refers to is actually a 1995 doctoral dissertation that analyzes data
as recently as 1993.
(c) Market Distortion
4.173 Canada claims that the United States ignored Canada’s evidence “and simply assumed trade
distortion.” Rather, the United States determined that US law does not require an analysis of whether
a subsidy has market distorting effects. Likewise, there is no obligation in the SCM to find the
existence of trade distortion to impose countervailing duties.
(d) Calculation Issues
4.174 Canada implies that Article 19.4 effectivel y imposes obligations with respect to the
calculation of the subsidy. Canada, however, fails to cite to any language in Articles 10, 19.1, 19.4 or
32.1 of the SCM or Article VI:3 of the GATT 1994 establishing any such obligations.
4.175 Canada asserts that “there is no single log conversion factor”, yet the Canadian Government
itself publishes a single conversion factor. And if the United States had used Canada’s published
conversion factor, the calculated subsidy rate would have been greater.
(e) Administrative Reviews
4.176 With respect to administrative reviews, Canada improperly attempts to bring hypothetical
future measures by the United States before this Panel. As the US – Softwood Lumber III panel stated,

“the WTO dispute settlement system allows a Memb er to challenge a law as such or its actual
application in a particular case, but not its possible future application.”
19
(f) Conclusion
4.177 Canada went to great lengths to criticize th e United States for interpreting the words in
Article 14(d). For example, Canada criticized the United States for interpreting “adequate
remuneration” to mean “fair market value” even though Canada’s own regulations define adequate
remuneration as “fair market value.” Having criticized the United States for interpreting the language
in Article 14(d), Canada then proceed ed to criticize the United States for failing to interpret the
specificity provisions in Article 2.1(c). In both in stances, the United States interpreted the provisions
in accordance with the ordinary meaning of their terms, in context, and applied the provisions
accordingly.
E. SECOND WRITTEN SUBMISSION OF CANADA
4.178 The following summarizes Canada's arguments in its second written submission.
1. Financial Contribution
4.179 What is the scope of the word “goods” in Artic le 1.1(a)(1)(iii) of the SCM Agreement? The
word “goods” in Article 1, read in context and in the light of the object and purpose of the WTO
Agreement, has the same meaning and scope as the word “goods” elsewhere in the WTO Agreement.
And elsewhere in the WTO Agreement, the word “goods” has the same meaning and scope as the
word “products” in Article II of GATT 1994. Therefore, interpreted in accordance with the principles
of treaty interpretation, the word “goods” in Article 1.1(a)(1)(iii) refers to tradable items that are
capable of bearing a tariff classification.
4.180 May the transfer of tree harvesting rights by provinces properly be characterized as “provision
of goods” by a government within the meaning of Article 1.1(a)(1)(iii) ? Provinces enter into tenure
agreements or grant licences to harvest timber. Under these tenures or licences, the harvester has
certain proprietary interests in st anding trees and must undertake a series of obligations, some of
which are related to the land and others to the volu me of harvest. Under these tenure agreements and
licences, the trees to be harvested are not identified and many of the obligations must be performed
regardless of any harvest. This transfer of a ri ght to harvest standing trees does not amount to the
provision of goods.
4.181 After having argued that “goods” includes all property, the US now states that this case is not
about “intellectual property” or other property ri ghts; that its earlier assertions about “goods”
encompassing all property rights were arguments in the alternative. Again misrepresenting the nature
of the transactions at issue, it continues to argue th at living trees with roots firmly in the ground are
“goods” for the purposes of the SCM Agreement.
4.182 In its closing arguments at the First Substan tive Meeting, the US suggested that sales of
“standing timber” are included in the definition of goods in the UCC. This definition is in turn
reproduced, albeit imperfectly, in the Black’s Law Dic tionary as one definition for the term “goods”.
The US has not credibly contested Canada’s Vienna Convention analysis of the word “goods”. The
only issue appears to be whether a particular defi nition of “goods”, found in the UCC, supports the
US position. It does not.

19 Panel Report, US – Softwood Lumber III , para. 7.157.

4.183 The UCC definition of “goods” provides that, “‘Goods’ means all things, including specially
manufactured goods, that are movable at the time of identification to a contract for sale and future
goods. … The term does not include … general intangibles.” [emphasis added]
4.184 The UCC further provides that, “A contract for the sale apart from the land …[of] other things
attached to realty and capable of severance without material harm … or o f t i m b e r t o b e c u t is a
contract for the sale of goods … whether the subject matter is to be severed by the buyer or by the
seller even though it forms part of the realty at the time of contracting, and the parties can by
identification effect a present sale before severance.” [emphasis added]
4.185 First, this definition flatly contradicts the US assertion that “goods” somehow includes all
property rights, including the right to harvest timber . The basic definition is that of movable things;
and the basic definition expressly ex cludes “general intangibles”. Second, the reference to “timber to
be cut” is not part of the ordinary meaning. Rath er, it is a special provision covering certain “things”
that are not ordinarily “movable” and that would not, absent the clarification, be covered by the
ordinary meaning of the word “goods”. Third, what is included in the UCC definition is not “standing
timber”, but “timber to be cut”. “Timber to be cut” refers to individual trees identified to be cut in a
sales contract, as indeed expressly set out in this de finition. This is to be contrasted with standing
trees that are subject to tenure agreements and licences. Those trees may or may not be cut during the
term of the tenure, but in any event are not specific ally identified to be cut; after all, they may not
even have been planted.
4.186 The inclusion of “timber to be cut” in the UCC definition of a “good” implies the exclusion of
all other timber – that is, timber subject to te nures and licenses – from the scope of the UCC
definition. In US law, therefore, standing trees are not “goods”. And because the definition of the
word “goods” in the UCC does not cover “intangibl es”, in US law the right to harvest does not
amount to “goods”.
4.187 The US relies heavily on its incorrect asser tion that tenure agreements and licences are
“timber sales contracts”. The US supports this assertion by arguing that the tenure agreements and
licences result in the timber harvesters owning felled timber and paying for that timber. Canada has
demonstrated that there is a distinction between te nure agreements and licen ces on the one hand, and
“sales of goods contracts” on the other.
4.188 Under the SCM Agreement, this distinction make s a crucial legal differ ence. A timber sales
contract concerns a contract that identifies
 individual standing trees to be cut and hauled away. In
contrast, a tenure or licence grants a right of harvest in an area of land in return for certain rights and
obligations. No trees are identified to be cut – and in fact, due to disease, fire and environmental
reasons, it may well be that no trees are cut. And yet, certain forest maintenance and fire protection
obligations continue to run for the length of the te nure or licence in the area covered by the tenure or
licence.
2. Benefit
4.189 Canada demonstrated that USDOC’s rejection of valid in-country benchmark evidence and its
choice of cross-border benchmarks to determine adequacy of remuneration is inconsistent with
Articles 1.1(b) and 14(d) of th e SCM Agreement. Canada’s submissions are based on three
complementary points:
• first, Article 14(d) requires the use of benchmarks that are based on prevailing market conditions
in the country of provision;
• second, substantial evidence of prevailing market conditions in Canada that could have been used
as benchmarks to determine “adequacy of remuneration” was improperly rejected; and
• third, the US has offered no valid defence of its actions.

4.190 Canada’s response to the United States’ most recent assertions follows the same structure.
4.191 The US claims that this is a dispute over th e factual circumstances that warrant the use of
price data from sources outside the country of provision. It is not. This is a legal dispute over
whether the plain meaning of Article 14(d) requires that benefit be determined and measured on the
basis of prevailing market conditions in the country of provision – in this case Canada.
4.192 Article 14(d) provides that where a government has provided goods, a benefit is conferred if
remuneration is not “adequate”. It also provid es that, “[A]dequacy of remuneration shall be
determined in relation to prevailing market conditions for the good … in the country of provision ”.
[emphasis added]
4.193 First, the ordinary meaning of “in relation to” is “on the basis of” or “in comparison with”.
This phrase prescribes a comparison to “prevailing market conditions”.
4.194 Second, the ordinary meaning of the term “prevailing” is “as they exist”. Accordingly,
Article 14(d) requires a comparison to existing market conditions.
4.195 Third, “in the country of provision” means “in the country of provision.” It cannot refer to
“prevailing market conditions” in some other country.
4.196 This interpretation is consistent with the Appe llate Body’s analysis of Article 1.1(b) in
Canada – Aircraft . There, the Appellate Body found that in determining whether the financial
contribution conferred a benefit on the recipient, the “marketplace is the appropriate basis for
comparison.” The Appellate Body also found that Arti cle 14 provides context for Article 1.1(b). The
marketplace, in a provision of goods context under Article 14(d), is the existing “market” in the
country of provision.
4.197 Further contextual evidence that Article 14(d ) does not permit cross-border comparisons is
found in the Accession Protocol of China. The Protocol provides for the application of the SCM
Agreement generally, but in language clearly indicating exceptional circumstances, it specifically
permits the use of “methodologies for identifying and measuring the subsidy benefit which take into
account the possibility that prevailing terms and conditions in China may not always be available as
appropriate benchmarks.” If Article 14(d) alread y permitted the consideration of conditions outside
“the country of provision”, Members would not have considered it necessary to provide for this
exceptional treatment. This understanding is confirmed by the USTR on its official website.
4.198 In the CVD FD, USDOC concluded there were no usable benchmarks in Canada. This
conclusion is flatly contradicted by the record . Canada provided extensive evidence to USDOC
concerning prevailing market conditions in Canada. More specifically, this evidence included private
timber sales, cost-revenue comparisons, an econom ic analysis of provincial stumpage charges, and
private sector assessments of timber value. USDOC was obligated by Article 14(d) to use this
evidence.
4.199 The reasons given by USDOC for rejection of this evidence are baseless. First, USDOC
relied on the Preamble to its regulations to irrebut ably presume price suppression. No analysis of
actual price suppression was ever conducted. S econd, the “economic” report which USDOC chose to
use as support for its presumption of price suppress ion is purely theoretical and based on a flawed
economic model. It did not include consideration of any actual transaction prices.
4.200 Canada submitted economic studies during the cour se of the investigation that demonstrated
that it is the nature of the competition in the market that determines whether the market produces

market prices, not the size of the market. If th e market has the indicia of a competitive market –
which it does in this case – the size of the government presence does not affect private prices.
4.201 Finally, the US efforts to dismiss evidence pr ovided on in-country benchmarks as either not
useable or not representative, are not credible. This evidence includes evidence that satisfies the third
benchmark – consistency with market principles – in the US regulations. The US itself confirmed that
it uses this benchmark where “no world market pric e for [the goods in question are] commercially
available in the countries under investigation”. Here , there is no “world market price” for stumpage
and US stumpage is not available in Canada. Accordingly, the evidence submitted by the Canadian
provinces that demonstrated that their stumpage systems are operated in a manner consistent with
market principles should have been considered by USDOC.
4.202 The US claim that it made adjustments that took into account the prevailing market conditions
is not supported by the record. USDOC has admitted in previous lumber investigations that it would
be “arbitrary and capricious” to use cross-border comparisons as it is not possible to identify a country
or countries where some market conditions are the same as those in the country of provision and
where all differences in market conditions can be identified and adjusted. These differences include:
differences in economic conditions such wages, capital costs, taxes and government regulatory
policies, comparative advantages in resources, timber characteristics, operating conditions,
measurement systems and tenure rights and obligations.
4.203 Moreover, the US assertions respecting the adju stments that it did perform are incorrect. For
example, the US claims that it “averaged the [US] price data by species to match the species in the
relevant province.” For several pr ovinces there were little or no price data by species. In almost all
(ninety-nine per cent) of the US sales used by USDOC as a benchmark for the B.C. coast, the
purchaser bid a single lump-sum price for all timber of all species. The result of the use of these
benchmarks was to overstate the value in the US sales of the lower-value species common in BC and
other provinces.
4.204 In the case of Québec, adjustment categories considered by USDOC were not derived from an
analysis of differences in market conditions between Québec’s public forest and Maine’s private
forest, but from carefully surveyed cost differen ces between the public and private forests within
Québec. If USDOC had attempted to analyze and compare market conditions in Québec and Maine,
it would have discovered that much of the data needed to make necessary adjustments were
unavailable.
4.205 In order to argue that it is “well established” th at the Article 1.1(b) test for benefit is a “but
for” test, the US focuses on the word “absent” in an excerpt from Canada - Aircraft. In doing so, the
US both misinterprets the Appellate Body’s statement and ignores the context of the sentence.
4.206 If the balance of the paragraph is considered, it is clear that the Appellate Body was saying
that a “benefit”, as used in Article 1.1(b), “i mplies some kind of comparison” and that the
“marketplace” must be the basis for this comparison. The Appellate Body has therefore, directed a
comparison that is to be informed by what the r ecipient could have actually obtained in the market
and not a comparison to some artificial “undistorted” market, as the US asserts.
4.207 The Appellate Body then notes that, “Article 14, which we have said is the relevant context in
interpreting Article 1.1(b), supports our view th at the marketplace is an appropriate basis for
comparison.” As Article 14 provides relevant context in interpreting Article 1.1(b), the “marketplace”
that is to be used for comparison purposes must be the markets referred to in Article 14. In a
situation involving the government provision of goods, Article 14(d) refers to “ prevailing market
conditions … in the country of provision”. Accordingly, in this situation this refers to the in-country
market as it exists.

4.208 Even though the US now contends that it has never advocated a “hypothetical undistorted
market”, its arguments indicate the contrary. In the NAFTA proceeding, for example, it specifically
describes adequate remuneration as, “the price that the purchaser would pay in an open and
competitive market but for the government’s financial contribution.” [emphasis added].
4.209 Canada addressed what had been, to that point, the most recent attempt by the US to construct
an argument that supported USDOC’s use of US prices as the appropriate benchmark. Canada
showed how the US was attempting, through an el aborate exercise in word substitution, to turn
Article 14(d) into a provision that measures adequacy of remuneration by comparing the government
price to a constructed “fair market value”, rather than to prevailing market conditions in the country of
provision.
4.210 The US has changed tack once again. It now asserts that where no “commercial market
prices” exist in the country of provision or where they are “unreliable”, an investigating authority may
use, “prices commercially available on world markets as the basis for an assessment of the adequacy
of remuneration provided that those prices are informative as to the fair market value of the goods in
the country of provision”. Accordingly, in the US view, the prices it uses “outside” the country of
provision “to assess the fair market value of goods in the country of provision” need only to be
available on the “world market” (and not in the coun try of provision). In support of this proposition,
the US points to alleged acknowledgements by the US – Softwood Lumber III
 panel, Canada, Japan
and the EC.
4.211 The US asserts that Canada ha s acknowledged that “the use of world market prices is
appropriate in the case of a government monopoly for the good in question,” and describes the EC
regulation as providing that the use of world market prices is appropriate when “market benchmark
prices in the country of provision do not exist or are unreliable.” It goes so far as to claim that the
“US regulations which Canada has not challenged esta blish essentially the same rule as that found in
the EC regulation.”
4.212 None of these sources supports the US position. First, the EC regulation refers to “world
market” prices and “terms and conditions prevailing in the market of another country”, and the US
regulations to “world market price[s]”, that are available to purchasers in the country of provision of
the good. The United States’ own regulation makes clear that before a “world market price” is used it
must be “reasonable to concl ude that such price would be available to purchasers in the country in
question.” Similarly, the EC regulation states that “when appropriate, the terms and conditions
prevailing in the market of another country or on the world market which are available to the recipient
shall be used.”
4.213 Second, Canada has consistently taken the positio n that a price that is available to purchasers
in the country of provision makes that price part of the prevailing market conditions in the country of
provision. This is why Canada stated in US – Softwood Lumber III that in the context of a
government monopoly over domestic production import prices for the same good if available to
purchasers in Canada, could be used as a benchmark to measure adequacy of remuneration.
4.214 Third, the US mischaracterizes what was said by the Panel in US – Softwood Lumber III . In
the paragraph cited by the US, the panel stated that “prices of imported goods in th e market of
provision can indeed form part of the prevailing mark et conditions in the sense of Article 14(d)”. The
Panel further stated that “the text of Article 14(d) SCM Agreement … does not provide for … a world
market test”.
4.215 Central to all of these positions is that regardle ss of whether domestic prices in the country of
provision, “world market prices”, import prices or other indicia of prevailing market conditions are
used as benchmarks, such prices or conditions must be “available” in the country. If this requirement

is satisfied the benchmark will constitute part of the prevailing market conditions in the country of
provision.
4.216 That is not the case here. US stumpage is not available in Canada. The good that USDOC
contended was available in Canada at a world market price is logs, a product that is produced from
standing timber. Canadian producers may purchase US timber “on the stump”, but only where the
stumps are – in the US. Stumpage is inherently local. The US is therefore reduced to arguing that
prices in another country, not available in the country of provision, may be used because they are
commercially available on the world market. This po sition is clearly inconsistent with the words of
Article 14(d) and is not supporte d by Canada’s earlier statements , the findings of the Panel in US –
Softwood Lumber III r, or either of the EC or US regulations.
4.217 In its Closing Statement, the US asserts that it “did not simply assume trade distortion.”
Rather, it claims, it “determined that US law does not require an analysis of whether a subsidy has
market distorting effects.” At “the heart” of USDOC’s final determination, however, was a
conclusion that these charges result in countervailable market distortion in the US lumber market.
According to USDOC, “the whole point of this invest igation is to quantify and remedy the impact” of
the Canadian “administered pricing” system on the US market, as its “mere existence” has “a
resulting impact … on Canadian lumber production” th at “distort[s] the US market.” It may not now
contend that “the heart” of the case – its “whole point” – was of no consequence to its determination.
3. Pass-Through
4.218 The pass-through issue in this case may be summarized as whether the US, in presuming
rather than demonstrating the pass-through of the alleged stumpage subsidy to certain producers of
subject lumber, has violated its obligations under the SCM Agreement and GATT 1994. The
producers in question are those who buy log or lumber inputs at arm’s-length. Canada has
demonstrated in its submissions that a subsidy may never be presumed in a countervailing duty
investigation. The US argument to the contrary is that the SCM Agreement allows it to presume the
pass-through of a subsidy in aggregate investigations , regardless of any evidence establishing arm’s-
length transactions. However, there is no irrebuttable presumption in the SCM Agreement that allows
a Member to disregard evidence establishing no subs idy. Because the US ha s failed to conduct any
pass-through analysis regarding independent harves ters, the volume of Crown timber harvested by
these entities and the amount of subsidy derived fro m that volume, for example, must therefore be
excluded from the total amount of the subsidy. Further, no countervailing measure can lawfully be
imposed on the products of lumber remanufacturers purchasing at arm’s length.
4. Specificity
4.219 Even if the US had correctly determined that provincial stumpage programmes were a
subsidy, it failed in the CVD FD to correctly dete rmine that the programmes are “specific”. The US
finding under the “limited users” factor in Article 2. 1(c) is incorrect. Even if there was a “limited
number of users”, the US nevertheless failed to de termine that provincial stumpage programmes were
“specific to certain enterprises” based on the total configuration of facts and evidence of the case.
4.220 Stumpage programmes are not used by a “limited number” of certain enterprises under
Article 2.1(c). The record evidence in this case esta blishes that thousands of enterprises, in at least 23
standard industry categories, used provinci al stumpage programmes during the period of
investigation. The survey submitted by the Canadian parties showed that companies using provincial
stumpage programmes during the period of inves tigation manufactured a minimum of 201 distinct
products, many of which are not produced by US DOC’s purported group of a “limited number of
industries”.

4.221 The US failed to analyze the record evidence regarding which enterprises and industries
actually used and allegedly benefited from stumpage programmes. In the CVD FD, it simply asserted
that “pulp and paper mills and the saw mills and remanufacturers which ar e producing the subject
merchandise” were the sole users of stumpage pr ogrammes. While the US argues that “no other
industries” use or allegedly benefit from stumpage, it can point to no evidence in support of its
assertion. Indeed, this finding is directly contradicted by the US acknowledgement of significant
amounts of log harvesting done by enterprises other than the supposed “sole users” of stumpage. The
EC and Japan agree that the “limited users” finding is flawed.
4.222 Moreover, even if the US had properly identif ied the users of stumpage programmes, its
impermissible use of the entire economy as a benc hmark would mean that virtually all programmes
would be specific, since virtually no programme is used by “everyone”. In particular, every
government programme involving the provision of a good would be specific. Unlike money, goods
are not fungible and have a limited base of users who will expend the effort to procure the good. On
the facts, therefore, the US determ ination is inconsistent with Article 2.1(c) and fails to satisfy the
requirements of Article 2.4.
4.223 The existence of an alleged limited number of users does not ipso facto establish specificity in
fact. The factors in Article 2.1(c) simply indicate that a subsidy may be specific despite being non-
specific in law. A determination does not satisfy Article 2 unless it is clearly substantiated that the
subsidy is in fact specific; this requires cogent reasoning and an assessment of all the evidence to
translate a “limited users” finding into a determin ation that a government is restricting access to a
subsidy in fact. Provincial stumpage programmes are not specific. The US failed to clearly
substantiate its specificity determination, and has therefore violated its WTO obligations.
4.224 To determine that a subsidy is “specific ” under Article 1.2 is to determine, under Article 2,
that a government limits access to th e subsidy to certain enterprises over other eligible enterprises.
The ordinary meaning of the term “is specific to” is that the subsidy is made available to certain
enterprises but not available to others. The speci ficity requirement is meant to capture instances
where a government targets a subsidy to certain enterprises.
4.225 This is confirmed by the structure of Article 2.1; paragraph (c) must be read in the context of
paragraphs (a) and (b). Under Article 2.1(a), a subsidy is specific in law where a government
explicitly limits access to it. Article 2.1(b) provides an exception that where access is limited by
objective and neutral eligibility requirements, the limitations do not establish the favouritism
necessary to find specificity. Under Article 2.1(c), a subsidy is specific in fact where, instead of
limiting access to a subsidy in law, a governme nt does so through its implementation of the
programme in fact. The “appearance of non-specificity”, of which Article 2.1(c) speaks, is an
appearance that government is not limiting access to a programme, when in fact it might be.
4.226 According to the US, specificity is deemed to exist where any one of the four factors in
Article 2.1(c) is shown to exist without regard to why they might exist. This interpretation
impermissibly reduces indicative factors to irrebuttable presumptions.
4.227 Article 2.1(c) provides that where there is an appearance of non-specif icity in law, “other
factors may be considered” to determine whethe r the government is limiting access to certain
enterprises in fact. Unlike the US interpretation of paragraph (c), Canada’s interpretation is based on
the ordinary meaning of the word “specific”, read in the context of paragraphs (a) and (b) and the
chapeau of Article 2.1. For example, it would be nonsensical under Article 2.1(c) to find that a
subsidy is specific in fact solely on the basis of “the manner in which discretion has been exercised
by the granting authority in the decision to grant a subsidy”, without any consideration of whether that
manner directs the subsidy to certain enterprises. Likewise, the third factor is “the granting of
disproportionately large amounts of subsidy to certai n enterprises” by a government. Where there is
no other explanation for the existence of such amounts, the inference under Article 2.1(c) is that the

government is directing the subsidy to certain enterprises. On a plain reading of the third and fourth
factors, the analysis required under Article 2.1( c) goes to inferring government action in the
application of the programme.
4.228 The specificity requirement deals with government action, and thereby requires direct
evidence establishing such action. Where the government action limiting access to a programme is
not explicit, evidence will necessar ily be circumstantial – allowing an investigating authority to infer
the targeting of a subsidy to certain enterprise s based on the existence of the factors listed in
Article 2.1(c). However, to “clearly substantiate” a determinatio n under Article 2.4, an investigating
authority must provide cogent analysis that esta blishes a high level of confidence. As the EC
correctly observes, the distinction between de jure and de facto determinations is one of evidence;
Article 2.1(c) does not create a different test for sp ecificity. In assessing the evidence pertaining to
the factors, the many reasons why there might be “ limited users” or “predominant use”, for example,
are highly relevant. If these factors do not indi cate government targeting action, the subsidy is not
specific in fact.
4.229 The negotiating history surrounding Articles 1.2 and 2 of the SCM Agreement confirms
Canada’s interpretation that speci ficity relates to a determination that government action restricts
access to the alleged subsidy. The specificity concept concerns government limitations on access, not
simply patterns of “use” on the part of alleged reci pients – the latter being merely indicative of the
former.
4.230 The concept of “specificity” has been with the WTO and GATT for nearly two decades. It
was first considered by the Committee on Subsidies and Countervailing Measures ("SCM
Committee") in 1985, when the SCM Group of Experts provided it with Draft Guidelines for the
Application of the Concept of Specificity in the Calculation of the Amount of a Subsidy Other than an
Export Subsidy ("Draft Guidelines"). The Draft Guidelines set out a series of rules based on what
government did to restrict the availability of a pr ogramme. Where access was restricted to certain
enterprises based on non-neutral criteria, the programme was considered de jure specific. On de facto
specificity, the lone paragraph (f) addressed governme nt action affecting availability in terms of a “ de
facto deliberate[] granting [of] an advantage to certain industries.” The draft language on de facto
specificity evolved over the course of the Uruguay Round negotiations, but at all times remained
concerned with the granting by government of selective access to a subsidy programme.
4.231 The US failed to convince other members to ab andon the specificity requirement during the
Uruguay Round. Accordingly, US countervailing duty law, the US application of the requirement in
the CVD FD, and the US specificity arguments before this Panel, all attempt to re-write Article 2 of
the Agreement for a “next-best” result: that a finding of “limited users” is dispositive of specificity.
This interpretation of Article 2 is contrary to the or dinary meaning of the text of Article 2, read in
context and in the light of the object and purpose of the Agreement and the negotiating record; it also
renders the provision meaningless. The US has failed in the CVD FD to address the other
explanations for any alleged pattern in the “use” of stumpage, and failed to explain why its incorrect
finding of a “limited number of industries” means th at stumpage is specific in fact to certain
enterprises.
4.232 The US has also violated its obligations under the SCM Agreement because it failed to take
into account, as explicitly required under Article 2.1(c), record evidence concerning the extent of
diversification of provincial economies. In British Columbia, for example, forestry-related activity is
responsible for a substantial share of economic activity. The value of forestry-related shipments
totalled $C20.2 billion in 2000, accounting for more than half the value of all manufactured shipments
in the province. Forestry product sales were valued at $C15.6 billion in 1998 and $C16.8 billion in
1997. Indeed, since 1995, forestry product shipment s have represented approximately half the value
of manufactured shipments in British Columbia. The significant share of manufacturing shipments
translates to a substantial contribution to provincial gross domestic product. In 1999, the various

forest products industries accounted directly for 24 per cent of the goods-producing industries’
provincial GDP, and 6 per cent of the total provincial GDP. The Final Determination does not even
address this significant factual information.
5. Other Claims
(a) Calculations
4.233 The US did not correctly determine the amount of the subsidy, did not correctly calculate the
subsidy per unit rate, and therefore applied counte rvailing duties at a rate in excess of the alleged
subsidization per unit of the “subsidized and exported product.” By imposing these countervailing
duties the US violated Article 19.4 of the SCM Agreement. The errors of the US include:
• use of a manifestly incorrect log scale conversion factor;
• massive inflation of the subsidy amount used in the numerator in its subsidy per unit
calculation; and
• understatement of the denominator in the flawed calculation methodology it chose.

4.234 In response to Canada’s claims, the US simply argues that, “[t]he sole calculation requirement
in Article 19.4 is a requirement to calculate the subsidy on a per-unit basis; Article 19.4 does not
establish any other requirements concerning how the s ubsidy is to be calculated.” The US position is
untenable.
4.235 The US concedes that Article 19.4, “establishes an upper limit on the amount of the
countervailing duty that may be levied” and that it requires calculation of the subsidy “on a per-unit
basis.” Thus, the US agrees with Canada that Ar ticle 19.4 establishes requirements in calculating a
subsidy rate. However, the US cl aims that it has no obligation to correctly calculate that rate. The
US is therefore arguing that a Member may impose countervailing duties at any rate it wishes, as long
as it is not in excess of a subsidy per unit rate, however arrived at.
4.236 Article 19.4 is the sole provision establishing an upper limit to the countervailing duty rate to
be imposed. Other provisions set out what constitute s a subsidy and what the total amount of that
subsidy is; only Article 19.4 sets out any discipline on what the maximum countervailing duty rate
may be. To give proper effect to Article 19.4, th at discipline must require a per unit subsidy rate
correctly calculated, based on a subsidy amount correctly derived, as against a practice correctly
determined to be a subsidy.
4.237 The US alleges that the conversion factor men tioned in the Minnesota Public Stumpage Price
Review and Price Index (“Price Repo rt”) “only applied to the data contained in Table 2”, while the
US used only “sawtimber data in Table 1.” But the statement on the cover of the Price Report says
that, “All reported volumes and values were converted to a sawlog and pulpwood basis for inclusion
in Table 1.”
4.238 Where “converted” data are based on a specific conversion factor, to ignore the specified
factor is to render the data hopelessly distorted and therefore useless. In this case, as a result of the
choice of conversion factor, subsidies were found where none existed; and, in any event, subsidies
were found using an improper cross-border analys is. The use of a single, and incorrect, conversion
factor highly inflated the alleged subsidy per unit rate.
4.239 A conversion factor was necessary in the first place because the US elected to compare tree
volumes and values in certain US jurisdictions, to widely disparate trees across Canada. The effective
use of a single factor for most of these conversions created significant distortions in the assessment of
whether any stumpage benefit even exists, as well as in the subsequent subsidy calculations. The US
had a draft report prepared by an economist of the US Forest Service on the record that demonstrates

the irrationality of its approach to conversion fact ors. The report notes that “[t]o properly compare
prices, conversion factors must be tailored to the measurement system used in order to adjust for any
bias that may have developed.” The bias referred to is the tendency for contemporary prices
expressed in board feet to underestimate lumber yi eld and boost stumpage prices to a degree that
cubic measurements do not. In addition, the very publication that the US used to choose its
conversion factors explicitly stated that smaller logs, like those in Canada, require use of much larger
factors than the US used.
4.240 The alleged subsidy at issue was the provision of “timber” at less than adequate remuneration.
The allegedly subsidized merchandise subject to the countervailing duty was softwood lumber and
certain products manufactured from that lumber. The alleged subsidy per unit may not properly be
calculated using more than the volume of wood actually used in the subject merchandise. The portion
of a log that becomes sawdust is not used in the pr oduction of lumber; equally, logs destined for the
production of posts are manifestly not used in the production of softwood lumber.
4.241 The alleged subsidy attributable to the subject merchandise was easy to trace and just as easy
to calculate: out of the total volume of logs enteri ng sawmills, the portion used in the manufacture of
lumber created the only possible “subsidy” to the production of lumber and lumber products. Logs
used in the production of posts or poles, and the portion of logs that ended up as chips, did not involve
a subsidy attributable to softwood lumber.
4.242 An accurate calculation of the subsidy per unit rate of the exported product required that only
the volume of logs used in the softwood lumber products be reflected in the numerator; the
denominator would then be limited to the output lumber products from those logs. Because
Article 19.4 refers to the subsid y per unit rate of the allegedly “ subsidized and exported product”, the
proper starting point would have been for USDOC to have determined the correct amount of the
subsidy attributable to the subject merchandise – softwood lumber products.
4.243 USDOC claims that it corrected for its overbroad numerator by expanding the denominator to
include the value of the non-lumber products whose volumes had dramatically increased the
numerator. USDOC failed to do this; however, even if it had, this approach would not cure the bias or
the subsidy inflation. Non-lumber products account for a significant volume of products produced
from softwood logs entering sawmills. Yet, typically , the value of non-lumber products such as chips
or sawdust is low when shipped from the sawmill. Further, chips and sawdust are input products to
other more expensive products such as pulp and paper. By including the volume of these non-lumber
products while not accounting in the denominator fo r the full value of the products included in the
numerator, the per unit subsidy calculation was significantly inflated.
4.244 The United States, having adopted a methodology that grossly inflated the subsidy amount,
then did not include the value of all the non-lumber products in its denominator. It seriously
understated the denominator because 1) it did not in clude softwood “residual” products produced in
sawmills, and 2) it used a wholly inaccurate and understated sales value for remanufactured products.
(b) Conduct of the Investigation
4.245 With respect to its choice of Minnesota as be nchmark state for Saskatchewan and Alberta, the
US claims that the responding parties should have had notice of the possibility of that choice. For this
reason, it argues, its failure to notify the responding parties of the change from Montana to Minnesota
did not violate Article 12.8.
4.246 Canada recalls footnote 225 of the First Written S ubmission of the US. An oblique reference,
in a countervailing duty petition, to the entirety of the US as a potential source of benchmark does not
amount to the disclosure of the “essential fact” of Minnesota as a benchmark state by the US. Canada
notes the new US argument that only a few of the fifty states were reasonably to be considered as

candidates for serving as benchmark. In this resp ect, Canada recalls the findings of the US in the
Preliminary Determination in this case, where USDOC stated, “[I]nformation on the record indicates
that stumpage in the United States along the border with Canada is comparable to Canadian stumpage
…. we only compared stumpage prices in each Canadian province with stumpage prices in states
bordering that province.” [emphasis added]
4.247 Canada also recalls the statement of the US to the panel in US – Softwood Lumber III, “Even
within the United States, not all timber prices are appropriate. … Commerce did not use prices from
the large timber-growing areas in the southeast, or from any non-contiguous state, because as a matter
of commercial reality, Canadian lu mber producers do not consider it commercially viable to transport
logs over that long a distance.” [emphasis added]
4.248 The only notice given to the responding parties was that data from a state “bordering” the
province in question would be used. A state that is at least 700 km from the closer of the two
provinces is not a “contiguous” state. Minnesota is not a state that borders either Saskatchewan or
Alberta. There was no notice of the choice of Mi nnesota as a benchmark state. The US violated
Article 12.8.
F.
SECOND WRITTEN SUBMISSION OF THE UNITED STATES
4.249 The following summarizes the United States' arguments in its second written submission.
4.250 The standard of review set forth in Article 11 of the DSU applies to disputes arising under the
SCM Agreement. Article 11 requires a panel to “make an objective assessment of the matter before
it, including an objective assessment of the facts of the case and the applicability of and conformity
with the relevant covered agreements.” In conduc ting this inquiry, the Panel may only address those
provisions of the covered agreements that Canada cite d in relation to specific claims in its request for
the formation of a panel. With few citations to th e record, Canada recites a laundry list of facts and
figures in support of its arguments, failing to note the substantial record evidence that contradicts its
arguments. Canada is asking the Panel to st ep into the shoes of USDOC and engage in a de novo
review and evaluate the facts. It is well-establishe d, however, that panels may not engage in such an
exercise.
4.251 The parties’ answers to the Panel’s questions have confirmed that companies enter into tenure
agreements with the provinces for the sole purpose of obtaining timber. In return for fulfilling the
tenure obligations and paying the stumpage fee, the tenure holder acquires ownership of the timber,
not a “right” to harvest timber.
4.252 The ordinary meaning of “goods” is broad and encompasses, at the very least, all tangible
property, including “growing crops, and other identi fied things to be severed from real property.”
Simply labeling standing timber a “natural resource” does not remove it from the ordinary meaning of
the term “goods.” Canada has acknowledged that provincial tenures identify specific, defined areas of
forest from which the tenure holder may harvest trees. The identified tr ees to be severed from
provincial land fall squarely within the ordinary meaning of the term “goods.”
4.253 Canada’s argument suggests that tenures are simply about forest management obligations
that, almost incidentally, also confer an intangible “r ight” to harvest. Canada’s analytical approach is
based on the flawed premise that the existence of a financial contribution is a matter to be determined
from the government’s perspective. Howeve r, a financial contribution, as defined in
Article 1.1(a)(1)(iii) of the SCM Agreement, exists whenever the government provides a good. As
the US – Softwood Lumber III panel recognized, the existence of a subsidy is determined from the
perspective of the benefit to the recipient, not th e perspective of the government. Specifically, the US
– Softwood Lumber III panel found that in spite of the fact that the provincial governments have
certain policy objectives, “the fact of the matter remains that from the harvesting company’s point of

view, the only reason to enter into such tenure or li censing agreements is to cut trees for processing or
sale.”
4.254 As detailed in the United States’ response to th e Panel’s questions, the record demonstrates
that tenure holders do not acquire a freely transferab le “right” to harvest. All provinces prohibit the
transfer of tenures without government approval. Without any citation to record evidence, Canada
asserts that the right to harvest is freely transferab le, without approval. Ther e is an obvious conflict,
however, between the record eviden ce and Canada’s suggestion that tenure holders may freely sell or
subcontract the “right to harvest.” Despite Canada’s efforts to sever the right to harvest from the sale
of the trees, the facts demonstrate that tenure holders are buying trees. In doing so, the provinces
make a financial contribution within the meaning of Article 1.1(a)(1)(iii) of the SCM Agreement.
4.255 As the United States pointed out in its first written submission, the Canada – Aircraft panel
stated that a benefit exists where “the financial contribution places the recipient in a more
advantageous position than would have been the case but for the financial contribution .” In
reviewing that report, the Appellate Body affirmed that a benefit exists where “the ‘financial
contribution’ makes the recipient ‘ better off’ than it would otherwise have been, absent that
contribution.” In determining the existence of a benefit, therefore, the issue is the position of the
recipient “but for” or “absent” the government’s financial contribution.
4.256 Moreover, the Appellate Body has stated that the point of comparison is “the marketplace,”
i.e., a benefit exists where the financial contributio n is received on terms more favorable than those
available in the market. Finally, as the United States has pointed out, following the reasoning of the
Appellate Body in Canada – Aircraft , the Brazil – Aircraft panel concluded that the concept of a
comparison market necessarily means a “ commercial market, i.e., a market undistorted by the
government’s financial contribution.”
4.257 Canada erroneously argues that the Brazil – Aircraft report is inapposite because that panel
was considering Article 14(b) of the SCM Agreement, which establishes commercial lending rates as
the benchmark for a government loan. The panel found that the financial contribution at issue was in
the form of a non-refundable payment, however, rather than in the form of a loan. Thus, as Canada
argued in that case, the payments at issue were “e ssentially grants.” In the passage cited by the
United States, the Brazil – Aircraft panel was not discussing Article 14(b) of the SCM Agreement. In
fact, there is no reference at all to Article 14 of th e SCM Agreement in the panel’s report. Rather, the
panel was discussing the concept of benefit generally . The panel’s reasoning, which follows logically
from the findings of the Appellate Body, is compe lling. Only by comparison to a market undistorted
by the government’s financial contribution is it po ssible to determine whether the recipient is better
off than it otherwise would have been absent the financ ial contribution. That is true regardless of the
form of the financial contribution.
4.258 Article 14 does not redefine the concept of be nefit in Article 1.1(b), as interpreted by the
Appellate Body and prior panels. Article 14 merely provides guidelines that must be followed in
establishing “methods” for applying that concept to particular types of financ ial contributions. Each
guideline in Article 14, including Article 14(d), must therefore be interpreted in a manner that is
consistent with the interpretati on of the term “benefit” as used in Article 1.1(b) of the SCM
Agreement.
4.259
 When the government provides a good, Article 14(d) states that a benefit is conferred if the
government receives “less than adequate remuneration ” for that good. Applying the reasoning of the
Appellate Body, “less than adequate remuneration” must mean a price less than would otherwise be
available in the marketplace absent the government ’s financial contribution. The proper benchmark
therefore is an independent market-driven price for the good, i.e., fair market value – which is also the
standard applied under Canadian law.

4.260 Article 14(d) does not specify the type of evidence that must be used to establish the fair
market value of goods in the country of provisio n. Rather, Article 14(d ) establishes the general
principle that adequate remuneration (fair market valu e) must be determined “in relation to prevailing
market conditions” in the country of provision. There is no basis in the SCM Agreement to conclude
that “benefit” means anything less when the government provides a good than when it makes any
other type of financial contribution. Thus, “mar ket” conditions must be interpreted in a manner
consistent with the concept of benefit in Article 1.1(b) of the SCM Agreement. Following the
reasoning of the Appellate Body and the Brazil – Aircraft panel, therefore, the point of comparison
under Article 14(d) must be prevailing commercial market conditions, i.e., a market undistorted by the
government’s financial contribution, in the country of provision. It is the view of the United States
that where such benchmark prices exist in the country of provision, they must be used. However,
where such benchmark prices do not exist in the country of provision or are unreliable, a Member
may, consistent with Article 14(d), rely on data from outside the country of provision to assess the fair
market value of the goods in the country of provisio n. This is the case with respect to Canadian
timber.
4.261 As the United States demonstrated in its respons e to the Panel’s questions, the actual data on
private stumpage prices is virtually non-existent for four of the six provinces. Canada does not
dispute the fact that Manitoba and Saskatchewan di d not provide any data on private stumpage prices.
With respect to Alberta, as the United States explained in response to the Panel’s questions, the record
demonstrates that the Timber Damage Assessments (“TDAs”) that Alberta provided are simply
voluntary guidelines for settling disputes fo r damages. Moreover, TDAs are based on log prices and
do not differentiate between private and Crown logs. With respect to B.C., Canada acknowledges that
the evidence provided establishes th at the private market for stumpage in B.C. is “limited” and that
“nearly all private wood fibre sales are of logs rather than standing timber.” The data on sales of
standing timber accounted for only 0.1 per cent of the B.C. harvest.
4.262 Recognizing the lack of any private stumpage benchmark data for these four provinces
(Alberta, B.C., Manitoba, and Saskatchewan), Cana da continues to argue, without any basis in the
SCM Agreement, that evidence demonstrating that th e provinces made a profit on their timber sales
suffices. A benefit, however, is not determined ba sed on the cost to the government in making the
financial contribution, e.g., whether the government incurred a loss. The issue is whether there is a
benefit to the recipient.
4.263 With respect to Ontario and Quebec, as discussed in response to the Panel’s questions, some
data on private stumpage prices exists. However, prices that are distorted by the government’s
financial contribution do not reflect “market” conditi ons. It is undisputed that Canadian timber sales
are overwhelmingly dominated by the provincial governments. The fact that the government is a
price leader does not in and of itself establis h the absence of indepe ndent commercial market
conditions. As the Appellate Body has cautioned, however, governments have the ability to obtain
certain results from the market by shaping the circumstances and conditions in which the market
operates. The dominance of the government in the marketplace can, therefore, warrant further
examination in determining the adequacy of remu neration for government-owned goods. Ultimately,
as noted by the European Communities, the issue must be determined on a case-by-case basis.
4.264 The facts of this case demonstrate that th e provincial governments not only dominate the
Canadian timber market, but also that the governments do not participate in the market as commercial
actors. Rather, the provincial governments administer the sale of the overwhelming majority of
Canadian timber in a manner designed to further social policy goals. The evidence further
demonstrates that, as a result, the administration of provincial timber sales systems distorts the small
private timber market.
4.265 All of the provinces generally restrict the sale of Crown timber to purchasers that own a
processing facility in the province. These loca l processing requirements artificially reduce the

demand for Crown timber. In addition, the vast ma jority of Crown timber is under some form of
renewable (“evergreen”), long-term tenure. These tenures are not freely transferable. The existence
of evergreen, non-transferrable tenures creates significant barriers to entry into the timber market. For
example, Canada offers no support for its asser tion that a newcomer in Quebec could obtain a
provincial tenure, even though 100 per cent of the Crown timber is currently under tenure or reserved
and not subject to harvest. Nor does Canada reconc ile this claim with its s ubsequent statement that
the vast majority of mills in Quebec are “shut out of the public forest.” Moreover, “transfers” of
tenure are, in fact, normally cases in which the entit y that holds the tenure is acquired. No new tenure
is created in such cases.
4.266 Other aspects of tenures artificially increase supply. For example, B.C. imposes minimum
cut requirements and restricts mill closures, thus fo rcing tenure holders to harvest timber even in
down markets and thereby artificia lly increasing the supply of Crow n timber. Nevertheless, the
record demonstrates that, during the period of investigation, tenure holders in all of the provinces
except Alberta did not harvest their full AAC, thus demonstrating an ample supply of additional
Crown timber available at administered prices.
4.267 Central to each of the provincial systems is, of course, administered rather than competitive
pricing of that timber supply. The evidence demonstrates that the price leaders, i.e., the provincial
governments, do not price to the market. Rather, they administer prices under systems designed to
promote employment and keep mills operating even in down markets.
4.268 A study by Economists Inc. (“EI Study”), which the United States found compelling,
addressed the impact of the administered provinc ial systems on the private market. The EI Study
applied generally accepted economic analysis to demonstrate that when a single supplier controls the
overwhelming portion of market share, that supp lier will necessarily infl uence non-administered
prices. It found that “[t]he lower the market share of the firms in the non-administered sector relative
to the administered sector, the less the ability of the non-administered sector to raise price above the
administered (subsidized) level.” The essence of this analysis is that private (non-administered)
sellers cannot increase prices significantly above administered price levels of the competing supply
because, if they did, demand would shift to the administered sector. The study referred to record
evidence establishing that provincial governments not only supply the vast majority of timber, but
also are willing to provide yet more timber to the major licensees that comprise most of the demand.
The study showed that if private landowners attempted to raise their prices significantly above
government-set levels, the major licensees would rely relatively more on administered timber sales
and less on private or auctioned timber. Therefor e, while local variations will exist, overall the
government price effectively sets the average province-wide price as well.
4.269 Canada criticizes this study and cites to ot her evidence it finds compelling. The issue,
however, is not which evidence Canada finds persuasive. The issue is whether the record evidence
supports the United States’ determination. The EI Study and other record evidence, some of which is
summarized in the United States’ first written submi ssion and oral statements at the first substantive
meeting of the Panel, support that determination. There also is significant documentary evidence
confirming this economic analysis and demonstrating that each provinces’ system of public timber
sales distorted private timber prices.
4.270 The evidence demonstrates that the provinci al governments shape the timber market to
achieve public policy goals, and that the governme nt-controlled, public-policy driven sector of the
timber market distorts the private timber market . There was therefore ample support for the United
States’ conclusion that there are no independent, market-driven timber prices available in Canada.
The United States’ use of data from other sources to assess the fair market value of timber in Canada
was therefore warranted and was consistent with Article 14(d) of the SCM Agreement.

4.271 The evidence also supports the United States’ decision to use timber prices in the northern
United States, properly adjusted to reflect conditions of sale in Cana da, as an alternative source for
assessing the fair market value of timber in Canada . The rationale for the United States’ choice of
data for establishing market benchmarks is sound. As the United States expl ained in its first written
submission, the value of timber depends on the demand for the downstream products. US and
Canadian timber satisfies the same demand in th e integrated North American lumber market, and
Canada has no comparative advantage in serving that demand. In addition, the record demonstrates
that US timber is commercially available to lumber producers in Canada. The US timber is also
comparable to Canadian timber, and the United States established species-specific, province-specific
benchmarks to conduct the comparison.
4.272 In response to the Panel’s questions, Canada st ated that out-of-country benchmarks that are
available to purchasers in the country of provi sion would be suitable benchmarks because they
“would then form part of prevailing market conditions ‘in’ the country of provision.” As discussed in
the Final Determination, the evidence demonstrates th at US timber is, in fact, commercially available
to lumber producers in Canada. Further, Canada asserts that the United States could have used an
alternate methodology, i.e., evaluation of the government’s prices based on evidence of the
government’s costs and profitability. The standard is not the cost to the government, but rather the
benefit to the recipient. We have demonstrated th at the use of prices for US timber in the northern
United States, adjusted for differences in conditions of sale in Canada, is consistent with Article 14(d)
of the SCM Agreement.
4.273 Canada cites to Articles 10, 19 .1, 19.4, and 32.1 of the SCM Agreement and Article VI:3 of
GATT 1994 as the basis for its calculation-related claims. As the United States previously indicated,
Canada’s claims under Articles 10, 19.1, and 32.1 of the SCM Agreement are necessarily derivative
claims that cannot succeed because Canada has failed to establish that the United States has breached
its obligations under another provision of the SCM Agreement.
4.274 Canada admits that neither Ar ticle 19.4 of the SCM Agreemen t nor Article VI:3 of GATT
1994 contain any obligation regarding the metho dology a Member may use in calculating the ad
valorem subsidy rate. None of the provisions of the SCM Agreement that Canada cited in support of
its claim establish the calculation obligations Canada suggests the United States has violated. Given
that a panel’s terms of reference “establish the jurisdiction of the panel by defining the precise claims
at issue in the dispute,” and that the identification of the specific provision of the covered agreements
is a “minimum prerequisite” for stating the legal basi s of the claim, this Panel should reject Canada’s
attempts to bootstrap claims that the ad valorem rate calculation is inconsis tent with other provisions
of the SCM Agreement.
4.275 Article 19.4 of the SCM Agreement and Article VI:3 of GATT 1994 merely provide that the
countervailing duty rate imposed may not exceed the amount of the subs idy the investigating
authority has found to exist. Neith er provision contains particular calculation obligations of the sort
Canada asserts have been violated. Ca nada, therefore, has failed to present a prima facie case on this
issue.
4.276 The United States’ calculation of the ad valorem subsidy rate is consistent with the SCM
Agreement and the evidence developed through the investigation. The United States included in the
numerator the volume of provincial softwood timber entering sawmills, multiplied by the benefit per
cubic meter. This method captured the total va lue of the subsidy provided to sawmills. The
United States then allocated that benefit over all sales of products that resulted from the lumber
production process. This methodology accounted fo r the fact that the production process yields other
products as well as lumber.
4.277 The United States conducted this investigati on on an aggregate basis, calculating the total
benefit provided by each province, as discussed above. Canada does not dispute the United States’

authority to conduct this aggregate analysis, but it continues to assert that the United States was
obligated to conduct a pass-through analysis to establish the amount of any benefit received by certain
producers of the subject merchandise, i.e., independent remanufacturers.
4.278 In Canada’s first response to the Panel’s questions, it acknowledged that, “[w]here the timber
harvester and the producer of subject merchandise are the same ‘recipient’ of the alleged subsidy, no
pass-through analysis would be required.” This fact pattern describes the vast majority of the
producers of the subject merchandise and incl udes both sawmills and remanufacturers. Thus,
Canada’s statement acknowledges that the United St ates was not required to conduct a pass-through
analysis for at least the vast majority of the lumber at issue.
4.279 Canada also fails to address Article 19.3 of the SCM Agreement, which specifically allows
Members to apply definitive countervailing duties to exports of an uninvestigated exporter or
producer as long as the exporter or producer may obtain an expedited review to establish its own rate.
4.280 Additionally, Canada overreaches when it contends that a “[s]ubsidy pass-through analysis is
required in every instance where the subsidy found to exist is allegedly bestowed on one person while
the countervailing duty is imposed on the products of another.” Canada’s attempt to read such an
obligation into Article 19.4 of the SCM Agreement ha s no basis in the text. If Canada were correct,
every time a Member investigates one or more companies and applies their subsidy rate to
uninvestigated exporters or producers – a co mmon practice – that Member violates the SCM
Agreement. Such practices do not, however, violate the SCM Agreement, as evidenced by the last
sentence of Article 19.3 of the Agreement.
4.281 Canada argues that the United States understa ted the denominator by failing to include the
value of certain “residual products” in the denominator. Canada failed to submit any evidence from
which the United States could sepa rate the value of additional prod ucts resulting from the lumber
production process from the broader residual product s category. Accordingly, the United States did
not include the residual products category in the denominator. Canada also disputes the value used to
represent remanufactured products that the United States selected and used in the denominator. As
noted above, the Panel should decline Canada’s request to engage in a de novo review and re-weigh
the evidence before the administering authority.
4.282 In its questions to the parties, the Panel re quested Canada to address how the conversion
factors that the United States used were based on “manifestly incorrect data.” Canada failed to
provide the information the Panel requested. Instead, Canada cited alternative sources of conversion
factors. The existence of alternative sources, however, does not mean that the United States’ selection
was “manifestly incorrect.”
4.283 Article 2.1(c) of the SCM Agreement contains clear and objective criteria for determining
when a subsidy is specific. Where a subsidy progr amme is used by a limited number of “certain
enterprises” – i.e., an enterprise, industry, or group of enterprises or industries – it is specific in fact.
Other than considering the extent of diversificati on of economic activities and the length of time the
subsidy programme has been operating, Members are not obligated to conduct any further specificity
analysis.
4.284 The United States met its obligation to demonstr ate that provincial stumpage subsidies are
specific and thus actionable under the SCM Agreement. In the Final Determination, the United States
found that the users of stumpage were a “limited group of wood product industries” that included
“pulp and paper mills and the saw mills and remanufacturers which are producing the subject
merchandise.” The industries comprising this limited group fall squarely within the ordinary meaning
of the term “industry,” which identifies industries by general product, such as automobiles or textiles,
or by the type of activity engaged in, such as mining or banking. Thus, the provincial stumpage
subsidies are specific under Article 2.1(c) of the SCM Agreement.

4.285 Canada responds to this finding by attempti ng to rewrite the specificity test, seeking to
redefine terms such as “industry” and “group,” and to create exceptions that do not exist in Article 2.
For example, Canada claims that the term “industr y” requires a “product-based identification of
industries,” such that individual industries would be distinguished on the basis of a particular end
product, or set of end products, that they make. By contrast, both in its ordinary meaning, and within
the context of Article 2 of the SCM Agreement, “indus try” is used broadly, referring to makers of a
general class of products – such as “the steel industry” – regardless of the number or diversity of end
products that the industry produces.
4.286 Canada itself admits, in response to question 27 from the Panel, that a subsidy to a single
large industry could be found specific, even where its produc ers make a vast diversity of products, as
in the steel, automobile, textile, and telecommuni cations industries. This admission contradicts
Canada’s argument that an “industry” must be de fined narrowly on the basis of a particular end
product or set thereof.
4.287 Canada likewise admits that a subsidy granted so lely to auto and textile producers could be
specific under Article 2.1, notwithstanding the dissimila rity of their end products. It nonetheless still
insists that the two industries cannot form a single “group” of industries that is specific within the
meaning of Article 2.1(c). Instead, Canada mainta ins that “the industries producing ‘autos’ and the
industries producing ‘textiles’” are actually “two groups of industries” that “appear to be a ‘limited
number’ of certain enterprises,” and thus specific. Notwithstanding Canada’s acceptance of diversity
in the product mix of an “industry,” Canada finds such dissimilarity incompatible with its view of the
term “group,” which for Canada requires “similari ty and relatedness” of output products. In its
ordinary meaning, and in the context of Article 2 of the SCM Agreement, the definition of “group” is
far more straightforward, meaning simply “more than one” enterprise or industry, without regard to
the “similarity or relatedness” of their end products.
4.288 Canada continues to argue that each industry is defined by a narrow class of end products,
claiming that the “immediate users of stumpage” in clude “at least 23 categories of industries, and the
industries are as unrelated as lumber, agricultural chemicals, paper, and furniture.” This argument is
not only legally flawed, it rests on misleading evidence. Canada’s key exhibit is a survey of forest
product industries that lists 201 products made by tenure holders, categorized into 23 categories that
Canada claims to be different industries. In rea lity, Canada’s list of industr ies is little more than an
exercise in hairsplitting – assigning multiple industries to a single sawmill based on its output.
4.289 The fact remains that the vast majority of tenu res in Canada are entered into directly between
the provincial governments and “wood processing facilities,” and in most instances only wood
processing facilities – such as sawmills that produce lumber – are eligible to obtain a tenure contract.
The record clearly demonstrates that provincial stumpage is used by an extremely limited group of
industries in Canada. Changing the definition of “industry” cannot change the objective facts.
4.290 The Panel likewise should reject Canada’s attempt to create exceptions to the specificity test
contained in Article 2.1(c) of the SCM Agreement. Nothing in the text of Article 2 permits an
actionable subsidy to escape the disciplines of the SCM Agreement based on the intent of the granting
Member or the “inherent characteristics” of a good provided at below market rates. Nor does
Article 2 require the “limited number of certain enterp rises” to be established relative to the “eligible
users,” as Canada claims. Finally, the Panel should dismiss Canada’s contention that a finding on the
“limited number” prong is not sufficient to support a determination of specificity under Article 2.1(c).
Both the language and underlying logic of Article 2.1(c) make clear that it is unnecessary to make
findings on all prongs of the test for a determination of specificity in fact. The provisions of the SCM
Agreement are clear, and the United States has met those obligations. Canada should not be permitted
to rewrite the Agreement in a manner more to its liking.

4.291 Canada claims that the United States’ final decision, in response to comments from Canadian
parties, to use data from Minnesota as the basis for calculating the market benchmarks for Alberta and
Saskatchewan was inconsistent with Articles 12.1 , 12.3, and 12.8 of the SCM Agreement. The
United States’ conduct of this investigation was entirely consistent with its obligations.
4.292 Canada’s claim under Article 12.1 is premised on the assertion that parties were denied the
right to present evidence because the use of altern ative states, such as Minnesota, had not been an
issue in this investigation. The use of northern US states generally, and the issue of the benchmark
state to use for Alberta and Saskatchewan specifically, were very much at issue. Moreover, all parties
had ample opportunity to present information an d argument on this issue, as evidenced by
Saskatchewan’s proposal that the United States use Alaska instead of Montana.
4.293 Canada’s claim under Article 12.3 of the SCM Agreement is equally unfounded. Canada has
failed to cite to a single piece of record informa tion on market benchmarks to which the parties were
denied access.
4.294 Finally, Canada acknowledges that nothing in Article 12 suggests that an investigating
authority must engage in endless cycles of notice and comment. Nevertheless, Canada’s claim under
Article 12.8 is based on the erroneous premise that Ar ticle 12.8 requires the investigating authority to
provide an opportunity for notice and comment with respect to the final decision made on each issue
before the determination becomes final. Nothing in Article 12.8 imposes such a requirement.
4.295 In the context of the SCM Agreement, the “essential” facts are those that are necessary to
determine whether definitive measures are warranted. A market benchmark is certainly essential to a
determination of adequate remuneration, but all of the facts “under consideration” with respect to the
calculation of the market benchmarks were made known to the parties. Significantly, Article 12.8 of
the SCM Agreement refers to the “essential facts under consideration .” Thus, by its own terms,
Article 12.8 is concerned with the ongoing investigative process during which the investigating
authority is still “considering” the facts. Article 12.8 , therefore, cannot be in terpreted to apply to the
investigating authority’s final decision, at which point the issues have been decided and the facts are
no longer “under consideration.”
4.296 Article 12.8 does not impose any specific method of informing the parties of the “essential
facts under consideration.” Rather, it specifies that the process used must inform parties “in sufficient
time for the parties to defend their interests.” The United States’ procedural rules are designed to
guarantee a very open and transparent process in order to accomplish this goal, which was achieved in
this case.
4.297 The record establishes that the United States provided parties with ample opportunity to
provide information and argument on whether the Maine stumpage price should include studwood and
pulpwood. Quebec submitted considerable information and argument on this very issue. In the end,
the United States agreed with Quebec and adjusted the benchmark calculation accordingly. Canada
claims, however, that the United States withheld information from the parties and denied them the
opportunity to prepare presentations on the basis of that information, in violation of Article 12.3 of the
SCM Agreement. The information allegedly with held is the December 20, 2001, letter from the
Maine Forest Products Council (“MFPC”). As disc ussed in response to the Panel’s questions, this
information was provided to the parties in time for them to prepare presentations on the basis of that
information. Neither party was afforded an opportuni ty for sur-rebuttal and there is no obligation in
Article 12 to provide such an opportunity.
4.298 The thrust of Canada’s claim is a wholly unsu bstantiated allegation that the United States
intentionally withheld the MFPC Letter. The US re gulations for the filing of information require the
parties submitting the information to ensure that the information is placed on the record and provided
to all interested parties. The MFPC Letter was not filed in accordance with those regulations.

Canada’s claim that the United States acted incons istently with Article 12 .3 of the SCM Agreement
must therefore fail.
4.299 For the reasons set forth above as well as in th e United States’ first written submission, oral
statements at the first substantive meeting of the Pa nel, and first response to the Panel’s questions, the
United States requests that the Panel reject Canada’s claims in their entirety.
G.
SECOND ORAL STATEMENT OF CANADA
4.300 The following summarizes Canada's arguments in its second oral statement.
1. Financial Contribution
4.301 The ordinary meaning of “goods” is movable, tangible items. Immovables – such as
buildings, roads, mineral deposits and trees in the forest – are not goods. Intangible rights, whether
concerning intellectual property or real property, ar e not goods. In the facts of this case, tenure
agreements and licences convey a right to harvest trees in a defined area. This is a right in respect of
real property, and with that right come obligations that run regardless of any harvest; the right exists
even in respect of trees that have not yet been planted. This right is in respect of an immovable – a
standing tree – that is not a good; and it is a right in respect of something that may not even exist at
the time the right is conveyed. It is an intangible and therefore not a good.
4.302 The ordinary meaning of “goods” excludes intangibles. An intangible right does not become
a “good” just because it is a factor enabling the creation of a good. An intangible right does not
become a “good” just because the right holder’s ob jective is to produce a good. Harvesting rights
permit the holders to produce logs; however, rights ar e distinct from the trees to which they attach.
Harvesting rights are also distinct from the good, the log, which is not produced until the harvester
invests the effort and incurs the significant costs of harvesting and processing standing timber into
logs. The provision of rights is not the same thing as the provision of goods.
4.303 The ordinary meaning of goods also excludes immovables subject only to limited exceptions.
Among these exceptions are growing crops and “timber to be cut” that is identified in a sales contract.
A timber sales contract covers specific trees; it does not cover just any trees that are or may be found
in an identified area. Tenure agreements do not relate to identified trees, but as conceded by the US in
its Second Written Submission, th ey relate to an identified area. Non-identified trees, whether or not
they are in an identified area, are “immovables” and because they do not fit within the exception, they
are not goods. The provision of immovables is not the same thing as the provision of goods.
4.304 The definition of subsidy has two elements. Financial contribution relates to what the
government does, benefit to what the recipient re ceives. Article 1.1(a)(1) does not require a
determination as to what the recipient ends up with at the end of the day or why the recipient enters
into a given relationship with a government; rath er, it requires a determination as to what the
government provides. The government, in this instance, does not provide “cut timber”.
4.305 Harvesters subject to a tenure or licence assume a variety of forest management obligations
for the period of the tenure or licence over th e area covered by the tenure or licence. These
obligations run regardless of the harvest of any trees. Tenures and licences do not involve the sale of
anything – they involve the conferral of harvesting rights. The United States has admitted that tenures
and licences involve identified areas. They do not involve identified trees. Standing trees under
tenures and licences are not “goods” for the purposes of the SCM Agreement.
4.306 A right to harvest standing timber is an intangible interest in respect of real property and is
therefore not “goods”; standing trees with roots firmly in the ground are immovables and therefore not
“goods”. Stumpage programmes do not provide goods and do not constitute a financial contribution.

2. Benefit
4.307 Article 14(d) requires that the adequacy of remuneration be determined and measured on the
basis of “prevailing market conditions … in the country of provision”. Accordingly, benefit must be
determined on the basis of existing market cond itions in Canada. Article 14(d) does not permit
benefit to be determined and measured using benchmar ks that are outside the country of provision. It
also does not permit an investigating authority to measure adequacy of remuneration by comparing
the government price to a hypothetical “fair market value”.
4.308 This interpretation of Article 14(d) is consis tent with the Appellate Body’s analysis of
Article 1.1(b) in Canada – Aircraft. In that case, the Appellate Body directed a comparison that is to
be informed by what the recipient can obtain in the market. The Article 1.1(b) “market” in a
provision of goods context under Article 14(d) is th e actual “market” as it exists in the country of
provision.
4.309 The US reliance on an extract from the second implementation panel in Brazil – Aircraft to
argue that the comparison market must be a ma rket undistorted by the government’s financial
contribution is misplaced. First, Brazil – Aircraft did concern the standard set out in Article 14(b). At
issue in that case was whether the PROEX payments made by the Brazilian government to certain
banks resulted in a benefit to purchasers of Brazilian aircraft. In order to determine this, the panel
looked at the impact of the PROEX payments on the terms and conditions of the export credit
financing available to the purchasers of these aircraft. Therefore, though unstated, this part of the
decision did in fact turn on the standard set out in Article 14(b).
4.310 Second, the reference to an undistorted market should be seen in its proper context – that is,
against the background of the original case. The panel determined in that case that the comparison
must be to the market for commercial lending rates and not another government market. The panel
did not find that a commercial or private market rate or price cannot be used as a benchmark if there is
government involvement in the marketplace.
4.311 The Appellate Body’s decision in US – Countervailing Measures on Certain EC Products
also provides no support for the rejection by the US of the in-country evidence submitted by Canadian
provinces. First, the Appellate Body’s decision was made in a different context that did not consider
the explicit language of Article 14(d). Second, while that case involved consideration of the
presumption at issue in arm’s-length sales by government, the plain language of Article 14(d) governs
this case. In the present case, the SCM Agreemen t’s plain language requires a benefit determination
based on benchmarks that reflect the “prevailing ma rket conditions … in the country of provision”.
This language establishes a clear rule, not a “p resumption” that might be rebutted in limited
circumstances.
4.312 The central issue before this Panel with resp ect to benefit is whether the SCM Agreement
requires investigating authorities to use in-country ev idence to determine adequacy of remuneration.
Canada’s purpose in presenting the in-country eviden ce on the record in this case is to demonstrate
that (i) the record contained substantial evidence of prevailing market conditions in Canada that
should have been used to determine adequacy of remuneration, and (ii) even if arguendo the US was
permitted to reject this evidence, the reasons it offers fail to stand up to any objective scrutiny.
4.313 In its Second Written Submission, the US has ag ain conceded that data on private stumpage
in both Québec and Ontario exist. With respect to the TDAs, this data was developed by opposing
commercial interests in Alberta to establish the mark et value of healthy standing timber. In addition,
the four primary exporting provinces all provided evidence that showed that their stumpage
programmes are administered consistent with mark et principles. Similarly, BC provided economic
evidence that reinforced this conclusion. Finall y, the United States’ focus on alleged flaws in how

public timber prices are set is misplaced as these are irrelevant to the benchmarks required under
Article 14(d).
4.314 The US rationalizes the rejection of in-co untry evidence by discussing certain forest
management practices that allegedly demonstrate that the provinces distort private timber markets. In
particular, the United States makes selective reference to appurtenancy requirements, alleged
restrictions on the transfer of tenures and annual al lowable cuts in specific provinces. None of these
practices were the subject of the investigation. Further the Final Determination contains no analysis
that demonstrates that the provinces’ management of their stumpage programmes distorted the
market. Rather, USDOC relied on the Preamble to presume price suppression and supported this
presumption with anecdotal evidence and a flawed economic analysis. In any event, as the panel in
US – Softwood Lumber III
 found, Article 14(d) does not allow an investigating authority to decline to
use in-country prices because they may be affected by the government’s financial contribution.
4.315 Article 14(d) requires that adequacy of remu neration be determined using prevailing market
conditions in the country of provision. Market pric es available on the world market can become part
of prevailing market conditions “in” the country of provision where there are imports of the good into
the country of provision. If there are imports at a given price, then the price is no longer an out-of-
country price, but rather is part of the prevailing market conditions in the country of provision.
4.316 The US prices used by USDOC as benchmarks do not fall within this category. USDOC
found that the subsidized “good” was either standing timber or the right to harvest standing timber.
US stumpage is not, and cannot, be made “available” in Canada. Standing trees growing in the US
cannot be harvested in Canada, and the right to ha rvest these trees growing in the US cannot be
exercised in Canada. Logs are not timber-harvesting rights, nor are they standing timber. Standing
timber in the US cannot be transported across the border, as it must be cut in the US.
4.317 Also, contrary to the United States’ asser tion, USDOC did not comp are prevailing market
conditions in Canada with those in the US. USDOC ignored a host of differences in market
conditions, and as for the adjustments it did make, fa iled to adequately take into account differences
between individual provinces and US comparison areas.
4.318 The US dismisses the provincial evidence de monstrating that stumpage programmes are
operated in accordance with market principles as no t relevant to a benefit an alysis. This is so, it
argues, because the “standard is not the cost to gove rnment, but rather benefit to the recipient.” The
US thus dismisses the third benchmark under the regulations it adopted to implement the results of the
Uruguay Round. There is no question that the United States believed, at the time of adoption, that this
benchmark was consistent with the analysis contem plated by Article 14(d), and was not, as the US
now argues, based on a “cost to government” standard.
4.319 In using this benchmark over the last seven years and as recently as two weeks ago, USDOC
has examined whether the government in question has covered its costs; whether it has earned a
reasonable rate of return; and whether it applied mark et principles in setting its rates or prices. In
considering these factors, USDOC has described its analysis as examining “whether the government’s
price was determined according to the same market factors that a private . . . [party] would use . . .
. .”
20 USDOC’s current attempt to dismiss the third be nchmark as irrelevant is contradicted by its
consistent application of this benchmark since the regulations were promulgated.
4.320 USDOC also expressly refused to consider evid ence demonstrating that provincial stumpage
systems cannot confer a trade advantage. This economic evidence demonstrated that, for in situ
natural resource markets, receipt of the input for a lower fee or charge does not affect the supply curve

20 Steel Wire Rod from Germany, 62 Fed. Reg. 54,990, 54,994 (Dep’t Commerce 22 Oct. 1997) (final
determination).

for the exported product. In this instance, USDOC assumed the existence of trade distortion rather
than considering evidence that demonstrated that there was no effect on the marginal cost or supply.
This evidence demonstrates that provincial stum page programmes neither in crease the production of
logs and lumber, nor lower their prices relative to a private competitive market.
3. Pass-through
4.321 The pass-through issue in this dispute is not simply about calculating the amount of the
alleged stumpage subsidy; it is first about determining whether a subs idy exists. This means making
the required determinations of an indirect financia l contribution and of a benefit conferred thereby.
The amount of a subsidy cannot be calculated, aggregated or allocated until a subsidy is first
determined to exist.
4.322 The United States does not contest that arm’s-length transactions exist and that no subsidy has
been determined to exist in those instances. The United States impermissibly presumed subsidization
in all cases other than alleged direct subsidization, asserting incorrectly that all producers of subject
lumber were “direct recipients” of Crown stumpage. There is no exception in the SCM Agreement
that allows a Member to presume subsidization in a countervailing duty investigation.
4.323 The United States has countervailed softwood lumber, not standing timber. The subject
lumber products are a few examples of the many downstream products produced in many distinct
industries that receive the alleged subsidy directly. If the subsidy to timber harvesters is presumed to
have passed through to downstream producers of the subject lumber, then it must be presumed to have
passed through to producers of all downstream products. The ques tion then is how the stumpage
subsidy could be limited to the mills upstream in the US specificity finding, when all products and
industries downstream are presumed to have recei ved it. US arguments on pass-through make US
arguments on specificity impossible, and internally contradictory.
4. Specificity
4.324 There are two central errors in the US approach to specificity: first, it applied the wrong
standard; and second, it incorrectly found that stumpage was used by a limited group of industries.
4.325 First, sole reliance on the “limited users” factor, as interpreted and applied by the
United States, renders the specificity requirement meaningless. The factors set out in Article 2.1(c)
do not, in and of themselves, establish specificity. Nowhere in that provision does it say, “a subsidy is
de facto specific if one or more of the following factors exist”; nowhere does it say, “where the users
of the subsidy are limited in number, no matter the reason, the subsidy shall be deemed to be
specific”. Article 2 requires not automaticity, but clear substantiation on the basis of positive
evidence.
4.326 Second, the words “industry” and “group of industries” require an objective analysis of the
record evidence in terms of the products produced by the users of a programme. In this case, an
objective assessment of the products produced by the thousands of actual immediate users of
stumpage identifies at least 23 standard categories of industries. When the analysis is extended to
include indirect users of stumpage, as the US has done in its impermissible pass-through presumption,
many more and varied industries are added.
4.327 The US interpretation reads the word “group” ou t of Article 2 altogether. However, as the
United States itself put it recently in US – Offset Act (Byrd Amendment) , the issue is “how small and
homogenous a group of beneficiaries must be in order to qualify as a ‘a group of enterprises or
industries’”, not whether the subsidy is used by the entire economy, or simply by more than one
enterprise or industry. The products produced by stumpage users are as numerous and diverse as
those produced in the agricultural sector, which in the view of the United States is neither a “single

large industry” nor even a group of industries. Again, in US – Offset Act (Byrd Amendment) , the
United States argued that groupings “such as ‘all manufacturing’ and ‘all agriculture,’ are too broad to
qualify as a ‘group of enterprises or industries’ for specificity purposes.” Stumpage is used by many
varied industries because it is a right of access to exploit a natural resource. That natural resource is
not altered in any way by governments.
4.328 Moreover, the purpose of counterv ailing duties is to protect dome stic producers from injury
caused by subsidized imports of like products. Logica lly, therefore, the level of aggregation used to
identify the user industries for specificity purposes (through the products they produce) should be
commensurate with the level of aggregation used to identify the allegedly injured domestic producers
(through the products they produce). To do otherwise impermissibly concentrates for specificity
purposes an otherwise broad alleged subsidy a nd imputes it solely to producers of the subject
merchandise – exactly what the United States did in the Final Determination.
5. Calculations
4.329 Canada’s Article 19.4 claims rest on two lega l foundations. First, and as the US agrees,
Article 19.4 requires that a countervailing duty rate must not exceed the subsidy per unit rate found in
respect of exported and subsidized goods. Second, the subsidy per unit rate must be calculated
correctly, based on a correctly determined subsidy amount, and a correctly determined subsidy. The
United States disagrees. It argues that Article 19.4 requires nothing more than a reconciliation of a
subsidy per unit rate, however dete rmined, with the countervailing dut y rate actually imposed. Such
an outcome renders the obligation in Article 19.4 meaningless.
4.330 The Panel must determine whether the United States has met its legal obligation, under
Article 19.4, to limit the amount of the counterva iling duty rate to the correctly determined alleged
subsidy per unit. The United States has a legal ob ligation to ensure that any countervailing duty
imposed does not go beyond the purposes of a countervailing duty – to offset injurious subsidization.
It may not escape its obligations by characterizing ev ery issue as a matter that is within the unfettered
discretion of investigating authorities.
6. Conduct of the Investigation
4.331 Canada’s claims concerning the conduct of the investigation at issue are independent from its
claims regarding the illegality of the Final Determination of subsidy. In conducting this investigation,
the United States violated its obligations under Ar ticle 12, and the countervailing duties imposed on
the basis of this tainted investigation therefore violate Articles 10 and 32.1 of the SCM Agreement.
4.332 First, USDOC determined that its benchmark states would border the relevant provinces. The
US appeared before the WTO and argued that its benchmarks were valid because they were
“contiguous” to the relevant provinces. The Unite d States switched the benchmark state to compare
with Alberta and Saskatchewan from Montana – a contiguous state – to Minnesota – a non-contiguous
state – without giving interested parties notice or any opportunity to comment on the specific choice
of the benchmark. The United States thus violated Articles 12.1, 12.3 and 12.8.
4.333 Second, a senior USDOC official specifically requested information vital to USDOC’s use of
Maine as a benchmark state for Québec. The Maine Forest Products Council sent a letter in response.
USDOC did not put the letter on the record for mo nths. The petitioners then submitted new evidence
– and the United States admits that new evidence was submitted – in response to USDOC’s request
for comments on the letter. USDOC refused to permit interested parties to respond to the petitioners’
new evidence despite the fact that USDOC relied on it in making its Final Determination. The
United States failed to provide a timely opportunity to see relevant information; it failed to provide an
opportunity for interested parties to prepare pr esentations on the basis of that relevant new
information. It thus violated Article 12.3.

H. SECOND ORAL STATEMENT OF THE UNITED STATES
4.334 The following summarizes the United States' arguments in its second oral statement.
4.335 The record demonstrates that the provinces own timber and, through provincial tenures,
provide timber to lumber producers. There should therefore be no question that the provinces provide
a financial contribution within the meaning of Article 1.1(a)(1)(iii) of the SCM Agreement.
4.336 The ordinary meaning of “goods” includes standing timber. Canada’s argument to the
contrary is reduced to the assertion that tenures are not sales of “timber to be cut,” within the meaning
of the US UCC, even though the sole reason for acqu iring a tenure is to harvest timber, and the tenure
holder pays for and receives title to only the timber it cuts. Moreover, the UCC provides that the sale
of timber to be cut is always a contract for the sale of goods, regardless of whether the timber is
“identified” at the time of the contract. More to the point, however, the provinces “provide” a “good”
within the meaning of Article 1.1(a)(1)(iii) of the SCM Agreement.
4.337 Canada also suggests, without citation to record evidence, that many tenures create freely
transferable “rights to harvest.” The record eviden ce establishes, however, th at the provinces retain
control over tenures, which cannot be transferred without the provinces’ approval. The
subcontracting of harvesting operations is not the sale or transfer of a “right to harvest.” The tenure
holder, not the subcontractor, remains at all times the province’s contracting party.
4.338 It is the substance of what occurs in the prov incial tenure systems that is controlling, i.e.,
whether a provision of goods takes place. As discussed in our previous submissions, the ordinary
meaning of the terms “provides” and “goods or se rvices other than general infrastructure” sweeps
broadly. No matter how Canada characterizes provincial tenures, the fact remains that the provinces
are providing timber to lumber producers. A financial contribution therefore exists.
4.339 The key legal issue in this dispute is whether Ar ticle 14(d) of the SCM precludes, in all cases,
the use of data from sources outside the country under investigation to de termine the adequacy of
remuneration. As the Appellate Body has stated, th e issue is whether “the ‘financial contribution’
makes the recipient ‘better off’ than it would otherwise have been, absent that contribution .”21 I n
other words, the Appellate Body recognized that in order to determine whether a financial
contribution confers a benefit, it is essential to comp are the position of the recipient with the financial
contribution to what the position of the recipient would have been absent the financial contribution.
Moreover, the Appellate Body’s statement provides the context for the Appellate Body’s conclusion
that the point of comparison is the “marketplace.” Thus, as the Brazil – Aircraft panel concluded,
looking to the marketplace to determine whether the recipient is better off than it would otherwise
have been absent the financial contribution necessarily means looking to a marketplace undistorted by
the government’s financial contribution.22
4.340 It is the view of the United States, as well as the European Communitie s, that Article 14(d)
does not prohibit Members from relying on data from sources outside the country of provision to
determine the adequacy of remuneration if reliable, market-driven pricing data does not exist in the
country of provision. We will not repeat the argum ents supporting that conclusion, but will comment
on Canada’s flawed three-pronged analysis of Article 14(d).
4.341 First, Article 14(d) provides that the adequacy of remuneration must be determined “in
relation to” prevailing market conditions in the co untry of provision. Cana da, however, substitutes
“in relation to” with “on the basis of” or “in comparison with.” The more reasonable interpretation is
that the broader phrase “in relation to” was agreed to by Members because Article 14 explicitly sets

21 Appellate Body Report, Canada – Aircraft, para. 157.
22 Panel Report, Brazil – Aircraft (Article 21.5 – Canada II ), para. 5.29.

out “guidelines,” i.e., general principles, not detailed rules. “In relation to” is sufficiently broad to
allow for various means of performi ng a comparison that relates to market conditions in the country
under investigation, rather than limiting Members to analyses “on the basis of,” or “in comparison
with,” certain types of data. Permitted methods can include analyses that rely on data from sources
outside the country, if the data is probative of the fair market value for the good in the country of
provision.
4.342 Second, Canada ignores the word “market” in the phrase “prevailing market conditions,” as if
any conditions are “market” conditions. The Pane l, however, must give meaning to the word
“market.” In that regard, the logic of the Brazil – Aircraft Panel Report is compelling. In determining
whether the government’s financial contribution confers a benefit – i.e., whether the recipient is better
off with the financial contribution than it would othe rwise have been absent th e financial contribution
– the “market” conditions must be conditions that are undistorted by the government’s financial
contribution.
4.343 Third, adequacy of remuneration must be de termined in relation to prevailing market
conditions “in the country of provision.” That begs the question, however, whether there are in fact
“market” conditions for the good “in the country of provision” that provide probative evidence for
determining adequacy of remuneration. Where such evidence does not exist in the country of
provision, as in this case, nothing in Article 14 (d) precludes a Member from relying on market data
from sources outside the country that is probative of fair market value in the country of provision.
4.344 The importance of using market benchmarks, ev en if they are based on data from sources
outside the country of provision, is underscored by Article 15(b) of the Protocol on the Accession of
the People’s Republic of China
23, which is cited, but misinterpret ed, by Canada. The United States
negotiated Article 15(b) of the China Protocol be cause the United States, along with other Members,
recognized that China was in transition from a state-controlled economy to a market economy.
Although Article 14(d) of the SCM permits the use of market data outside China, it only applies in
countervailing duty cases under Part V of the SCM Agreement. Recognizing the importance of
“market” benchmarks, the Members incorporated the language that Canada references in Article 15(b)
of the China Protocol to clarify that external benc hmark data can be used under Article 14(d) of the
SCM Agreement, and also to ensure that such data can be used in proceedings under Parts II and III of
the SCM Agreement.
4.345 Other provisions in the China Protocol likewise repeat obligations already binding on WTO
Members. For example, the China Protocol provides that “China shall ensure that internal taxes and
charges . . . shall be in conformity with the GATT 1994.”
24 The inclusion of this provision does not
mean that other Members need not ensure that their internal taxes conform to GATT 1994, yet this is
effectively Canada’s argument.
4.346 With respect to the facts of this case, the Unite d States has, in its prior submissions and oral
presentations, demonstrated that four of the six provinces did not provide private prices for timber that
could be used for market benchmark purposes. Canada has failed to refute that fact. Rather, it argues
that evidence that the provinces earn a profit on timber sales is sufficient to es tablish that they do not
provide a benefit, even though those profit calculations do not include any cost or value for the trees
themselves. More importantly, however, a sale for less than adequate remuneration – even a
profitable one – confers a benefit.
4.347 The record evidence also demonstrates that the overwhelming state control of timber sales in
Canada distorts sales in the privat e sector. Canada respon ds to this evidence by inviting the Panel to

23 See Accession of the People’s Republic of China: Decision of 10 November 2001, WT/L/432,
Article 15(b) (23 November 2001) (“China Protocol”) (CDA-139).
24 China Protocol, Article 11(2) (US - 93).

conduct de novo review. Canada argues, for example, that the United States “ignored” evidence of
market conditions in Canada. The record in this case demonstrates that the United States in fact
considered and weighed all of the evidence and was persuaded by economic analyses, which are cited
to in the Final Determination, and other documentar y evidence that the state-controlled timber sales
systems distorted the private market.
4.348 Canada also now states that it has “consistently ta ken the position . . . that a price that is
available to purchasers in the country of provision makes that price part of the prevailing market
conditions in the country of provision.” 25 Given that US timber prices are available to purchasers in
Canada, the United States’ benchmark calculation is consistent with the position Canada now
endorses. Canadian lumber producers can purchase US timber, cut it (or have it cut), and transport it
to their mills in Canada.
4.349 The United States has also established that the calculation of the market benchmarks included
appropriate adjustments for conditions of sale in Canada. Canada’s attempts to call those adjustments
into question do not withstand scrutiny.
4.350 Finally, Canada has not made a prima facie case that the United States erred in failing to
conduct a market distortion analysis. Canada ha s failed to identify any obligation in the SCM to
conduct such an analysis because no such obligation exists. The United States ’ benefit calculation is
consistent with Article 14. Nothing further is required, and obligations that are not found in the
Agreement may not be imposed on the United States.
4.351 Under Article 2.1 of the SCM Agreement, a subs idy is specific if it is used by a limited
number of industries or group of industries. The unrefuted record facts demonstrate that provincial
tenures are used by a very limited group of timber processing industries. To construct an argument
that these provincial programmes are, nonetheless, not specific, Canada artificially inflates the very
limited group of industries.
4.352 Canada interprets the term “industry” so narrowly that almost every product becomes an
industry unto itself. Canada’s dissection of the timb er processing industries flies in the face of the
ordinary meaning of “industry” as the term is us ed in Article 2. Moreover, Canada’s position with
respect to the timber processing industries is inco nsistent with its acknowledgement that a subsidy
used by a single large industry, such as automob iles or textiles, may be specific notwithstanding the
diverse range of products the industry produces.
4.353 Canada also challenges the United States’ specificity finding by inventing criteria that do not
exist. Nothing in Article 2.1(c) requires an investigating authority to consider the government’s intent
or the “nature” of the good when determining whethe r a subsidy is specific. It is entirely permissible
to find specificity based solely on the limited number of users.
4.354 Canada cites the negotiating history of the SC M in an effort to overcome the lack of any
support in the text of Article 2.1(c) for its claim that Article 2.1(c) requires consideration of factors
such as the “inherent characteristics” of the good and evidence of intentional targeting. In fact, the
negotiating history that Canada cites demonstr ates that such concepts ultimately were not adopted by
the Members. The Members abandoned language on in tent and “inherent characteristics” after the
second Cartland draft, and such factors may not be read into the SCM Agreement.
4.355 The only additional factors that a Member must take into account under Article 2.1(c) are the
extent of diversification of economic activities with in the granting authority’s jurisdiction and the
length of time the subsidy programme has been in operation. No one argued that the number of
subsidy recipients is limited because the programme had not been in operation long enough to be

25 Canada's Second Written Submission, para. 41.

more widely distributed. The issue of economic diversification was raised only by British Colombia
(“B.C.”). The evidence B.C. submitted, however, de monstrated that the timber processing industries
accounted for approximately 6 per cent of B.C.’s economy. Thus, based on B.C.’s own data, 94 per
cent of B.C.’s economy did not use the provincial tenure system.
4.356 The United States’ views on Canada’s claims regarding the calculation of the ad valorem rate
and the conduct of the investigation have been presented in our prior submissions and statements. We
would like to make only a few additional points in response to Canada’s second submission.
4.357 First, Canada mischaracterizes the United States’ views on Article 19.4 of the SCM
Agreement. Article 19.4 provides that the counte rvailing duty rate must be calculated on a per-unit
basis. It also provides that the countervailing duty levied may not exceed the subsidy found to exist.
That is the extent of the obligations in Article 19.4. The United States’ argument that Canada has
failed to identify any obligation in Article 19.4 to c onduct an upstream subsidy analysis or to allocate
subsidies by volume rather than by value is a far cry from arguing that a Member may impose
countervailing duties at any rate it wishes. The fa ct remains, however, that Canada has failed to
identify any obligation in Article 19.4 that supports its claim.
4.358 Second, the United States calculated the ad valo rem duty rate by dividing the subsidy by the
value of the output of the lumber production process. Canada argues that the numerator in that ad
valorem rate calculation was impermissibly inflated by the inclusion of that portion of the Crown
timber that ended up as products other than lumber . Canada’s numerator argument is simply an
argument that the United States was required to allocate the subsidy on the basis of volume rather than
on the basis of value. As discussed previously, Article 19.4 simply obligat es Members to calculate
the countervailing duty rate on a per-unit basis. Ther e is no requirement to allocate an input subsidy
based on volume rather than value.
4.359 Third, Canada continues to suggest that th e Minnesota Public Stumpage Price Report
(“Minnesota Price Report”) specifies a conversion fa ctor of 6.25 for converting from thousand board
feet to cubic meters. It does not. The Minnesota Price Report contains sawtimber prices reported in
thousand board feet and pulpwood prices reported in cords. The price report contains a factor that
Minnesota uses to convert between cords and board feet. The United States, however, only used the
sawtimber prices, which are bid, sold, and reported in thousand board feet, and therefore needed to
convert from board feet to cubic meters. The Minnesota Price Report does not contain such a
conversion factor. We note, however, that the timber sales manual of the Minnesota Department of
Natural Resources (“Minnesota Timber Sales Manual”), which publishes the Minnesota Price Report,
was on the record. The Minnesota Timber Sales Ma nual provides a conversion factor of 3.48 cubic
meters per thousand board feet. Canada does not, however, advocate using that conversion factor.
Rather, Canada derived its own c onversion factor from selected information in the Minnesota Price
Report.
4.360 There is no one conversion factor that is universally accepted. The record evidence suggested
a wide range of possible conversion factors, ranging from 3.48 to 8.51. The United States considered
all of that evidence and provided a reasoned explana tion for its decision to rely on the factors in the
report by the International Trade Commission. The choice of conversion factor is therefore entirely
consistent with the SCM Agreement.
4.361 Finally, Canada suggests that, even though the provinces knew the crite ria the United States
was using to select the benchmark states and had all the data on the states under consideration,
Alberta and Saskatchewan were not on notice of th e possibility that the United States could select a
state more than 1,000 kilometres away. That assertion is contradicted by the record of the
investigation. Alberta and Saskatchewan both argue d that the United States should not use Montana
as a benchmark state because of differences in the species mix. Saskatchewan also proposed using
data from Alaska, which is more than 1,000 kilo metres from, and obviously not contiguous with,

Saskatchewan. Thus, it is evident that the provinces knew that factors such as climate, terrain, and
species mix – not proximity – were the key considerations, and that a non-contiguous state might be
selected for the benchmark. The record of the i nvestigation therefore establishes that the provinces
knew the essential facts under consideration.
4.362 For the reasons discussed above and in our prior submissions and presentations to the Panel,
the United States asks the Panel to dismiss Canada’s claims.
V. ARGUMENTS OF THE THIRD PARTIES
5.1 The arguments of the third parties, the European Communities, India, and Japan, are set out in
their written submissions and oral statements, and ar e summarized in this section. Third parties'
answers to questions are annexed in full to this report (see List of Annexes, page v).
A. THIRD PARTY WRITTEN SUBMISSION OF THE EUROPEAN COMMUNITIES
1. Claims Relating to the Existence of a Subsidy within the meaning of Article 1 of the
SCM Agreement
(a) Financial contribution
5.2 The European Communities agrees with the United States that the term “goods” includes any
economically valuable right. The ordinary meaning of the word “good” is commonly defined as, inter
alia, “property or possessions; esp. movable property, saleable commodities, merchandise, wares” 26
or “tangible or moveable personal property, other th an money; esp., articles of trade or items of
merchandise”27. Accordingly, the French text of the SCM Agreement uses the term “biens”, which is
defined, inter alia, as “domaine, possession, propriéte”.28 Finally, the Spanish version uses the word
"bienes", which encompasses “inmobiliario" as well as "mobiliario. 29 From the ordinary meaning of
the word “goods” it follows, therefore, that this term not only applies to “movable” but also to
“immovable” goods, including “land”.
5.3 This understanding is further corroborated by the immediate context in Article 1.1(a)(1)(iii) of
the SCM Agreement, which refers to
(…) goods or services other than general infrastructure (…)” (emphasis added)
5.4 According to this wording infrastructure such as streets, railways or channels – which are all
immovable objects – are to be considered as a “good” to the extent that they are not “general”. It
follows a contrario that any “individual” immovable object th at is provided by the government may
also be covered by Article 1.1(a)(1)(iii) of the SCM Agreement.
5.5 The European Communities notes that the Panel in US – Softwood Lumber III confirmed that
the phrase “goods or services other than general infrastructure”
is intended to ensure that the term financ ial contribution is not interpreted to mean
only a money-transferring action but enco mpasses as well an in-kind transfer of
resources, with the exception of general infrastructure.30

26 The New Shorter Oxford English Dictionary, 1993, Vol. I, p. 1116.
27 Black’s Law Dictionary, 7th edition, 1999.
29 Moliner, Diccionario de uso del Espanol, 1988, p. 374.
30 Panel Report, US – Softwood Lumber III, para. 7.24.

5.6 The European Communities considers that this clarifies that the term “goods and services”
can also refer to immovable property or any other property right such as, e.g., intellectual property
rights. Such interpretation is also supported by the purpose of Article 1.1(a)(1) of the SCM
Agreement which is intended to cover a wide variety of financial contributions made by governments,
which “will also exist if the government does not co llect revenue which it is entitled to or when it
gives something or does something for an enterprise or purchases something from an enterprise or a
group of enterprises”.
31
5.7 Indeed, subsidies may take the form of very complex bundles of rights combining, e.g., rights
to a movable or immovable good (e.g., land) a service (scientific or technical research) or intellectual
property (patents, copyrights). Depending on the combination of different elements and the modes of
supply, such transfers of economic resources, may involve the provision of “goods or services”, or the
foregoing of “government revenue”. If such complex economic transactions were not covered by the
disciplines of the SCM Agreement, there would be considerable scope for circumvention.
5.8 Regarding the specific question of whether stumpage is covered by Article 1.1(a)(1)(iii) of the
SCM Agreement, the EC does not consider it necess ary to comment separately on the different forms
of stumpage rights ( profit à prendre , servitudes, timber harvesting lic enses, and similar rights),
because they all involve economically valuable ha rvesting rights and USDOC explained in its final
determination why such rights are goods or at least services within the meaning of
Article 1.1(a)(1)(iii) of the SCM Agreement.
5.9 In short, the European Communities agrees with the United States that the stumpage
programmes are financial contributions within th e meaning of Article 1.1(a)(iii) of the SCM
Agreement.
(b) Benefit
5.10 The key legal issue in this dispute is whether th e United States has violated Articles 1 and 14
of the SCM Agreement by applying a “cross-border” methodology to establish and measure a benefit.
5.11 The European Communities considers that the determination of the correct market benchmark
requires considerable care and would offer the following comments:
5.12 First, contrary to what the United States argues, the text of Article 14(d) of the SCM
Agreement does not refer to “ fair market value” or “true market prices” that are “independent of the
distortions caused by the government’s action”.32 Such analysis would contradict the explicit wording
of Article 14(d) which requires the analysis of “ prevailing market conditions in the country of
provision” (emphasis added).
5.13 The adjective “prevailing”, which means “as they exist” 33 clarifies that the investigating
authorities have to base their benefit determinatio ns on existing reference prices that the producer
would have had to pay if it had to buy the goods (now provided by the government) from a different
and independent seller in the country of provision, including imports.34
5.14 Read contextually with the term “ market conditions” in Article 14(d) of the SCM Agreement
(and other paragraphs of Article 14) the treaty langua ge clarifies that only in situations where there
are no market conditions, i.e., prices determined by inde pendent operators following the principle of
supply and demand, the in-country benchmark set out by Article 14(d), second sentence of the SCM

31 Panel Report, US – Softwood Lumber III, para. 7.24.
32 United States First Written Submission, paras. 42 ff, 72 (emphasis added).
33 Concise Oxford Dictionary, Ninth Edition, p. 1084.
34 Panel Report, US – Softwood Lumber III, para. 7.52.

Agreement does not apply. Only in such rare s ituations, the adequacy of the remuneration may be
determined following a reasonable method according to Article 14(d), first sentence of the SCM
Agreement, including, where necessary, world market prices.
5.15 Thus, as the Panel confirmed in US – Softwood Lumber III, Article 14(d) does not permit
investigating authorities to dismiss actual in-country prices merely because they might be affected by
the financial contribution.35
5.16 Second, the European Communities does not consider the reference by the United States to
recent amendments of its Regulation (EC) 2026/ 97 relevant for the resolution of this dispute. 36 As
noted by the United States, these amendments concer n a situation where “no such prevailing market
terms and conditions” exist and where, consistent ly with Article 14(d) of the SCM Agreement,
investigating authorities may, therefore, apply an alternative benchmark.
5.17 By contrast, under its methodology as applied in the final determination on softwood lumber,
the United States continues to consider itself entitled to dismiss existing alternative reference prices in
the country of provision and to use petitioner’s prices simply on the basis that in-country prices “were
significantly affected by the financial contribution itself” 37. This is different from establishing that
there are no market conditions in the country of provision.
5.18 Thus, the problem with the “cross-border” methodology attacked by Canada is not that it
eventually allows consideration of world market prices, but under which conditions recourse may be
had to alternative benchmarks. The Europe an Communities fully agrees with the panel US –
Softwood Lumber III where it dismisses the “hypothetical undistorted market” methodology as
contradictory with the text of Article 14(d) of the SCM Agreement. However, the European
Communities would respectfully ask this Panel to clarify that there is no absolute rule prohibiting
recourse to world market prices to determine the adequacy of the remuneration, if it can be established
in exceptional cases that there are no prevailing market conditions within the meaning of Article 14(d)
second sentence of the SCM Agreement, so that that rule cannot be applied in order to establish the
existence of a benefit.
5.19 Finally, as to the correct application of the abov e rules to the final determination in this case,
the European Communities as a third party is obviously not in a position to comment on the
availability of independent market-driven prices for non-governmental stumpage (be it from private
Canadian land or imported). However, the European Communities notes that USDOC itself
acknowledged that private stumpage markets have a share between 2-17 per cent in Canada. 38 The
sole rational for rejecting them in the final determin ation is the mere assertio n that such prices are
driven by the stumpage prices on Crown land, i. e., the flawed “hypothetical undistorted market”
methodology.
5.20 The European Communities also notes that USDOC has recognised “extensive record
evidence that Canadian lumber producers had actua l imports of US logs and purchased US stumpage
during the POI”.39 This finding in itself contradicts US DOC rejection of a competitive timber/and or
lumber market in Canada.40

35 Panel Report, US – Softwood Lumber III, paras. 7.50 and 7.52.
36 United States First Written Submission, para. 55.
37 United States First Written Submission, para. 65.
38 Final Determination, p. 37 and 38. (CDA – 1).
39 Final Determination, p. 40. (CDA – 1)
40 Panel Report, US – Softwood Lumber III, para. 7.49, footnote 86.

(c) Failure to Examine and Determine the Existence of a Benefit to all Producers of the Subject
Product (“Pass Through”)
5.21 The European Communities agrees with Cana da that the final countervailing duty
determination is flawed because it assumes that the alleged financial contribution to timber harvesters
through the stumpage rights conferred a benefit on the downstream producers of softwood lumber,
although a significant portion of harvesting is done by entities operating at arm’s-length from the
lumber producers. Instead of conducting a “pas s-through” analysis, USDOC applied an irrefutable
presumption that the alleged benefit received by st umpage holders has passed through to all lumber
producers harvesters.
41
5.22 The United States does not contest that some producers of the subject merchandise operate at
arm’s-length, but defends itself by arguing that the final CVD determination was made on an
aggregate basis under Article 19.1 and 19.3 of the SCM Agreement, thereby exempting the competent
authority from making a “pass-through” analysis.42
5.23 The European Communities considers that the panel in US – Softwood Lumber III correctly
found that neither Article 19 nor any other provisi on of the SCM Agreement authorises investigating
authorities to depart from the requirement to correc tly establish the amount of subsidisation if they
chose to conduct the investigation on an aggregate basis.43 As already clarified by the Appellate Body
in US – Lead and Bismuth II 44, and confirmed by the panel in US – Softwood Lumber III, an authority
may not assume that a subsidy provided to producer s of the “upstream” input product automatically
benefits unrelated producers of downstream products, especially if there is evidence on the record of
arm’s-length transactions between the two. 45 Thus, USDOC was “required to examine whether, in
certain transactions covered by th e investigation, some or all of the alleged benefit to the tenure
holders from the stumpage programmes was passe d through to the producers of the subject
merchandise exported to the US”.46
5.24 The Panel also correctly clarified that conducting the investigation on an aggregate basis
versus a company-by-company basis is “irrelevant” to this issue and cannot dispense USDOC from its
obligation to carry out a pass-through analysis so as to correctly establish the amount of the subsidy
benefiting the producers of the subject merchandise, (i.e. the numerator).
47
2. Conclusion
5.25 In short, the European Communities considers that the final determination now before this
Panel correctly established the existence of a financial contribution within the meaning of
Article 1.1(a)((1)(iii) of the SCM Agreement by interpreting the term “goods and services” so as to
include any economically valuable right, in casu, the right to a good (whether that good is movable or
immovable).
5.26 However, the measure before the Panel is incons istent with Articles 1.1(b), 10 and 14 of the
SCM Agreement because USDOC applied a flawed “hypothetical undistorted market” methodology
to establish the alleged benefit and did not conduct a proper “pass-through” analysis to demonstrate
that all producers of the subject merchandise received the alleged benefit.

41 Canada First Written Submission, paras. 128, 129 and 135.
42 United States First Written Submission, paras. 102-106.
43 Panel Report, US – Softwood Lumber III, paras. 7.74 and 7.75.
44 Appellate Body Report, US – Lead and Bismuth II, para. 68.
45 Panel Report, US – Softwood Lumber III, para. 7.71.
46 Panel Report, US – Softwood Lumber III, para. 7.69.
47 Ibid., para. 7.77.

B. THIRD PARTY ORAL STATEMENT OF THE EUROPEAN COMMUNITIES
1. Financial contribution
5.27 The European Communities has already explained why it considers that the United States
correctly established that the granting of stumpa ge rights is a financial contribution within the
meaning of Article 1.1(a)(1)(iii) of the SCM Ag reement, because that provision covers any
economically valuable right.
5.28 This is in line with the ruling by the panel in US – Lumber III confirming that the phrase
“goods or services other than general infrastructure”
(…) encompasses as well an in-kind transfer of resources, with the exception of
general infrastructure.48
5.29 The European Communities would like to reiterate that the term “goods and services” can
also refer to immovable property or any other property right such as, e.g., intellectual property rights.
Subsidies may take the form of very complex bundles of rights combining, e.g., rights to a movable or
immovable good (e.g., land) a service (scientific or technical research) or intellectual property
(patents, copyrights). Depending on the combination of different elements and the modes of supply,
such transfers of economic resources, may involv e the provision of “goods or services”, or the
foregoing of “government revenue”. If such complex economic transactions were not covered by the
disciplines of the SCM Agreement, there would be considerable scope for circumvention.
2. Benefit
5.30 The key legal issue in this dispute is whether th e United States has violated Articles 1 and 14
of the SCM Agreement by applying a “cross-border” methodology, i.e., US prices as benchmark for
the determination of a benefit.49
5.31 The European Communities agrees with Canada and the panel in US – Lumber III 50 that the
US determination of benefit violated Article 14(d ) of the SCM Agreement because the United States
dismisses existing in-country prices merely because they might be affected by the financial
contribution. However the European Communities is concerned that some of the findings of that panel
might be misunderstood as an absolute rule prohibiti ng recourse to world market prices to determine
the adequacy of the remuneration even if it can be established in exceptional cases that there are no
prevailing market conditions within the meaning of Article 14(d) second sentence of the SCM
Agreement.
5.32 The problem with the “cross-border” methodol ogy attacked by Canada is not that it
eventually allows consideration of world market prices, but under which conditions recourse may be
had to alternative benchmarks. Article 14 (d), second sentence, does not apply, where there simply is
no market. In such rare situations which must be properly established by the investigating authorities,
the adequacy of the remuneration may be determ ined following a reasonable method according to
Article 14(d), first sentence of the SCM Agreement, including, where necessary, world market prices.
3. Specificity
5.33 Canada also challenges the US finding that the stumpage programmes are de facto limited to
“pulp and paper mills and the same mills and remanufacturers which are producing the subject

48 Panel Report, US – Lumber III, para. 7.24.
49 Final Determination, p. 40.
50 Panel Report, US – Lumber III, paras. 7.50 - 7.52.

merchandise” and therefore de facto specific subsidies.
51 The European Communities considers that
because this finding is based on the flawed determin ation of the beneficiaries of the alleged financial
determination it cannot be upheld. However, in case the Panel were to consider the issue of
specificity, the European Communities would like to note the following.
5.34 In essence, Article 2.1 of the SCM Agreement requires an investigating authority to determine
that a subsidy is specific because its availability is either limited by law to certain enterprises
(Article 2.1(a and b)), or the same limiting effe ct can be established on the basis of evidence
concerning the use of the subsidy (Article 2.1(c)). The European Communities notes that USDOC did
not make a de jure specificity determination although certain stumpage programmes were restricted to
certain enterprises owning saw mills.52
5.35 Canada challenges the USDOC determination b ecause it applies a general availability test,
i.e., whether the use of the subsidy is limited to certain groups of industries as opposed to a subsidy
that is “broadly available and widely used throughout an economy”.53
5.36 The European Communities considers that the ordinary meaning of the terms “certain
enterprises” in Article 2.1 of th e SCM Agreement read in light of their context and their object and
purpose, in essence, requires a “general availability” determination, that is a determination of whether
a subsidy selectively benefits certain industrial sect ors or certain enterprises, or is rather a broad
economic policy measure, such as the reduction of corporate taxes.
5.37 The broad definition of “certain enterprises” in Article 2.1 of the SCM Agreement as “an
enterprise or industry or group of enterprises or i ndustries” indicates that the specificity determination
must not precisely identify separate industries and sub-industries as required for the injury
determination under Article 16. It is sufficient to show that the subsidy is made available or used only
by a limited number of industries as opposed to the overall economy. The immediate context in
Article 2.2 of the SCM Agreement confirms the “gen eral availability” test by clarifying that the
“setting or change of generally applicable tax rates” shall not be deemed to be a specific subsidy.
5.38 Canada also claims that consideration must be given to the fact that the limitation of users is
due to the inherent characteristics of the good rather than any deliberate government favouritism.54
5.39 The European Communities fails to see any basis in the SCM Agreement for Canada’s
contention that Article 2.1 of the SCM Agreement ex cludes a specificity finding if the limitation of
the use is due to the inherent characteristics of the good. Such an interpretation would lead to
circumvention of the subsidy disciplines. Subsidy pr ogrammes could be tailored so as to benefit only
certain industries that can use certain goods or services. Obviously stumpage rights are useless for the
computer industry while the provision of research for computer chip materials would not be of interest
for the softwood lumber producers.
4. Violation of Article 12.3 and 12.8
5.40 Turning now to the alleged violations of procedural due process rights, the European
Communities would like to offer th e following comments on the legal interpretations of Articles 12.3
and 12.8 of the SCM Agreement.

51 Final Determination, p. 52. (CDA – 1)
52 United States First Written Submission, footnote 193.
53 Canada First Written Submission, paras. 149, 152, 161. Final Determination, p. 52. (CDA – 1)
54 Canada First Written Submission, paras. 155, 156.

(a) Violation of Article 12.3 of the SCM Agreement
5.41 Canada claims that USDOC has not given time ly opportunity to the respondents to see a
report on the quality categories for logs in Main e and to rebut counter-reports prepared by the
petitioners.55
5.42 The United States admits that only two months after it received the Maine report, that
document was placed on the record and parties were given 10 days to comment after the record had
already been closed.56 In defence, the United States invokes th e practicability clause in Article 12.3 of
the SCM Agreement arguing that “it was simply not practical” to give Quebec an earlier opportunity
to see the report in time to be able to also rebut the petitioners’ counter reports.57
5.43 The terms “whenever practicable” in Article 12.3 of the SCM Agreement do not address the
question of “whether” the investigating authority must grant access to the file, but exclusively the
question of “when” to do so.
5.44 The term “timely” means “occurring, or made at an appropriate or suitable time; opportune;
Occurring or appearing in good time, early”. 58 A contextual reading clarifies that the time must be
sufficient not only to see the information but also to prepare presentations on the basis of this
information. The plural “presentation s” supports that there must be possibility for at least one
rebuttal.
5.45 Article 12.8 makes clear that, although the inves tigating authority is not required to make the
file permanently accessible to the public, and to ex change in an endless cycle of comments and sur-
rebuttals, it must grant access to the file as early as practicable, rather than, for example, once at the
end of the investigation thereby excluding the possibility of making at least one counter-rebuttal.
5.46 A Member claiming that timely access to the record and sufficient time to make presentations
is not practicable faces a heavy burden. The instances where a Member could refuse legitimately the
possibility of timely access to the file would be “exceptional”. The European Communities notes that
the precise circumstances of the di sclosure of the Maine report ar e still being clarified between the
parties and is therefore not in a position to co mment on whether there were such exceptional
circumstances. However, merely claiming non-practicability is certainly not sufficient.
(b) Violation of Article 12.8 of the SCM Agreement
5.47 The second procedural violation concerns the disc losure of essential facts. Canada complains
that USDOC switched from Montana stumpage pr ices, which it had used as benchmark for two
Canadian provinces in the preliminary determinatio n to Minnesota prices on which it based its final
determination. Both parties agree that these stumpage prices are essential facts. 59 However, the
United States appears to argue that the respondents were aware of the essential facts through the
preliminary determination and that because the respondents “prevailed on this points” causing
USDOC to switch to Minnesota prices, they cannot “credibly claim surprise”
60
5.48 Article 12.8 of the SCM Agreement imposes up on the investigating authorities a duty “to
inform” the interested parties. The ordinary meaning of that term (“to give knowledge of something”,
to tell”, to acquaint with”) 61 demands a positive action from the in vestigating authorities. The EC

56 United States First Written Submission, paras. 175-176.
57 United States First Written Submission, para. 180.
58 The New Shorter Oxford Dictionary, p. 3314.
59 United States First Written Submission, para. 165.
60 United States First Written Submission, paras. 164 and 169.
61 Webster’s New World Dictionary, Third College Edition.

agrees with the United States
62, that Article 12.8 does not prescribe any particular method of
disclosure. Thus, for instance, the investigating authority may choose to make the disclosure in a
written document sent to the parties (the usual prac tice in the EC) or in any other form. However,
Article 12.8 of the SCM Agreem ent, requires a certain result: the interested parties must be informed
of the facts “which form the basis for the decision whether to apply definitive measures”. The Panel
in Argentina –Ceramic Tiles , in interpreting the analogue provision in the Anti-Dumping Agreement
clarified that the disclosure must contain
the essential facts which, being under consideration, are anticipated
by the authorities as being those which will form the basis for the
decision whether to apply definitive measures. (emphasis added)63
5.49 Indeed, the relative clause “which form the basis for the decision whether to apply definitive
measures” qualifying the phrase “essential facts under consideration” is of crucial importance for the
correct interpretation of Article 12.8. The use of the term “form” indicate s that the investigating
authority is required to identify which facts will be relied upon in the final decision whether to impose
measures.
5.50 Disclosure of the “essential facts” forming the basis of a preliminary determination is clearly
inadequate in circumstances where the factual ba sis of the provisional measure is significantly
different from the factual basis of the definitive measure. This was confirmed by the Panel ruling in
Guatemala – Cement II clarifying that disclosure of the
“essential facts” forming the basis of a preliminary determination is
clearly inadequate in circumstances where the factual basis of the
provisional measure is significantly different from the factual basis of
the definitive measure.64
5.51 The European Communities considers that the United States cannot escape from its obligation
by claiming that the switch between benchmarks is less significant than the switch between threat and
actual injury in the Guatemala cement case. Decisive is only that the facts are “essential” to the final
determination and whether the respondents knew that the Minnesota stumpage prices would form the
basis of the final determination. That the facts relating to Minnesota were on the record does not
change that appreciation. The respondents could not know that they would be “essential” for the final
determination, as they had advocated other alternative benchmarks.
5.52 Finally, the United States cannot defend itself by invoking practicability concerns65. While
Article 12.3 contains a “whenever practicable” exception, the obligation to disclose the essential facts
under Article 12.8 is without qualification.
C. THIRD PARTY ORAL STATEMENT OF INDIA
5.53 This is one of half a dozen disputes raised by Canada on the same merchandise/product, viz.,
softwood lumber. As in other disputes, India has sy stemic interest in this dispute as well. In an
earlier dispute, US – Softwood Lumber III , India expressed concerns on application by the US of
‘cross-border’ methodology to determine existence of benefit under Articles 1 and 14 of the SCM
Agreement. We have similar concerns in this dispute as well.

62 United States First Written Submission, para. 162.
63 Panel Report, Argentina - Ceramic Tiles, para. 6.125.
64 Panel Report, Guatemala – Cement II, para. 8.228.
65 United States First Written Submission, para. 169.

5.54 More importantly, India has systemic concern about the Panel’s decision to accept amicus
curiae briefs and consider their arguments to the extent that such arguments raised by the parties and
third parties to the dispute.
5.55 India considers that the WTO panels and the Appellate Body do not have a right to accept and
consider any briefs or arguments submitted by anyone other than the parties or third parties to the
dispute. WTO panels, however, under Article 13 of the DSU, could seek information or technical
advice or opinion of any individual or body on certain aspects of the matter or factual issues
concerning scientific or technical matter raised in a dispute. We do not consider that ‘arguments’ of
uninvited bodies or individuals would fall into such category.
5.56 India is aware of the Appellate Body’s view on amicus curiae briefs and the so-called “case
law” developed by it. India does not agree with the Appellate Body’s view that whatever is not
prohibited by the DSU or other covered agreements is permissible and, therefore, the Appellate Body
and the panels have authority to accept amicus briefs. There is no textual or other legal basis for such
assertions. Therefore, India requests the panel re frain from accepting or considering the unsolicited
amicus curiae briefs submitted to it.
D. THIRD PARTY WRITTEN SUBMISSION OF JAPAN
1. Introduction
5.57 The Government of Japan welcomes this opportun ity to present its view in this proceeding on
United States - Final Countervailing Duty Determination with Respect to Certain Softwood
Lumber from Canada. This dispute concerns the countervailing duties imposed by the
United States on certain Canadian softwood lumber products. Japan decided to participate in the
current proceedings as a third party in view of the systemic importance of the dispute. The Canadian
government has control in administration of wood production in Canada through the stumpage
programme of public-owned forest, which covers most of forests in Canada, and Canada is the world
largest wood exporting country, covering 20 per ce nt of world wood products exports. Japan
respectfully requests the Panel to pay due attention to the fact that Canadian government has a
strong influence on wood products market and thus the result of this dispute will have
significant implications. Although Japan has no intention to argue on the assessment of underlying
facts in the specific circumstances of this case, Japan would like to respectfully submit the following
comments.
2. Legal Arguments
5.58 Japan considers that Canada must avoid trade distortion, when it tries to achieve sustainable
management of its forestry resources through the stumpage programme. And Japan is of the view that
the log price should be determined through the market mechanism in the trade between an
independent tenure holder and an unrelated lumber mill, in the same way as the lumber price is
determined. Having these in mind, Japan would like to submit the following points.
(a) Provision of “goods”
5.59 Canada argues that the stumpage programme is a system of interlocking rights and obligations
between the Crown (provincial and federal governments) and harvesters 66. It also insists that the
stumpage programme provides “rights” rather than “goods67.” It is true that “rights” are not “tangible

67 Canada First Written Submission, paras.21-58

or movable personal property other than money
68”, and cannot be categorized into tariff
classification69, as Canada points out.
5.60 However, the “right to harvest standing timber on Crown land 70,” which is given in exchange
for the “stumpage (price paid for harvesting),” is e quivalent to the property right of standing timber
(except for land). Furthermore, such “right” is exercised during a specific period, to produce logs
which are “tangible or movable personal property other than money”. Therefore, it could be
understood that, in this case, “provision of goods” is equivalent to “provision of property rights.”
5.61 In this respect, US – Softwood Lumber III panel report acknowledges that “The word ‘goods’
in this context of ‘goods or services’ is intended to ensure that the term financial contribution is not
interpreted to mean only a money-transferring acti on, but encompasses as well an in-kind transfer of
resources, with the exceptio n of general infrastructure 71.” In the context of Ar ticle 1.1 (a) (1) (iii) of
the SCM Agreement, Japan considers that “goods or services” is a broad concept parallel to monetary
transfer and, it is doubtful that the meaning of “g oods” should be limited as Canada suggests. Since
“goods” in Article 1.1 (a) (1) (iii) are provided by the government to domestic producers, Japan
hesitates to interpret, as Canada do es, that “goods” must be “tradable item with an actual or potential
tariff classification” in general. Canada seems to base this claim on Article 3.1 (b). However, the
provision covers only export subsidy.
(b) A Benefit Conferred
(i) “Cross-Border” Benchmarks
5.62 In order to determine if the stumpage programme could be understood as a “subsidy” as
defined in the SCM Agreement, it is required to evaluate whether the programme constitutes a
financial contribution by the Canadian government in providing “goods” as referred to in Article 1.1
of the SCM Agreement, and whether a benefit is conferred by the stum page programme through
proper method which complies with Article 14(d) of the SCM Agreement.
5.63 Article 14(d) provides that whether a benefit is conferred must be determined by comparing
the price for the provision of goods or services and “adequate remuneration.” It also provides that the
“adequate remuneration” shall be determined in re lation to prevailing market conditions for the good
or service in question “in the country of provision” . It is not disputed that USDOC used “Cross-
border analysis” and this seems in consistent with this article si nce it compared the stumpage in
Canada with the stumpage (or price for standing timber) in the United States. In this case, however, it
is noted that there is difficulty in finding market conditions to be compared in Canada, since most of
forests in Canada is managed by the stumpage prog ramme and private forest area is very limited, and
even in the private forest area, as standing timbers are mostly harvested and produced into logs by
owner companies, market of standing timbers rarely exists.
(ii) Stumpage Level
5.64 Even assuming that Cross-border comparison is permitted to be used to determine whether the
stumpage is less than adequate remuneration, such comparison should not be conducted by simply
comparing “stumpage” prices in Canada and those in the United States. It needs evaluation of
various differences of their systems which affect their stumpage prices. The difference of
forest management systems between the United States and Canada may be one of such
factors to be considered. For example, if the Canadian government obligates harvesting

71 WT/DS236/R, para.7.24

companies to share the substantial part of the burden for sustainable forest management and
thus the stumpage paid by those companies is kept low, the cost for fulfilling the obligation
should be added on the price of Canadian stumpage for fairness of comparison.
(c) A Pass-through of an Alleged Subsidy
5.65 Regarding wood and wood products market, there is standing timber market, log market,
lumber market, and processed wood products market . In each market, price is determined in
accordance with the relationship between demand and s upply. Therefore, in principle, product prices
are determined in the market, independently from production costs.
5.66 Some Canadian softwood lumber is harvested and produced by lumber producers which hold
stumpage rights. In this case, lumber producers would be able to produce lumber with lower costs,
taking advantage of the stumpage programme. However, lumber producers in Canada do not
necessarily ensure a ll log input supply from their own stumpage 72. As Canada points out, some
lumber producers may purchase logs from unrelated log harvesters that do not own a mill. In that
case, even if the log harvesters produce logs at lower costs through the stumpage programme, the
price would be determined in accordance with the relationship between demand and supply because
the log sellers pursue the maximum profit. Therefor e, it would be unreasonable to assume that logs
with lower production costs are so ld with lower prices in the ar m’s-length transactions between
timber harvesters and unrelated lumber producers
73, resulting in a pass-through of the alleged subsidy
to lumber producers. This would also apply to transactions of softwood lumber between lumber
producers and final consumers. Further, since a wide variety of products are produced from softwood
logs74, the alleged subsidy would be passed through to other producers of wood products including
pulp and plywood, if the subsidy is passed through to lumber producers.
5.67 The United States should fully investigate how much of the alleged subsidy is passed through
to all producers of wood products in Canada a nd how much of it is passed through to softwood
lumber producers in Canada through the stumpage programme, when imposing countervailing duty on
Canadian softwood lumber. Japan expects that the Pa nel determines if the US final determination of
countervailing duty is based upon sufficient analysis of a pass-through of an alleged subsidy, and how
much of the alleged subsidy was passed through to lumber producers.
VI. INTERIM REVIEW
6.1 On 10 June 2003, the United States and Canada submitted a written request for review by the
Panel of particular aspects of the interim report issued on 27 May 2003. Canada commented on the
United States' request for interim review on 17 June 2003. The United States did not comment on
Canada's request for interim review. Neither party requested an additional meeting with the Panel.
6.2 We have reviewed the comments presented by Canada and the United States and the reaction
to the United States' comments by Canada and have finalized our report. We note in this regard that,
throughout the report, we have corrected typograph ical and other clerical errors, including those
identified in the parties' interim review comments.
6.3 Canada requested changes to the description of its argument concerning the definition of
"goods" in the Uniform Commercial Code in footnote 80 of the interim repo rt. In a similar vein,
Canada requested changes to footno te 136 of the interim report to more accurately reflect Canada's
argument concerning the use of pric es that do not form part of the prevailing market condition in the
country of provision. Finally, Canada further re quested changes to paragraph 7.108 of the interim

72 Canada First Written Submission, paras. 140 and 141
73 They are inputs to the production of softwood lumber, the subject merchandise.

report to more accurately reflec t its argument concerning specificity. We have amended these
footnotes and this paragraph to reflect the comments made.
6.4 The United States requested a change to the first sentence of paragraph 7.56 of the interim
report concerning the United States' interpretatio n of Article 14 (d) SCM Agreement to more
accurately reflect its position. The United States al so requested a change to the first sentence of
paragraph 7.132 summarizing the US argument concer ning the factor provided in the Minnesota Price
Review for conversions between board feet and cords. We have amended these paragraphs to reflect
the comments made.
6.5 Finally, the United States also took issue wi th the Panel's discussion in paragraphs 7.81
through 7.99 of the interim report concerning the pass-through of the alleged subsidy. The
United States commented that the Panel's characteriza tion of the Canadian industry in paragraph 7.84
of the interim report was partly inaccurate as it suggested that re-manufactured softwood lumber
products were only produced by re-manufacturer s from lumber purchased from sawmills, although,
the US noted, some such re-manufactured products also were produced by tenure holding Canadian
sawmills. The United States stated that it was con cerned that this alleged factual misunderstanding
underlay the Panel's conclusion in paragraphs 7.97 and 7.98 of the interim report that the total subsidy
provided through the provincial timber programmes to Canadian softwood lumber mills cannot be
allocated across all sales (domestic and export) of the output of those mills (both primary and
remanufactured lumber), absent an upstream subsidy analysis of certain of those transactions. In
response to this US comment, Canada argued that this perceived factual misunderstanding provided
no basis for reconsideration of the Panel's anal ysis since the US concern did not go to the
circumstances of the Panel's substantive analysis in the cited paragraphs. Canada stated that while a
few re-manufacturers have access to Crown timber, the vast majority do not.
6.6 We disagree with the US that our consideration of the pass-through analysis in respect of re-
manufactured products is based on any misunderstand ing of the factual situation, and note that the
sentence commented on by the US is intended simply to describe what is meant by the term "re-
manufactured products", and not, as the US suggests, to characterize the nature of the transactions for
lumber inputs between sawmills and re-manufacturers. Our analysis and conclusion in respect of the
pass-through issue explicitly indicate that the quest ion is relevant only to those cases in which the
recipient of any subsidy from stumpage sells inputs (logs or lumber) to unrelated downstream lumber
producers producing the subject merchandise. Contrary to the US comment, we did not suggest that
no
 re-manufactured products were produced by tenure -holding sawmills. Rather, our conclusion was
that a pass-through analysis was required where that was not the case (and both parties acknowledged
that some re-manufactured products were produced by re-manufacturers that did not hold tenure). We
therefore did not consider it necessary to amend this part of our report.
VII. FINDINGS
7.1 Canada challenges the United States Department of Commerce ("USDOC") final
countervailing duty determination with respect to certain softwood lumber from Canada ("USDOC
Determination" or "Final Determination") of 21 Ma rch 2002. Canada brings seven claims against the
USDOC Determination. The first three claims re late to the USDOC's finding that the Canadian
stumpage programmes constitute financial contributi ons which confer a benefit on producers of the
subject merchandise and are thus subsidies. The fourth claim concerns the USDOC's determination of
specificity of the alleged subsidies. The fifth claim concerns various specific aspects of the
calculation of the subsidy rate. The sixth claim is of a procedural nature and concerns the alleged
failure by the USDOC to provide a timely opportuni ty to see all relevant information and to give
adequate notice of the essential fact s of the investigation. The seve nth and final claim relates to the
alleged inconsistent initiation of th e investigation by the USDOC as a consequence of the application

of the Continued Dumping and Subsidy Offset Act of 2000 (the "Byrd amendment"). We will address
these claims in the order they have been presented to us by Canada.75
A. CLAIM 1: INCONSISTENT FINDING OF THE EXISTENCE OF A FINANCIAL CONTRIBUTION
1. Arguments of the parties
(a) Canada
7.2 Canada considers that the USDOC erred in determining that "stumpage" is a financial
contribution in the form of the provision of a good by the government. 76 According to Canada,
stumpage is the conferral of the right to harvest standing timber. Canada submits that the conferral of
this right to exploit an in situ natural resource cannot be equated to the provision of a good or a
service by the government and therefore does not co nstitute a financial contribution in the sense of
Article 1.1 (a) (1) (iii) of the Agreement on Subsidies and Counte rvailing Measures (the "SCM
Agreement"). Canada claims that the USDOC, by imposing definitive countervailing measures
without properly determining the existence of a subs idy, acted inconsistently with Articles 10, 32.1,
19.1, 19.4 SCM Agreement and Article VI:3 GATT 1994.
7.3 Canada is of the view that stumpage is not a good because the ordinary meaning of the term
"good", as reflected in Black's Law Dictionary, is "tangible or movable personal property, other than
money".77 According to Canada, an intangible real property right such as stumpage is thus not a good.
Canada submits that an intangible right does not become a good just because it is a factor enabling the
creation of a good, nor because the right holder's objective is to produce a good. Moreover, in
Canada's view, the term "goods" in the context of Article 1.1 (a) (1) (iii) SCM Agreement has the
same meaning and scope as "goods" or "products" used elsewhere in the SCM Agreement and the
WTO Agreement, in particular Article II of GATT 1994, i.e. tradable items with an actual or
potential customs classification. 78 Canada submits that a right to exploit a resource cannot be traded
across borders and cannot be assigned a tariff classification.79
7.4 Canada further argues that, even assuming that USDOC was correct that the stumpage
programmes provide standing timber rather than the right to harvest such timber, the Canadian
provincial stumpage programmes still do not involve a financial contribution. Canada argues that the
ordinary meaning of "goods" is movable, tangible items, and that immovables such as trees in the

75 In addition to these seven claims, we note that Canada's request for establishment of a Panel also
included a claim relating to expedited and administrative reviews. Canada did not advance any arguments in
respect of this claim, and therefore we will not address this undeveloped claim.
76 USDOC Final Determination, p. 29. (CDA-1)
77 Black’s Law Dictionary, 7th ed. (St. Paul: West, 1999), p. 701. (CDA-16).
78 Canada also points to Article 3.1 (b) of the SCM Agreement, which refers to the use of domestic
over imported goods, as confirmation for its view that goods need to be capable of being imported and should
therefore be tradeable. Canada asserts that the term "goods" does not include intellectual property rights, or
services, as is evidenced by the fact that the GATS and TRIPS Agreements are not part of Annex 1. Canada is
of the view that there is therefore nothing in the letter or the context of the WTO Agreement which justifies
interpreting "goods" to encompass everything of economic value. Canada First Oral Statement, paras. 23 – 24.
79 Canada notes that the Panel in the US - Export Restraints case confirmed that the SCM Agreement
"was drafted with the express purpose of ensuring that not every government intervention in the market would
fall within the coverage of the Agreement" (Panel Report, US – Export Restraints , para 8.63). According to
Canada, the object and purpose of Article 1.1 (a)1(iii) SCM Agreement is not to capture all potential in-kind
transfers of economic resources that a government may pr ovide. The fact that the drafters used the term
"provision of goods" rather than, "property rights" or "e conomic resources" confirms that the objective of the
SCM Agreement was not to govern all transfers of economic resources. Canada First Oral Statement, paras. 25
- 26.

forest are not "goods".
80 Therefore, according to Canada, standing timber – i.e. trees firmly rooted in
the ground - is not a "good" in the sense of Article 1.1 (a) (1) (iii) SCM Agreement, as it is an in situ
natural resource that is not capable of being traded across borders.
7.5 Canada rejects the United States assertion that tenures and licences are merely contracts for
the sale of goods because at the end of the day tenure and licence holders end up with a good (cut
timber). Canada considers that the definition of subsidy has two elements, financial contribution and
benefit. Financial contribution relates to what the government does, benefit relates to what the
recipient receives. Article 1.1 (a) (1) (iii) SCM Agreement does not require the Panel to determine
what the recipient ends up with at the end of the day or why the recipient enters into a given
relationship with a government, but it requires a Pa nel to determine what the government provides.
Moreover, the provision of stumpage rights cannot be equated to the sale of goods. According to
Canada, a timber sales contract identifies individual standing trees to be cut and the resulting felled
timber to be hauled away. In contrast, a tenure or licence grants a right of harvest in an area of land in
return for certain obligations, but no trees are identified to be cut. 81 Stumpage rights are conferred and
obligations are assumed regardless of whether any tr ees are actually cut, and even though the trees
that are cut may not even have been planted at the time the rights and obligations are assumed.
Tenures and licences, in Canada's view, do not invol ve identified trees, they involve identified areas.
In sum, what the provinces provide is not simply trees in return for a fee, but harvesting rights in the
context of tenures or licences that impose elaborate and long-term obligations on timber harvesters.
82
7.6 In sum, Canada submits that the transfer of the right to harvest standing trees through the
Canadian provincial stumpage programmes does not amount to the provision of a good within the
meaning of Article 1 SCM Agreement. For these reasons, Canada claims that the USDOC
determination of the existence of a subsidy in the form of the provision of a good through the
Canadian provincial stumpage programmes is inco nsistent with the obligation to make a proper
subsidy finding before imposing countervailing measures as set forth in Article 10, 19.1, 19.4 and
32.1 SCM Agreement and Article VI:3 GATT 1994.
(b) United States
7.7 The United States submits that the USDOC determination that Canadian provincial stumpage
programmes provide a financial contribution in the form of government provision of a good is
consistent with Article 1.1 (a) (1) (iii) SCM Agreem ent. The United States is of the view that the
Canadian stumpage programmes provide standing timber, and the stumpage programmes thus
constitute the provision of a good in the sense of that Article. According to the United States, the
ordinary meaning of the term "goods", as reflected in Black's Law Dictionary for example, includes
an "identified thing to be severed from real property"
83 which clearly covers standing timber. 84 The

80 Canada refers to Black's Law Dictionary to argue that the ordinary meaning of "goods" is "tangible
or movable personal property other than money". Black’s Law Dictionary, 7 th ed. (St. Paul: West 1999),
p. 701. (CDA-16). Canada argues that Black's Law Dictionary in fact reproduces, albeit imperfectly, the
Uniform Commercial Code of the United States. Canada asserts that the UCC definition of "goods" excludes
"general intangibles", and that the basic UCC definition of "goods" refers to movable things. Canada notes that
the UCC specifically addresses "timber to be cut" in a separate provision, and that this phrase is limited to
individual trees identified to be cut in a sales contract. In Canada's view, all other timber, such as standing trees
which may or may not be cut during the term of the tenure and which in any event are not specifically identified,
is thus excluded from the UCC definition of "goods". According to Canada, the UCC, if at all relevant, thus
supports Canada's interpretation of the term "goods" in the SCM Agreement. Canada Second Written
Submission, paras. 11 – 12.
82 Canada Second Oral Statement, paras. 15 –19. Canada notes that a volumetric stumpage charge,
also referred to as a stumpage fee, is not money paid to obtain the right to harvest timber, it is rather a levy on
the exercise of the existing right to harvest timber.
83 Black’s Law Dictionary, 7th ed. (St. Paul: West, 1999), p. 701-702. (CDA-16).

United States asserts that the context in which the term "goods" is used in Article 1.1 (a) (1) (iii) SCM
Agreement, i.e. "goods or services other than gene ral infrastructure", confirms the broad meaning of
the term. The United States asserts that it is evident from Article 1.1 SCM Agreement that the
Members recognized that governments have a wide variety of mechanisms at their disposal to confer
an advantage on specific domestic enterprises and that they intended to bring those mechanisms
within the disciplines of the SCM Agreement. According to the United States, the fact that "products"
are "goods" and that "imported goods" are necessarily also "goods", does not logically give rise to the
inferences Canada is drawing that nothing else can come within the meaning of goods. Thus, the
United States submits that while the term "goods" in Article 1.1 (a)(1) (iii) SCM Agreement certainly
includes tradeable products, there is no basis to limit its meaning to such products when neither the
text nor the context in which the term is used suggests such a limitation.
7.8 According to the United States, Canada is elevating form over substance when it argues that
stumpage only confers the right to harvest timber. In the view of the United States, there is no
meaningful distinction between the government granting a right to harvest timber and the government
actually supplying the timber through the holder’s exercise of that right.
85 The only way to provide
standing timber (the good in question) is by providing the right to harvest the timber. According to
the United States, the clear purpose of the programme is thus to provide timber to Canadian mills that
make lumber or wood pulp.
86 The fact that tenure holders are required to fulfill certain forest
management obligations as a condition of sale does not convert these sales of timber into forest
management contracts or into the sale of a "right" to harvest. 87 The United States argues that all
ownership rights in the forest remain vested in the Canadian provinces, and that the tenure holder only
acquires ownership of the trees it harvests and pays for. The United States asserts that the record
demonstrates that tenure holders do not acquire a freely transferable "right" to harvest, as all provinces
prohibit the transfer of tenures without government approval.88 In sum, the United States submits that,
in spite of Canada's efforts to sever the right to harvest from the sale of the trees, the facts demonstrate
that tenure holders are buying trees. Tenure holders are not forest management companies, they are
mills which need timber. The provinces provide it and this, according to the United States, constitutes
a financial contribution within the meaning of Article 1.1 (a) (1) (iii) SCM Agreement.
2. Analysis
7.9 Canada claims that the USDOC erred in finding that the provision of stumpage by Canadian
provincial governments constitutes a financial contribu tion in the form of the provision of a good in
the sense of Article 1.1 (a) (1) (iii) SCM Agreement. According to Canada, the USDOC thus failed to
properly determine the existence of a subsidy to th e producers of the subject merchandise as defined
in Article 1 SCM Agreement, and the measures imposed on the basis of this flawed subsidy
determination are therefore inconsistent with Articles 10, 32.1, 19.1, 19.4 SCM Agreement and
Article VI:3 GATT 1994.
7.10 Canada's claim thus concerns the definition of a subsidy in Article 1.1 SCM Agreement, and
the existence of a financial contribution under Articl e 1.1 (a) (1) (iii) SCM Ag reement in particular.
Our analysis of Canada's claim begins of course with the text of that Article. Article 1.1 SCM
Agreement provides that:

84 The United States notes that the term "goods" is similarly defined in Canadian law, and refers in
particular to the British Columbia Sale of Goods Act. (US - 4).
85 The United States notes that the Panel in the case US – Softwood Lumber III agreed with this
analysis. Panel Report, US – Softwood Lumber III, para. 7.17.
86 In this respect, the United States notes that participation in the programme is restricted to Canadian
mills or companies that have a contract with Canadian mills to process the harvested timber
87 United States Second Written Submission, para. 17.
88 United States Second Written Submission, para. 18. United States Response to Questions from the
Panel at the First Meeting (Annex A-2), para. 19.

Article 1
Definition of a Subsidy

"1.1 For the purpose of this Agreement, a subsidy shall be deemed to exist if:

(a)(1) there is a financial contribution by a government or any public body within
the territory of a Member (referred to in this Agreement as "government"),
i.e. where:

(i) a government practice involves a direct transfer of funds (e.g. grants, loans,
and equity infusion), potential direct transfers of funds or liabilities (e.g. loan
guarantees);

(ii) government revenue that is otherwise due is foregone or not collected (e.g.
fiscal incentives such as tax credits);

(iii) a government provides goods or servic es other than general infrastructure, or
purchases goods;

(iv) a government makes payments to a funding mechanism, or entrusts or directs
a private body to carry out one or more of the type of functions illustrated in
(i) to (iii) above which would normally be vested in the government and the
practice, in no real sense, differs from practices normally followed by
governments;
or

(a)(2) there is any form of income or pr ice support in the sense of Article XVI of
GATT 1994;

and

(b) a benefit is thereby conferred."

7.11 In the Final Determination, the USDOC found that the Canadian provinces provide a good to
Canadian producers of softwood lumber through the licence and tenure agreements concluded with
companies that harvest standing timber. Canada focuses on the terms of the tenure agreements which
confer harvesting rights to log producers. According to Canada, such a right is not a "good", it
certainly is not timber. The United States is of the vi ew that this is form over substance: what Canada
is really doing is providing cheap timber to the lu mber producers as it allows such producers access to
cheap timber through agreements that provide harvesting rights.
7.12 The Final Determination first discusses the meaning of the term "stumpage" and examines the
ordinary meaning of the term "goods" to conclude that "stumpage, i.e. timber, is a 'good' within the
meaning of section 771 (5 ) (B) (iii) of the Act".
89 The USDOC then rejects the argument that the
provincial governments are not providing timber (a good) but are merely granting a right to harvest
timber as it considers that the sole purpose of the tenure systems is to provide lumber producers with
timber.
90 The USDOC concludes that the provision of stumpage by the provincial governments
constitutes the provision of a good under Section 771 (5) (D) (iii) of the Act.

89 USDOC Final Determination, p. 29 (CDA-1).
90 USDOC Final Determination, p. 29 - 30 (CDA-1).

(a) What do the stumpage programmes provide: the right to harvest or standing timber ?
7.13 Canada asserts that a tenure or licence carries current and future obligations such as forest
management planning, fire protection, etc. which are independent of any harvest, and the right to
harvest Crown timber is thus fundamentally differ ent from the simple ownership right in trees.
Canada argues that a timber sales contract identif ies individual standing trees to be cut, while, in
contrast, a tenure or licence grants a right of harvest in an area of land in return for certain rights and
obligations, but that no specific trees are identifie d to be cut. The tenure agreements may even
concern trees which have yet to be planted.
7.14 We asked Canada to explain what it considers to be the distinction between the provision of
the right to harvest a tree and the right to own the harvested tree. In response, Canada stated that
"most forms of tenure confer a right to harvest standing timber that is in the nature of a proprietary
interest".91 We read Canada's acknowledge ment that the right to harvest timber is in the nature of a
proprietary interest, to imply that the tenure holder which has the right to harvest the timber, in fact
receives proprietary rights over the standing timber. Canada further discussed, in response to our
questions, how various types of tenures or licences operate and when ownership of the timber is
transferred to the tenure holder. In light of Cana da's answers, it appears that the United States is
correct when it argues that "there is no record evidence of stumpage contracts under which the
contracting party (tenure holder or licensee) does not have ownership rights to the harvested timber".
92
7.15 We also asked Canada whether the contractual rights to harvest could be sold without the
permission of the provincial governments. Canada stat ed that the answer to this question varies from
province to province, and it provided informati on concerning British Columbia, Alberta, Ontario and
Quebec.93 On the basis of this information provided by Canada we conclude that, in fact, in each
province such rights cannot be sold without government permission, and that various types of tenures
or licences are not transferable at all. We wish to emphasise that for purposes of Article 1.1 (a) (1)
(iii) SCM Agreement, the exact legal nature of the stumpage contracts is not what is important.
Rather, what is important for purposes of th e Agreement is whether, through the stumpage
programmes, the Canadian provincial governments are "providing a good" to the timber harvesters.
We consider that, in essence, the stumpage programmes provide standing timber to the harvesters.
Canada acknowledges that the provinces own th e forests and the trees that grow in them.
94 The only
way for harvesters to obtain the trees standing on government-owned Crown land for harvesting and
processing is by concluding stumpage agreements (tenures or licences) with the governments
concerning these trees. The only way for the government to provide the standing timber that it owns
to the harvesters and the mills fo r processing is by allowing the harvesters to come on the land and
harvest the trees. Such legal ri ghts and obligations are transferred through the stumpage agreements.
It is thus through the stumpage agreements that the governments provide the standing timber to the
harvesters.
95 The price to be paid for the timber, in add ition to the volumetric stumpage charge for the

91 Canada Response to Questions of the Panel at the First Meeting (Annex A-1), para. 8. Also see for
example Section 16 (2) of Alberta's Forests Act which provides in relevant part that "ownership of all Crown
timber on land subject to a forest management agreement or forest management lease is, during the term of the
agreement or lease, vested in the holder of the agreement or lease". (CDA-115)
92 United States Response to Questions of the Panel at the First Meeting (Annex A-2), para. 9.
93 Canada Response to Questions of the Panel at the First Meeting (Annex A-1), paras. 17 – 23.
95 We note that this was also the view held by the Panel in the US – Softwood Lumber III case:
"7.18 In sum, and in the context of Article 1.1(a) (1)(iii) SCM Agreement, we are of the
view that where a government allows the exercise of harvesting rights, it is providing standing
timber to the harvesting companies. From the perspective of the harvesting company the
situation is clear: most forest land is Crown land, and if the company wants to cut the trees for
processing or sale, it will need to enter into a stumpage contract with the provincial
government, under which it will have to take on a number of obligations in addition to paying

trees harvested, consists of various forest management obligations and other in-kind costs relating to
road-building or silviculture for example. In re turn, the tenure holders receive ownership rights over
the trees during the period of the tenure.
96 In other words, with the stumpage agreements, ownership
over the trees passes from the government to the tenure holders. Standing timber has thus been
provided to the tenure holders.
7.16 This conclusion does not change whether one looks at it from the perspective of the recipient,
the tenure holder, or from the perspective of the provider, the government. As noted by the Panel in
the US - Softwood Lumber III case, from the perspective of the tenure holder, the only reason to enter
into tenure agreements with the provincial governments is to obtain the timber. 97 The minimum cut
requirements for tenure holders under certain stumpage programmes, the requirements to qualify as a
tenure holder, such as the requirement to own a pr ocessing facility and other processing requirements,
are just some examples that demonstrate that the pr ovision and processing of standing timber is what
the stumpage programmes are all about. This is no t to say that the governments may not at the same
time be pursuing certain other social, economic or environmental policies by imposing certain forest
management obligations as conditions of sale. Howe ver, these conditions of sale or the costs that
companies assume for obtaining the stumpage cannot alter the fundamental conclusion that the
stumpage programmes provide standing timber, and not just a right to harvest such timber, to the
tenure holders. In return, the tenure holders acc ept to pay a volumetric stumpage fee for the trees
actually harvested and assume certain management and other obligations in order to obtain such
timber.
7.17 In our view, the right to harvest standing timber is not severable from the right over the
standing timber and providing the right to harvest timber is therefore no different from providing
standing timber. In this respect we find illustrative the example given by the United States of
someone who wants to buy the trees in his neighbour's backyard and the neighbour agrees that he can
have the trees if he paints that person's house and pays him $100. As the United States correctly
points out, "inherent in the contract is the buyer’s right to cut down the trees and haul them away, if
he fulfils the conditions of purchase, i.e., paints the house and pays th e $100. Nevertheless, this is a
contract for the sale of goods – the standing trees in the neighbour's backyard – not the sale of the
'right' to harvest the trees".
98
7.18 We do not consider relevant the distinction that Canada makes between a contract which
identifies individual trees to be cut, and an agre ement concerning harvesting rights over a certain area
of forest land. In our view, in both cases, trees are provided. In any case, it appears to us that,
although a tenure agreement may not provide for a pr ecise number of identified trees to be cut, the
tenure holder knows all too well how many trees and which species of trees can be found on the area
of land covered by his tenure.
99 In sum, we consider that in this context there is no meaningful

a stumpage fee for the trees actually harvested. We thus view the service and maintenance
obligations, the obligations to undertake various forestry management, conservation and other
measures, combined with the stumpage fees required by the stumpage agreements, as the price
the tenure holder has to pay for obtaining and exercising its harvesting rights. (footnotes
omitted)
Panel report, US - Softwood Lumber III, para. 7.18.
96 This is evidenced for example in Alberta's Forests Act which provides that "ownership of all Crown
timber on land subject to a forest management agreement or forest management lease is, during the term of the
agreement or lease, vested in the holder of the agreement or lease". (CDA – 115). See Canada Response to
Questions from the Panel at the First Meeting (Annex A-1), para. 11.
97 Panel report, US – Softwood Lumber III, para. 7.16. We note that Canada acknowledged before that
Panel that the main interest of tenure holders is the end-product of the harvest. Panel report, US – Softwood
Lumber III, para. 7.16, fn. 46.
98 United States Second Written Submission, para. 16
99 In this regard, we note that there is a clear difference between tenure agreements concerning standing
timber and the granting of extraction rights in the case of minerals or oil, or fishing rights where the owner of

distinction between the provision of a right to harvest timber and the provision of standing timber
itself, and therefore find that the Canadian prov incial stumpage programmes provide standing timber
to the tenure or licence holders.
(b) Is standing timber a "good" in the sense of Article 1.1 (a) (1) (iii) SCM Agreement?
7.19 In order to determine whether the USDOC co rrectly found that through these stumpage
programmes Canadian provincial governments provide goods in the sense of Ar ticle 1.1 (a) (1) (iii)
SCM Agreement, we next consider whether standing timber is a "good" in the sense of Article 1.1 (a)
(1) (iii) SCM Agreement.
7.20 Canada argues that standing timber, i.e., trees rooted in the ground, are not "goods" within the
meaning of Article 1.1 SCM Agreem ent. In Canada's view trees do not fall within the ordinary
meaning of the term "goods". Moreover, Canada is of the view that the term "goods" in the particular
context of Article 1 SCM Agreement refers to tradea ble products with an actual or potential tariff line
and standing timber which cannot be traded across borders is therefore not a good in the sense of
Article 1.1 (a) (1) (iii) SCM Agreement.
7.21 According to the United States, standing timber is clearly included within the broad ordinary
meaning of the term "goods". In the view of the United States, the context in which the term is used
in the WTO Agreement and the SCM Agreement in particular does not provide a basis to limit its
application, for the purpose of Article 1.1 (a) (1) ( iii) SCM Agreement, to products for which there is
an actual or potential tariff line.
7.22 We recall that Article 3.2 DSU requires a panel to interpret the Agreement in accordance with
customary rules of interpretation of public international law, which, it is well-accepted, include in
particular Articles 31 and 32 of the Vienna Conve ntion on the Law of Treaties. Article 31 of the
Vienna Convention on the Law of Treaties provides that "a treaty shall be interpreted in good faith in
accordance with the ordinary meaning to be given to the terms of the treaty in their context and in
light of its object and purpose". We will thus examine the ordinary meaning of the word "goods" used
in Article 1.1 (a) (1) (iii) SCM Agreement – in its co ntext and in light of the object and purpose of the
Agreement.
7.23 The New Shorter Oxford Dictionary defines "goods" as, inter alia , "saleable commodities,
merchandise, wares".100 Black's Law Dictionary, to which both parties refer in search of the ordinary
meaning of the term "goods", defines "goods" as follows:
"1. Tangible or movable personal property other than money; esp. articles of trade or
items of merchandise <goods and services>. The sale of goods is governed by
Article 2 of the UCC. 2. Things that have value, whether tangible or not <the
importance of social goods varies from society to society>.
"'Goods' means all things, including specially manufactured goods that are
movable at the time of identification to a contract for sale and future goods.
The term includes the unborn young of animals, growing crops, and other
identified things to be severed from real property … . The term does not
include money in which the price is to be paid, the subject-matter of foreign
exchange transactions, documents, letters of credit, letter-of-credit rights,

the right is not at all certain what and how much of it he will find, and what he pays for is the right to explore a
particular site and the chance of finding something. In so noting, we do not mean to express a view as to what
extent, if at all, this uncertainty would be relevant to a determination whether the granting of such extraction
rights represented the provision of goods within the meaning of Article 1.1 (a) (1) (iii) SCM Agreement, an
issue which is not before us.
100 New Shorter Oxford Dictionary, edited by Lesley Brown, Clarendon Press Oxford, 1993, p.1116.

instruments, investment property, accounts, chattel paper, deposit accounts,
or general intangibles." UCC § 2 – 102 (a) (24).
7.24 The ordinary meaning of the term "goods" as "tangible or movable personal property other
than money" is thus very broad and includes standing timber, as trees are tangible objects which are
capable of being owned. This is further confirme d by the explanation in Black's Law Dictionary that
a "good" includes "an identified thing to be severe d from real property". Standing timber indeed
seems to us to be an excellent example of an identified thing that can be severed from real property.
We note that in its Sale of Goods Act, the Cana dian province of British Columbia, the prime exporter
of softwood lumber to the United States, itself defines "goods" as including "growing crops, […], and
things attached to or forming part of the land that are agreed to be severed before sale or under the
contract of sale".
101 In our view, this definition of a good certainly includes standing timber.
7.25 Article 31 Vienna Convention requires the interp reter to determine the ordinary meaning of
the terms of the treaty in their context and in the light of its object and purpose . The immediate
context of the term "goods" in Article 1.1 (a) (1) (iii) SCM Agreement is "goods or services, other
than general infrastructure". We no te that the term "goods" in this context is not qualified in any way
and its use in the combination "goods or services", in our view, confirms that the term is to be
understood broadly. We find further confirmation of this broad meaning in the fact that the drafters of
the Agreement considered it necessary to explicitly exclude "general infrastructure". This implies that
"goods or services" is sufficiently broad as to include "general infrastructure"; if not, there would have
been no reason to explicitly exclude it. At the same time, "general infrastructure" is the only "good or
service" which is excluded from the broad scope of Article 1.1 (a) (1) (iii) SCM Agreement. In our
view, if the drafters had wanted to exclude othe r items such as natural resources or non-tradeable
goods, they would have also explicitly excluded such "goods or services".
7.26 Article 1.1 SCM Agreement defines a subsidy for the purposes of the SCM Agreement. It
provides that the first element of a subsidy is a "financial contribution by the government".
Subparagraphs (i) through (iv) explain that a financ ial contribution can exist in a wide variety of
circumstances including of course the direct transfer of funds. 102 A financial contribution will also
exist if the government does not collect the reve nue to which it is entitled or when it does something
for ("provides a service") or supplies something to ("provides a good") a recipient. We are of the
view that Article 1.1 (a) (1) (iii) SCM Agre ement, in its context, clarifies that a financial contribution
also exists where, instead of a money-transferring action, goods or services are provided. The context
in which the term "goods" is used in Article 1.1 (a ) (1) (iii) SCM Agreement as well as the purpose of
Article 1 SCM Agreement in our view confirm the broad and un qualified meaning of the term
"goods".
7.27 We consider Canada's interpretation, that the reference in Article 1.1 SCM Agreement to the
provision of "goods" refers to tradeable products fo r which there is a tariff line, to be excessively
narrow. We understand Canada to argue that, since on several occasions in the SCM and other WTO
Agreements the term "goods" is qualified as "imported" or is understood to be tradable, and since for
many goods there exists a tariff line, this necessar ily implies that all "goods" have to be capable of
being imported, and must therefore be tradeable.
7.28 We consider that the ordinary meaning of the te rm "goods", in its context and in light of the
object and purpose of the Agreement, does not pl ace the limitations on the meaning of the term
suggested by Canada ("tradeable products with a potent ial or actual tariff line"). In our view, that in
many cases in the GATT and the WTO Agreements the general term "good" is used as an equivalent
of the term "products", does not imply that this is necessarily always the case. Precisely because of its
broad ordinary meaning, the specific content of the term will be determined by the adjective

101 Sale of Goods Act (British Columbia), RSBC 1996, ch. 410, section 1. (US –4)
102 See also Panel Report, US – Lumber III, para. 7.24

accompanying the term as a sort of qualifier. In the absence of any such limitations placed on the
term, as in Article 1.1 (a) (1) (iii) SCM Agreement, we consider that the term "goods" keeps its broad
ordinary meaning. All that the text of Article 1.1 (a) (1) (iii) SCM Agreement suggests is that the
goods or services are capable of being provided by a government; it does not address whether they
can be imported or traded. The fact that the SCM Ag reement relates to subsidies in the trade in goods
context only, and does not cover services, does not mean that the "goods" provided by the government
necessarily have to be goods that can be traded or that are covered by the GATT as products under
Article II. We note in this respect that Article 1.1 (a) (1) (iii) SCM Agreement also mentions the
provision of services by the government as constituting a fina ncial contribution while the disciplines
of the SCM Agreement, as discussed, only apply to trade in goods.
7.29 We agree with Canada that the definition of a subsidy in Article 1 SCM Agreement reflects
the Members' agreement that only certain types of government action are subject to the SCM
Agreement, and also that not all government actions that may affect the market come within the ambit
of the SCM Agreement. 103 When the government provides goods or services, however, such action is
clearly covered by the SCM Agreement. Standing timber, a physical and tangible object, is the log
and lumber producers' prime input, and the action by the government to supply this input to the
producers of logs and lumber, is the provision of a good and therefore covered by the SCM
Agreement.
104
7.30 In the absence of any textual basis for lim iting the broad ordinary meaning of the term
"goods" in the context of Article 1.1 (a) (1) (iii) SCM Agreement, we find that the USDOC
Determination that the Canadian provinces are prov iding a financial contribution in the form of the
provision of a good by providing standing timber to the timber harvesters through the stumpage
programmes is not inconsistent with Article 1.1 (a) (1) (iii) SCM Agreement. We therefore reject all
of Canada's claims of violation of the SCM Agreement and GATT 1994 in this respect.
B. CLAIM 2: INCONSISTENT DETERMINATION OF BENEFIT UNDER ARTICLE 14 (D) SCM
AGREEMENT
1. Arguments of the parties
(a) Canada
7.31 Canada asserts that the USDOC found that Canadian provincial stumpage programmes
conferred a benefit on Canadian stumpage holder s by comparing the "price" paid for provincial
stumpage in Canada with stumpage prices in the United States . Canada argues that such a cross-
border analysis using transactions in a country other than the country of alleged provision of the good
to determine the existence of a benefit, and measure it, is inconsistent with Article 1 and Article 14 (d)
SCM Agreement. In Canada's view, for the purpos es of Part V of the SCM Agreement, the proper
benchmark in a provision of goods context is the home market price of a good, and not its price in
some other market, nor some hypothetical construc t. According to Canada , whether a "benefit" is
conferred by the alleged provision of goods by the government through the stumpage programmes
depends on whether the stumpage tenure or licence holders were better off than other purchasers who
buy the same good from other sources in Canada, the country subject to the investigation.

103 Canada First Written Submission, para. 20. See Panel report, US – Export Restraints, para. 8.63.
104 We note that the Panel in the US – Softwood Lumber III case came to a similar conclusion:
"7.29 […] Standing timber is the valuable input for logs which may be processed by
sawmills into softwood lumber. In light of our finding that there is no basis in the text of the
SCM Agreement to limit the term "goods" to tradeable products with a potential or actual
tariff line, we consider that standing timber, trees, are goods in the sense of
Article 1.1(a)(1)(iii) SCM Agreement". (footnotes omitted)
Panel report, US – Softwood Lumber III, para. 7.29.

7.32 Canada considers that the USDOC rejected record evidence pertaining to benchmarks in
Canada for the alleged good provided, based on an unfounded assumption that it could legally reject
in-country benchmarks and an unsupported factual conclusion that "there are no useable market-
determined prices between Canadian buyers and sellers"
105 because prices were allegedly suppressed
as a result of government involvement. In response to the US argument that private stumpage prices
in Canada were distorted by the alleged government financial contribution and could therefore not be
used as a benchmark, Canada submits that there is nothing in the text, context, or object and purpose
of the Agreement that suggests that the market conditions referred to in Article 14 (d) SCM
Agreement as the benchmark for measuring the adequacy of the remuneration received by the
government for the good provided are those of a perfectly competitive market isolated from the effect
of a financial contribution. According to Canada , by replacing "adequate remuneration" with "fair
market value", the United States turns Article 14 (d ) SCM Agreement into a provision that measures
adequacy of remuneration by comparing the governme nt price to a constructed "fair market value"
rather than to the prevailing market conditions in the country of provision, contrary to the plain
meaning of Article 14 (d) SCM Agreement.
106
7.33 According to Canada, the record provided the USDOC with ample information regarding
prevailing market conditions in Canada, such as private timber sales, cost-revenue comparisons, an
economic analysis of provincial stumpage charge s, competitive auction pric es and private sector
assessments of timber value. 107 In sum, Canada submits, there was sufficient useable information on
the record concerning private stumpage prices which could have been, and should have been, used by
USDOC in calculating the alleged benefit.
7.34 Canada rejects the United States argument that such Canadian price information could not be
used because of alleged price suppression due to the Canadian government's involvement in the
market. According to Canada, there is nothing in the SCM Agreement or WTO jurisprudence that
mentions "price suppression" as a reason for dispen sing with market benchmarks. Moreover, Canada
submits, the USDOC did no analysis whatsoever to arrive at the conclusion that price suppression
existed because of government presence in the Canadian market, but simply assumed that government
market share demonstrated price suppression.108
7.35 Canada considers flawed the US argument that stumpage prices in the United States form part
of the prevailing market conditions in Canada becaus e US stumpage is available to Canadian loggers.
According to Canada, stumpage prices in the United States cannot be considered to constitute part of
the prevailing market conditions for stumpage in Canada . Canada is of the view that, even if in
certain areas of the United States Canadian producer s can legally bid on certain cutting rights in the
United States, harvest US timber and import US logs for milling, US standing timber – the alleged
good provided, not logs produced from the standing timber - is still not available "in" Canada. In
addition, Canada argues, there are a number of factual difference s between the rights and obligations
involved in acquiring harvesting rights in the United States and in Canada which invalidate the use of
US stumpage prices as a benchmark and which demonstrate that cross-border comparisons make no

105 USDOC Final Determination, p. 36. (CDA-1)
107 The actual information provided is discussed in detail in Canada's First Written Submission, paras.
94 – 110, and in Canada's First Oral Statement, paras. 50 - 54.
108 Canada First Oral Statement, para. 58. According to Canada, the USDOC simply relied on the
Preamble to its Regulations to presume price suppression based on government involvement in the marketplace
(USDOC Final Determination, p.47 (CDA-1)). Canada argues that the economic report which the USDOC used
as support for its presumption was purely theoretical and based on a flawed economic model, and most
importantly, did not include consideration of any actual transaction prices. The remaining mainly anecdotal
"evidence" relied on by the USDOC did not include any analysis of actual sales transactions either. Canada
Second Written Submission, para. 26.

economic or common sense.109 Canada asserts that the United States claim that it made adjustments to
take into account these differences is not supported by the record.110
7.36 Finally, Canada argues that studies on the record demonstrate, consistent with classical
economic theory, that the market for stumpage is an "economic rent" market, in which, for an input
that is fixed in supply, such as an in situ natural resource like standing timber, the level of charges or
fees for access to that resource will not lead to gr eater production of the output (logs or lumber), or
lower prices for them than in a private competitive market. According to Canada, the USDOC
ignored this evidence that stumpage charges do not provide lumber producers with an advantage in
trade. In Canada's view, any determination of wh ether provincial stumpage systems confer a benefit
must take into account the fact that the market at issue in this case is an economic rent market, and
any analysis of adequate remuneration in rela tion to prevailing market conditions should have
included a review of whether provincial stumpage fees or charges are capable of causing trade
distortion in downstream markets, which the USDOC failed to do.
7.37 In sum, Canada argues that the USDOC De termination which found that the Canadian
provincial stumpage programmes conferred a benefit was inconsiste nt with Articles 14 and 14 (d)
SCM Agreement. Canada submits that, since the United States failed to make a proper subsidy
determination in accordan ce with the SCM Agreement, the co untervailing measures imposed on the
basis of this flawed determination are inconsistent with Articles 10, 19.1, 19.4, 32.1 SCM Agreement
and Article VI:3 GATT 1994.
(b) United States
7.38 The United States argues that a benefit is something better than the market would otherwise
provide, absent the financial contribution. Accordin g to the United States, it is well established that a
benefit from a governmental financ ial contribution is to be determined in comparison to the
commercial market, and that the commercial market used for this comparison must, necessarily, be
undistorted by the government’s intervention.
111 The United States considers that the appropriate
benchmark for measuring benefit in this case would normally have been the fair market value of
timber in Canada. 112 However, the United States asserts, th e record evidence demonstrated that the
small non-government sector of the Canadian timber market was not a “commercial” market, i.e. a
market undistorted by the government intervention, and Canadian private stumpage price information
could thus not be used as the benchmark. Theref ore, the USDOC used prices for comparable timber
from alternate sources – the bordering regions of the northern United States – to determine the benefit

109 Canada asserts that a wide variety of complex factors affect stumpage rates, such as locational
characteristics, timber characteristics, measurement systems, operating costs, differences in economic conditions
and tenure holders’ rights and obligations. In Canada’s view, the USDOC failed to make proper adjustments
and ignored other obvious differences between the two markets. Canada discusses the problems relating to the
use of US benchmarks in this case at length in its first written submission, paras. 82 - 91. Canada argues that
this cross-border analysis is not consistent either with the USDOC's previous determination in the Lumber I – III
cases, in which the USDOC explicitly recognized that cross-border comparisons are inherently "arbitrary and
capricious" (CDA-26, Lumber I, p. 24, 168).
110 Canada argues that if the United states had attempted to analyze and compare market conditions in
Quebec and Maine for its cross-border analysis, it would have discovered that much of the data needed to make
the necessary adjustments were unavailable. Canada Second Written Submission, para. 31.
111 The United States refers to Appellate Body report, Canada – Aircraft, para. 157 and Panel report,
Brazil – Aircraft (Article 21.5 – Canada II), para. 5.29.
112 According to the United States, "adequate remuneration" in the context of Article 14 (d) SCM
Agreement must mean remuneration that is sufficient to eliminate any benefit. Benefit is something more
favourable than would otherwise be available in the commercial market, i.e. fair market value. Logically,
therefore, "adequate" remuneration is fair market value. United States First Written Submission, para. 42. The
United States asserts that the proper benchmark is thus an independent market-driven price for the good, which
is also the standard applied under Canadian law. United States Second Written Submission, para. 26. See
Canadian Special Import Measures regulations, C.R.C SOR/84-927. (US –10).

conferred by the provision of standing timber from Crown land adjusted to reflect market conditions
in Canada, in accordance with Articles 1 and 14 (d) SCM Agreement.
7.39 The United States asserts that Article 14 (d) SCM Agreement provides that the adequacy of
the remuneration and the existence of a benefit must be determined "in relation to" the prevailing
market conditions (such as the conditions of sale, pri ce, etc.) in the country under investigation, i.e.
"with reference to" or "taking account of" market conditions in the country of provision. The
United States considers that Article 14 (d) SCM Agre ement is silent on the data to be used to
determine "adequate remuneration", and the choice of data is therefore up to the investigating
authority. According to the United States, Article 14 (d) SCM Agreement does not restrict that data to
"in-country" sources.
113 Rather, what is important is that the method used must result in a fair market
value assessment that relates to conditions of sale (i.e. prevailing market conditions) in the country of
provision. The United States argues that Members such as the European Communities 114 also permit
the use in certain circumstances of prices on the world market to assess adequate remuneration, and
that Canada itself acknowledges that, in case of a government monopoly, prices of imports could be
used.115 In addition, the United States submits, the object and purpose of the SCM Agreement, which
is to provide a remedy to offset an artificial advantage provided by the government, requires an
interpretation of Article 14 (d) SCM Agreement that permits the use of external evidence of fair
market value when it is shown, based on positive evid ence, that domestic prices are heavily distorted
by the very financial contribution whose benefit is being measured.
7.40 The United States asserts that the limite d non-government price data submitted by the
Canadian parties in this case was inadequate 116 and that such prices were significantly affected by the
financial contribution itself, i.e. the supply of provincial government timber. A price artificially
suppressed by the government's financial contribution is not a "market" price, that is, a price between
buyers and sellers responding to market forces of supply and demand. 117 According to the
United States, the record demonstrates that Canadi an government timber sales were dominant relative
to private timber sales, ranging from 83 to 98 per cent of the total market, and that, given the
circumstances, it would not have been reasonable to conclude that the small amount of private timber
sales was unaffected by the dominant government-supplied timber.
118 The United States argues that
studies by economists and other experts demonstrated that private timber prices in Canada were
depressed and distorted by the overwhelming volume of government-supplied timber in the
provinces.119 The United States concludes that there di d not exist a reliable source of market-

113 The United States notes that the Panel in the US - Softwood Lumber III case acknowledged that
import prices can be used to determine adequate remuneration. Panel report, US – Softwood Lumber III ,
para. 7.48.
114 European Communities Third Party Submission, para. 29. Notification of laws and regulations
under Article 32.6 of the Agreement, European Communities, G/SCM/N/1/EEC/2/Suppl.3 (18 November 2002).
(US – 15).
115 The United States refers to answers provided by Canada to questions from the Panel in the US -
Softwood Lumber III case. (US – 17).
116 The United States provides an overview of the information on non-government market prices
submitted per province in its first written submission. United States First Written Submission, para. 66.
117 United States First Oral Statement, para. 16. According to the United States, market prices are prices
between independent buyers and sellers in a competitive market where prices are determined by the forces of
supply and demand – not driven by the government's financial contribution. United States First Oral Statement,
para. 15.
118 United States First Written Submission, paras. 69 – 70. According to the United States, evidence
demonstrates that the provincial governments administer prices under systems designed to promote employment
and keep mills operating even in down markets, and are shaping the conditions under which the timber market
in Canada operates, including artificially decreasing demand for and increasing the supply of Crown timber.
119 These studies are referenced in the United States First Written Submission, footnotes 94 – 100. In
addition, the United States notes that the tenure holders’ needs can be met from their own provincial tenures and
as a general rule, mills will thus not have to resort to the private market which suggests that private sellers must
tailor their prices to the predominant government-administered price.

determined prices in Canada which could have been used by the USDOC as a basis for the benefit
determination.
7.41 In the absence of a reliable source of market-determined fair market value prices in Canada,
the USDOC used prices for comparable timber from alternate sources – the bordering regions of the
northern United States – which are commercially available to Canadian lumber producers, as the
"starting-point" for its fair value assessment, and made adjustments to those US prices (e.g. for the
road-building, silviculture, and fire and diseas e protection obligations under Canadian stumpage
contracts).120 According to the United States, the USDOC made such adjustments based upon the
"prevailing market conditions" in Canada to ar rive at the fair market value of timber in Canada, in
accordance with the text, context, object and purpose of Article 14 (d) SCM Agreement. The
United States submits that the use of United States source data for comparable timber of the same
species immediately across the border, as a starting-point, and adjusted as appropriate for provincial
market conditions was justified and formed a reasonable basis to assess the fair market value of
timber in Canada.121
7.42 Finally, the US submits that the SCM Agreement does not define benefit in terms of increased
output or lower prices for the subject merchandise and does not create an exception for natural
resource inputs as Canada is arguing on the basis of the economic rent theory. Rather, the "benefit"
referred to in Article 1.1( b) SCM is a benefit to its recipient, and this benefit, whether it is cash or
natural resource inputs, is in no way dependent upon the downstream effects of the subsidy. The
United States argues that Canada failed to identify any obligation in the SCM Agreement to conduct a
market distortion analysis as part of the benefit determination, and asserts that no such obligation
exists.
2. Analysis
7.43 Canada's claim concerns the benchmark used by the USDOC for determining "benefit".
According to Canada, the USDOC used stumpage prices in the United States as a benchmark for
determining benefit to Canadian lumber producers, instead of non-government prices in Canada .
Canada argues that as a matter of principle such a cross-border price analysis is not permitted under
Article 14 (d) SCM Agreement, which requires that the prevailing market conditions in the country of
provision, i.e. in Canada, be used as the benchmark for determining the adequacy of the remuneration
received by the government for the good allegedly provided. In sum, Canada submits that
Article 14 (d) SCM Agreement does not allow an au thority to base its determination of benefit on
market conditions or prices from outside the country under investigation, as the USDOC did.
7.44 The United States asserts that in this case it was not possible to assess the adequacy of the
remuneration on the basis of in-country prices. According to the United States, the government
completely dominates the stumpage market and there is evidence on the record of price suppression
due to the government's involvement which makes it impossible to use the small amount of private
stumpage prices as a basis for any comparison. In sum, the United States argues that although in-
country prices are normally the preferred benchmark for determining benefit, in this case private
market prices in Canada are not reflective of the "fair market value" of timber in Canada, due to the
near-total dominance of the government in the Canadian timber market. According to the
United States, it would be a completely circular reading of Article 14(d) SCM Agreement that the
government-administered price for timber would need to be compared to the price charged by private

120 United States First Written Submission, para 82. The United States notes in this respect that
Canadian lumber producers can purchase US timber, cut it (or have it cut), and transport it to their mills in
Canada, and that some Canadian mills have done so, in spite of the abundant supply of provincial timber
available in Canada at below market prices. United States Second Oral Statement, para. 19.
121 The United States provides a brief rebuttal of Ca nada’s argument that there are too many practical
differences in comparing Canadian and US timber prices in attachment 2 to its first written submission.

timber sellers in Canada, as thes e latter have no choice but to align their prices to the administered
prices set by the government. Thus, in effect, a comparison of the government price with the private
price would amount to a comparison of the government price with itself. Moreover, according to the
United States, the USDOC used the US stumpage prices as a "starting-point" and adjusted such prices,
to reflect Canadian "prevailing market conditions", and it thus acted in a manner consistent with
Article 14(d) SCM Agreement. Finally, the United St ates argues that the provinces did not provide
sufficient information on private stumpage sales in order for those to be used as a benchmark for
determining benefit.
122
7.45 Article 1 of the SCM Agreement provides that a subsidy in the sense of the SCM Agreement
exists when a financial contribution, like the provision of a good or a service by the government,
confers a benefit . Article 14 SCM Agreement, and Article 14 (d) SCM Agreement in particular,
govern the benefit analysis an investigating authority is to perform in order to determine the existence
and amount of a subsidy in cases, such as the one before us, where the financial contribution at issue
consists of the provision of a good or service by the government. In this respect, we recall that the
USDOC found that the Canadian provincial stumpage programmes provide a good, standing timber,
to stumpage holders. Article 14 (d) SCM Agreement provides as follows:
Article 14

Calculation of the Amount of a Subsidy in Terms
of the Benefit to the Recipient

For the purpose of Part V, any method used by the investigating authority to calculate
the benefit to the recipient conferred pursua nt to paragraph 1 of Article 1 shall be
provided for in the national legislation or implementing regulations of the Member
concerned and its application to each particular case shall be transparent and
adequately explained. Furthermore, any su ch method shall be consistent with the
following guidelines:
(a) government provision of equity capital shall not be considered as conferring a benefit,
unless the investment decision can be regarded as inconsistent with the usual
investment practice (including for the provision of risk capital) of private investors in
the territory of that Member;

(b) a loan by a government shall not be considered as conferring a benefit, unless there is
a difference between the amount that the firm receiving the loan pays on the
government loan and the amount the firm would pay on a comparable commercial
loan which the firm could actually obtain on the market. In this case the benefit shall
be the difference between these two amounts;

(c) a loan guarantee by a government shall not be considered as conferring a benefit,
unless there is a difference between the amount that the firm receiving the guarantee
pays on a loan guaranteed by the government and the amount that the firm would pay
on a comparable commercial loan absent the government guarantee. In this case the
benefit shall be the difference between these two amounts adjusted for any
differences in fees;

(d) the provision of goods or services or purchase of goods by a government shall not be
considered as conferring a benefit unless the provision is made for less than adequate

122 We wish to note in this respect that there does not appear to be any dispute between the parties that
the provinces were aware of the fact that such information had been requested.

remuneration, or the purchase is made for more than adequate remuneration. The
adequacy of remuneration shall be determ ined in relation to prevailing market
conditions for the good or service in question in the country of provision or purchase
(including price, quality, availability, marketability, transportation and other
conditions of purchase or sale).

7.46 Article 14 (d) SCM Agreement thus establishes that the provision of goods by a government
shall not be considered as conferring a benef it unless the provision is made for less than adequate
remuneration. The adequacy of the remuneration charge d by the government shall be determined " in
relation to the prevailing market conditions for the good or service in question in the country of
provision or purchase".
7.47 In accordance with the customary rules of inte rpretation of public in ternational law, our
analysis of Article 14 (d) SCM Agreem ent begins with the specific word s of the provision, as the text
is the most authentic expression of the intention of the drafters of the Agreement. We recall that
Article 31 of the Vienna Convention on the Law of Treaties provides that "a treaty shall be interpreted
in good faith in accordance with th e ordinary meaning to be given to the terms of the treaty in their
context and in light of its object and purpose". As the Appellate Body has stated on various
occasions, a proper interpretation is first of all a te xtual interpretation, and the task of interpreting a
treaty provision must begin with the specific words of that provision.
123
7.48 We note that the text of Article 14 (d) SC M Agreement provides that the standard for
determining benefit is whether "adequate remune ration" has been received by the government
providing the good. The term "adequate" is defined as "sufficient, satisfactory" in the New Shorter
Oxford Dictionary.124 It is clear that "adequacy" is a relative concept; what is "adequate" in one given
set of circumstances is not "adequate" in another. The set of circumstances to which the term relates
in Article 14 (d) SCM Agreement are the prevailing market conditions in the country of provision. In
our view, the term "in relation to" - or " par rapport aux " in the French version of the text – in this
context means "in comparison with" 125 and Article 14 (d) SCM Agreement thus provides that the
prevailing market conditions in the country of provision are the benchmark against which to judge the
adequacy of the remuneration received by the government for the stumpage provided.
7.49 The United States argues that the broad phrase "in relation to" allows for various means of
performing a comparison that relates to market conditions in the country under investigation. The
United States is of the view that Article 14 (d ) SCM Agreement does not specify the methods for
performing such an analysis or the types of data that may be used, because it sets out "guidelines", i.e.
general principles, not detailed rules. 126 We do not consider that Article 14 (d) does not specify the
data that may be used for determining adequate re muneration. To the cont rary, Article 14 (d) SCM
Agreement uses the term "shall" to indicate that ad equacy of remuneration must be determined in
relation to, i.e. compared with, the prevailing market conditions in the country of provision, and the
data to be used are those which reflect the prevailin g market conditions in the country of provision.
The precise detailed method of calculation is not de termined, in that sense Article 14 (a) – (d) SCM
Agreement are guidelines, but the framework within which this calculation is to be performed is
clearly determined and limited in a mandatory mann er by the prevailing market conditions in the
country of provision.

123 Appellate Body Report, Japan – Alcoholic Beverages II, page 18. Also see, for example, Appellate
Body Report, US – Offset Act (Byrd Amendment), para. 281.
124 New Shorter Oxford Dictionary, Edited by Lesley Brown, Clarendon Press – Oxford, ed. 1993,
p. 26.
125 Harrap's Shorter French – English Dictionary, Chambers Harrap Publishers Ltd 1996, p. 761. The
New Shorter Oxford Dictionary defines "in relation to" as "as regards", New Shorter Oxford Dictionary, Edited
by Lesley Brown, Clarendon Press – Oxford, ed. 1993, p. 2534.
126 United States Response to Questions from the Panel at the Second Meeting (Annex B-2), para. 23.

7.50 Article 14 (d) SCM Agreement refe rs the authority to the "prevailing" market conditions, i.e.
the market conditions "as they exist" or "which are predominant"
127 in the country of provision.
Therefore, according to Article 14 (d), the pr ice of the good provided, its quality, availability,
marketability, transportation and other conditions of purchase or sale which are used as the
benchmark for determining the adequacy of the remune ration have to be such as are prevailing in the
country of provision. In sum, a plain reading of the text of Article 14 (d) leads us to the initial
conclusion that the market which is to be used as the benchmark for determining benefit to the
recipient is the market of the country of provision, in this case Canada. 128We note that the
United States itself acknowledges that the adequacy of remuneration must be determined in relation to
the prevailing market conditions "in the country of provision". 129 According to the United States, that
begs the question whether there are in fact "market" conditions for the good in the country of
provision that provide probative evidence for de termining the adequacy of the remuneration.
According to the United States, the Panel must give meaning to the word "market" and it asserts that
the point of comparison under Article 14 (d) SCM Agreement must be prevailing commercial market
conditions, i.e. a market undistorted by the government's financial contribution , in the country of
provision.
130 The view of the United States thus appears to be that, when actual prices prevailing in
the market are distorted by the government's financial contribution, and thus do not represent the "fair
market value" of the goods in question, "prevailing market conditions" may be established on a basis
other than actual prices prevailing in the country of provision.
7.51 As we have indicated above, our analysis has to be based on the text of the Agreement, as a
proper interpretation is first of a ll a textual interpretation. The text of Article 14 (d) SCM Agreement
does not qualify in any way the "market" conditions wh ich are to be used as the benchmark. As such,
the text does not explicitly refer to a "pure" market, to a market "undistorted by government
intervention", or to a "fair market value". Ra ther, Article 14 (d) SCM Agreement identifies the
market conditions which shall be used to determin e adequacy of remuneration as those which are
"prevailing" in respect of the price of the good, its quality, availability, marketability, transportation,
and other conditions of purchase or sale, in other words, the market conditions "as can be found".
Such market conditions must be those found in the country of provision, in this case Canada. Thus,
the text of Article 14 (d) indicates that the anal ysis the authority is to perform is whether the
government, when providing a good, is receiving a remuneration which is adequate, when compared
to the price of the good in the market of that country, taking into account the quality of the good, its
availability, marketability, transportation and other conditions of sale that apply in the country of
provision. We see nothing in the text of Article 14 (d) that would justify disregarding those prices on
the grounds that they were "distorted" or did not reflect the "fair market value" of the goods provided.

127 New Shorter Oxford Dictionary, Edited by Lesley Brown, Clarendon Press – Oxford, ed. 1993,
p. 2347.
128 We consider it relevant to recall in this respect the context of Article 14 (d) SCM Agreement.
Article 14 SCM Agreement provides specific rules for calculating benefit in four situations of a financial
contribution provided by the government. Articles 14 (b) and 14 (c) SCM Agreement concern the government's
provision of a loan and a loan guarantee. In both cases, the benchmark to be used for the calculation of benefit
is the "comparable commercial loan" and the "comparable commercial loan absent the government guarantee".
The market for obtaining this loan is not limited to the market of the country of the government providing the
loan or the loan guarantee. In the case of the government providing equity capital, the benchmark under
Article 14 (a) SCM Agreement is the usual investment practice of private investors in the territory of that
Member. Contrary to the two cases identified above, Article 14 (a) SCM Agreement thus specifically ties the
usual investment practices to the territory of the Member making the investment decision. Similarly, under
Article 14 (d) SCM Agreement, the Agreement explicitly and specifically limits the scope of the inquiry into the
adequacy of the remuneration to the "prevailing market conditions in the country of provision". In our view, if
the drafters of the Agreement had wanted to allow consideration of conditions outside the market in question,
they could have explicitly done so, as they did in the case of loans and loan guarantees. They did not do so in
the case of the government provision of a good.
129 United States Second Oral Statement, para. 12.
130 United States Second Written Submission, para. 27. United States Second Oral Statement, para. 11.

7.52 The United States finds support for its argument that the "prevailing market conditions in the
country of provision" have to be those of a commercial market undistorted by the government's
financial contribution in the report of the Appellate Body on Canada – Aircraft and in the report of
the Panel in the case Brazil – Aircraft . According to the United States, only by comparison to a
market undistorted by the government's financial contribution is it possible to determine the trade
distorting potential of the subsidy by assessing wh ether the recipient is better off than it would
otherwise have been absent the financial contribution.131
7.53 We recall that the Appellate Body in the Canada – Aircraft case clarified what it considers to
be the analysis that is to take place in order to determine whether the financial contribution conferred
a benefit to the recipient:
"157. We also believe that the word "ben efit", as used in Ar ticle 1.1(b), implies
some kind of comparison. This must be so, for there can be no "benefit" to the
recipient unless the "financial contribution" makes the recipient "better off" than it
would otherwise have been, absent that contribution. In our view, the marketplace
provides an appropriate basis for comparison in determining whether a "benefit" has
been "conferred", because the trade-distorting potential of a "financial contribution"
can be identified by determining whether the recipient has received a "financial
contribution" on terms more favourable than those available to the recipient in the
market."
132
7.54 We agree with the general principle expressed by the Appellate Body that a benefit analysis is
to be conducted against the background of the marketplace in order to determine whether the recipient
was better off than it would have been absent the financial contribution. We note, however, that the
language quoted above formed part of the Appellate Body's general discussion about "benefit" under
Article 1.1 (b) SCM Agreement. The Appellate Body was not addressing the particular wording of
the text of Article 14 (d) SCM Agreement. Nor wa s the Appellate Body in that case addressing the
issue before us in this dispute. To the contrary, the Appellate Body's statement in Canada – Aircraft
was made in the context of an argument by Canada that the Panel had erred in considering that the
notion of "cost to government" was not relevant to the interpretation and application of the term
"benefit". The Appellate Body decided that it was the marketplace, and not the cost to government,
that was the appropriate basis for comparison; the question whether the term "market" means a market
undistorted by the government's financial contribution was simply not before it, and there is no
indication that the Appellate Body had any intention of addressing it. Thus, we do not consider that
this statement of the Appellate Body, which related to the interpretation of a different article of the
SCM Agreement and was made in the context of a very different issue than the one before us in this
dispute, sheds much light on the issue before us here.
7.55 It is certainly correct that the Panel in the Brazil – Aircraft case stated that the "market"
referred to "must necessarily be a 'commercial' market, i.e. a market undistorted by government
intervention".
133 However, that Panel also was addressing a very different question from the one
before us here. The Panel rejected a particular argument by Brazil by clarifying that the "market" to
which reference was made should not include other governments' export credit practices, but only
those of non-government entities, as it could well be that other governments were also granting export
credits at a subsidized rate.134 In other words, the thrust of the Panel's statement was that it would not

131 The United States asserts that "Applying the reasoning of the Appellate Body, 'less than adequate
remuneration' must mean a price less than would otherwise be available in the marketplace absent the
government's financial contribution". United States Second Written Submission, para. 26.
132 Appellate Body report, Canada – Aircraft, para. 157.
133 Panel Report, Brazil – Aircraft (Article 21.5 – Canada II), para. 5.29.
134 In particular, Brazil had argued that in order to establish whether the export credits granted by the
government conferred a benefit compared to rates available in the marketplace, one should not distinguish

be appropriate to determine whether a particular financial contribution conferred a benefit by
comparing the terms of that financial contributi on with those of other government financial
contributions. This is an eminently sensible prop osition with which we cannot but agree. However,
neither party in this case has suggested that th e "prevailing market conditions" referred to in
Article 14 (d) include other government financial cont ributions, and we thus fail to see how the ruling
of the Panel in that case is relevant to the issue before us here.
7.56 The United States suggests that Canada's reading of Article 14 (d) SCM Agreement would
lead to an absurd result, as it would preclude in a ll cases the use of data from outside the country of
provision, even when no market conditions exist in the country of provision, thereby making it
impossible to ever establish the existence of subsid ization in case the government is the only player
on the market.
7.57 We do not consider that our reading which is based on the text of the Agreement would lead
to this absurd result. We do not exclude the possibilit y that it will in certain situations not be possible
to use in-country prices. Certainly, in our view, in a situation where, for example, the government is
the only supplier of the good in the country, or wher e the government administratively controls all of
the prices for the good in the country, there would be no price other than the price charged by the
government and thus no basis for the comparison foreseen in Article 14(d) SCM Agreement.
135 The
only remaining possibility would appear to be the construction of some sort of a proxy for, or estimate
of, the market price for the good in that country. 136 We emphasise that it has not been argued however
that there are no private buyers and sellers of stumpage in Canada. In other words, it has not been
argued that there is no private market for stumpage in Canada. 137 Neither has it been argued that the
Canadian provincial governments administratively set the price for private stumpage. As the
United States clearly stated, in-country prices were rejected because they were significantly affected
by the financial contribution, and because the USDOC considered that the observed non-government
prices were for that reason simply uninformative of adequate remuneration. 138 We therefore consider
that the situation confronted by the USDOC was not one where there were no market prices.
7.58 We also recognize the more subtle problem of economic logic identified by the United States.
The United States argues that the problem of reading the text of Article 14 (d) SCM Agreement to
require that, as soon as there is a market, no ma tter how small or affected by the government
intervention in the market, such market prices ar e to be used in determin ing the adequacy of the
remuneration, is that it could lead to a circular comparison of a government price with, in effect,

between commercial and non-commercial benchmarks in determining what interest rates prevailed in the
"marketplace". Canada on the other hand had argued that reference should be made in this context to purely
commercial transactions – i.e., transactions not benefiting from official support – and Canada thus defined the
"marketplace" to mean the purely commercial marketplace. The Panel rejected Brazil's argument and clarified
that the "market" to which reference was made should not include other governments' export credit practices,
but only those of non-government entitities, as it could well be that other governments were also granting export
credits at a subsidized rate.
135 This of course also assumes no or negligible imports of the good in question.
136 We note that Canada itself agrees that in the context of a government monopoly over domestic
production, import prices for the same good, which may or may not be "world market prices", if available to
purchasers in the country of provision, could be used as a benchmark to measure adequacy of remuneration.
Canada Second Written Submission, para. 41. The European Communities in its Third Party Submission
clarifies that it considers that it should be possible to use world market prices "if it can be established in
exceptional cases that there are no prevailing market conditions within the meaning of Article 14 (d) second
sentence of the SCM Agreement, so that that rule cannot be applied in order to establish the existence of a
benefit". European Communities Third Party Submission, para. 31.
137 Indeed, as we will discuss later, the USDOC's Final Determination notes that private market sales of
stumpage account for between 1 and 17 per cent of total stumpage sold in each province.
138 United States First Written Submission, para. 65.

itself.139We acknowledge that the concern raised by th e United States may be a legitimate one in
certain cases. In the situation addressed by Article 14 (d) SCM Ag reement, the government fulfils a
role normally also played by private market players: it provides goods or services. In these situations,
the government is acting on the market and, by so doing, may influence the private market. Whether
and to what extent such government action influen ces the private market will of course depend upon
the particular circumstances, but there could be cases in which that influence is substantial or even
determinative of conditions in the private market. In such cases, a comparison of the conditions of the
government financial contribution with the conditions prevailing in the private market would not fully
capture the extent of the distortion arising from the government financial contribution, a result that in
our view would not necessarily be the most sensible one from the perspective of economic logic.
7.59 That said, we do not believe that it would be appropriate for this Panel to substitute its
economic judgement for that of the drafters. The Appellate Body has repeatedly emphasized, and we
cannot but agree, that under Article 31 of th e Vienna Convention on the Law of Treaties the
interpretation of a treaty must be based on the text , as a proper interpretation is first of all a textual
interpretation.140 For all the reasons set forth above, we do not consider that Article 14 (d) can,
consistent with customary rules of interpretation of public international law, be understood in the
manner urged by the United States. We consider that our task is to interpret the applicable provisions
as they exist and apply the text of the Agreement to the facts before us, not to rule on the economic
logic of the text as it stands.
7.60 In sum, our conclusion on the basis of the text of Article 14 (d) SCM Agreement is that as
long as there are prices determined by independent operators following the principle of supply and
demand, even if supply or demand are affected by the government's presence in the market, there is a
"market" in the sense of Article 14(d) SCM Agreement.141 The problem raised by the United States of
comparing in certain situations the government price with a market price significantly affected by the
government's price, is in our view inherent in the text of Article 14 (d) SCM Agreement. We consider
that, if the Members feel the rules as laid down in the WTO Agreements do not address certain
situations in what they consider to be a satisfa ctory manner, they should raise this issue during
negotiations. Our task consists of interpreting the Agreement to explain what it means, not what in
our view it should mean, nor are we allowed to read words in to the text of the Agreement which are
not there, even if we were to consider that the text inadequately addresses certain specific situations.
7.61 Applying our analysis to the facts of this case, we examined whether the USDOC had before
it information concerning the prev ailing market conditions in Canada and whether it relied on such

139 The United States argues that if the role of the government as the owner of an unlimited supply of
the good is so predominant that the private sellers have no choice but to align their prices with those of the
government, then the conclusion should be that the government has effectively set the price for the good
throughout the market. In order to avoid this problem, the United States suggests that the word "market" in
Article 14(d) SCM Agreement should be read at least to reflect a "bona fide, functioning" market. The
United States argues that some sort of a proxy to estimate market conditions should be used where no "real"
market conditions are directly observable.
140 Appellate Body Report, Japan – Alcoholic Beverages II , pages 12 and 18. Appellate Body Report,
EC – Hormones, para. 181; Appellate Body Report, India – Patents (US), para 45; Appellate Body Report, US –
Shrimp, para. 114; Appellate Body Report, India – Quantitative Restrictions, para. 94. Appellate Body Report,
US – Offset Act (Byrd Amendment), para. 281.
141 We note that the Panel in the US - Softwood Lumber III case came to a similar conclusion:
"7.53 We wish to note that even if in certain exceptional circumstances it may prove
difficult in practice to apply Article 14 (d) SCM Agreement, that would not justify reading
words into the text of the Agreement that are not there or ignoring the plain meaning of the
text. In our view, the text of Article 14 SCM Agreement leaves no choice to the investigating
authority but to use as a benchmark the market, for the good (or service) in question, as it
exists in the country of provision."
Panel Report, US – Softwood Lumber III, para. 7.53.

information. We consider that the USDOC summariz ed the situation with regard to the existence of
the private market in Canada as follows:
"During the POI, total softwood harvested from Crown lands accounted for between
approximately 83 and 99 per cent of all softwood timber harvested in each of the
Provinces. Specifically, the Provincial, federal and private share of softwood timber
harvests, by Province are:
British Columbia – 90 per cent Provincial, less than 1 per cent federal, and almost 10
per cent private;
Quebec – 83 per cent Provincial, and 17 per cent private;
Ontario – 92 per cent Provincial and 7 per cent private;
Alberta – 98 per cent Provincial, 1 per cent federal, and 1 per cent private;
Manitoba – 94 per cent Provincial, 1 per cent federal and 5 per cent private;
Saskatchewan – 90 per cent Provincial, 1 per cent federal and 9 per cent private."
142
7.62 The USDOC Determination further provides that "Alberta, Ontario and Quebec have
provided private stumpage prices for their respective Provinces. British Columbia provided stumpage
prices set by government auction".143
7.63 As a factual matter, we therefore find that the USDOC acknowledged the existence of a
private market for stumpage in Canada. It is cl ear therefore that we are not confronted with a
situation where there are no market conditions in the country of provision which, for practical reasons
would require the use of a proxy of some sort. Moreover, the USDOC Determination shows that the
USDOC had before it private stumpage prices for four of the most important provinces. Our analysis
is based upon the USDOC's establishment of the facts of record, as we are not to perform a de novo
review. In spite of the many arguments made before us concerning the in-country price data, or the
absence thereof, we find that there is no basis in the USDOC Determination for us to assume that the
reason why such private price information was rejected and US stumpage prices were used instead
was a lack of information concerning private stumpage prices. On the basis of the record, we find that
the USDOC decided not to rely on the Canadian private stumpage prices, because it considered that "a
valid benchmark must be independent of the govern ment price being tested; otherwise the benchmark
may reflect the very market distortion the comparison is intended to detect".144 Based on this view, the
USDOC reached the conclusion that "there are no useable market determined prices between
Canadian buyers and sellers".145 The USDOC decided to rely on stum page prices in the United States
instead.
7.64 In light of the fact that the USDOC acknowledged the existence of a private stumpage market
in Canada, we find that the resort to US prices as the benchmark for the determination of benefit on
grounds that private prices in Canada were di storted is inconsistent with Article 14 (d) SCM

142 USDOC Final Determination, p. 37 – 38. (CDA – 1)
143 USDOC Final Determination, p. 36. (CDA – 1)
144 USDOC Final Determination, p. 37. (CDA – 1). The USDOC further explains that in its view "The
preamble to section 351.511 of the Regulations provides that, where a government has a dominant position in a
market, the Department will avoid the use of private prices in determining the adequacy of remuneration.
Where the market for a particular good is so dominated by the presence of the government, the remaining
private prices in the country in question cannot be considered to be independent of the government price".
USDOC Final Determination, p. 58. (CDA – 1)
145 USDOC Final Determination, p. 36. (CDA – 1)

Agreement. As a consequence, we need not ad dress the issue whether the USDOC had sufficient
evidence of price suppression or conducted a proper analysis of the alleged distortive effect of the
dominant government presence in the market. No r need we address whether the proxy used by the
United States for the prevailing market conditions in Canada was appropriate, i.e. whether the
USDOC made proper adjustments to the US stumpage prices to reflect market conditions in Canada.
Neither do we consider it relevant to rule on the argument made by Canada that any benefit analysis
should include a determination of the potential trade advantage for the recipient of the subsidy.
7.65 For the reasons set forth above, we uphold Canada's claim that the USDOC failed to
determine benefit in a manner consistent with Articles 14 and 14 (d) SCM Agreement and we
therefore find that the USDOC's imposition of countervailing measures was inconsistent with the
United States' obligations under Articles 14 and 14 (d) SCM Agreement as well as Articles 10 and
32.1 of the SCM Agreement as these countervailing measures were imposed on the basis of an
inconsistent determination of the existence and amount of a subsidy.
146 In light of our finding, we do
not consider it necessary to address Canada's additional claims regarding the consistency of the
USDOC's actions with Articles 19.1 and 19.4 SCM Agreement and Article VI:3 of GATT 1994.
C. CLAIM 3: USDOC IMPERMISSIBLY ASSUMED A PASS-THROUGH OF THE ALLEGED SUBSIDY
7.66 Canada's pass-through cl aim is based on the arguendo assumption that stumpage provides
subsidies, i.e., that stumpage constitutes a financia l contribution in the form of provision of a good,
and that that financial contribution confers a benefit. That is, Canada's claim is that even if stumpage
does provide subsidies, the USDOC erred in not conducting a pass-through analysis in determining
subsidization of softwood lumber in the case of certain upstream transactions for inputs.
Notwithstanding our finding that the US failed to determine benefit in a manner consistent with
Article 14 SCM Agreement, we address this claim adopting the same arguendo assumption for
purposes of our analysis.
7.67 We note that the US seems to raise a jurisdictional challenge to Canada's citation of
Article 1.1 SCM Agreement in connection with this claim. We address this jurisdictional issue in
section VII.C.2(c), infra.
1. Arguments of the parties
(a) Canada
7.68 Canada claims that by not investigating whether alleged subsidy benefits from stumpage
programmes were passed through in arms'-length transactions between timber harvesters and
unrelated sawmills, and between sawmills and unr elated re-manufacturers, the United States
countervailed subsidies the existence and amount of which it presumed instea d of determined. In
particular, Canada takes issue with the conclusi ons in the USDOC's final determination that, in
respect of sawmills that purchase lo gs at arms'-length, no subsidy pass-through analysis was required
because the alleged subsidy is a subsidy "to the production of lumber, not the production of timber or
logs"147, and in respect of re-manufacturers that purchase lumber from stumpage holders at arms'-

146 Article 10 SCM Agreement provides that "Members shall take all necessary steps to ensure that the
imposition of a countervailing duty on any product of the territory of any Member imported into the territory of
another Member is in accordance with the provisions of Article VI of GATT 1994 and the terms of this
Agreement. Countervailing duties may only be imposed pursuant to investigations initiated and conducted in
accordance with the provisions of this Agreement and the Agreement on Agriculture".
Article 32.1 SCM Agreement states that "no specific action against a subsidy of another Member can
be taken except in accordance with the provisions of GATT 1994, as interpreted by this Agreement".

147 Canada First Written Submission, para. 130, citing USDOC Final Determination (CDA-1) p. 18.

length, that as the case was conducted on an aggregate basis, "a review is the appropriate avenue to
determine if there are specific companies that do not receive countervailable benefits"
148.
7.69 According to Canada, the Appellate Body has confirmed, in US – Lead and Bismuth II , that
in a countervailing duty investigation, the ex istence of a subsidy may never be presumed. 149
Furthermore, Canada notes, the Panel in US – Softwood Lumber III found in favour of Canada and
against the US in respect of the pass-through issue in the preliminary countervailing duty
investigation on softwood lumber.150
7.70 Canada further argues that where lumber producers do not harvest timber but obtain inputs
from upstream producers, any alleged subsidy by definition must be indirect, and that indirect
subsidization is established by demonstrating the ex istence of both an indirect financial contribution,
through entrustment or direction under Article 1.1( a)(1)(iv), and a benefit under Article 1.1(b).
According to Canada, USDOC made no finding in resp ect of financial contribution by government to
lumber producers or re-manufacturers in respect of inputs purchased at arms'-length, nor did USDOC
find that the alleged benefit wa s conferred to lumber producers or re-manufacturers through
downstream purchases. Thus, Canada claims, the fa ilure by the USDOC to es tablish the existence of
a subsidy in respect of arms'-length transactions for lumber inputs violated the SCM Agreement.151
7.71 Canada argues that there was substantial record evidence demonstrating arms'-length
transactions between timber harvesters and lumber producers, and between lumber producers and re-
manufacturers: British Columbia, where approximate ly 24 per cent of the timber from Crown
licenses was harvested by companies that did not own sawmills; Ontario, where some 30 per cent of
the softwood timber harvested from Crown lands wa s sold by tenure holders to third parties for
processing; British Columbia, where at least 18 per cent of the volume of logs harvested from Crown
lands were purchased at arms'-length; and the fact that many companies applied for exclusion from
the countervailing duty order on the grounds of havi ng received no subsidies due to sourcing their log
and lumber inputs at arms'-length.152
7.72 Canada argues that under SCM Articles 10, 19.1, 19.4, and 32.1, and GATT 1994 Article VI,
a countervailing duty may be imposed only where it has been demonstrated that the producer of the
subject merchandise has benefited from a "subsidy" as defined in SCM Article 1.1. Canada argues
that the US presumed rather than demonstrated the existence of a subsidy where arms'-length
transactions separated the recipients of the allege d financial contribution and the producers of the
subject merchandise, that the US thereby acted inco nsistently with Article 1.1, and thus violated:
(1) Article 10 by failing to impose countervailing duties in accordance with the provisions of the SCM
Agreement; (2) Article 19.1 by imposing countervailing duties in the absence of a final determination
of the existence and amount of a subsidy; (3) Artic le 19.4 by levying countervailing duties in excess
of the amount of the subsidy found to exist; (4) Article 32.1 by taking action against a subsidy not in
accordance with the provisions of GATT 1994, as interpreted by the SCM Agreement; and
(5) Article VI:3 of the GATT 1994 by imposing duties in the absence of an indirect subsidy finding.
153
7.73 Canada, responding to the US argument, conc ludes on this point that the fact that the
investigation was conducted on an aggregate basi s did not excuse the USDOC for its failure to
correctly establish the existence and amount of the alleged subsidy to producers of subject
merchandise. Canada argues that, contrary to the US 's characterization, the issue of pass-through is
not simply about calculating the amount of the alleged stumpage subsidy, but rather, about whether a

148 Canada First Written Submission, para. 131, quoting USDOC Final Determination (CDA-1) p. 19.
149 Canada First Written Submission, para. 134 et seq.
151 Canada First Written Submission , para. 132 et seq.
153 Canada Response to Questions from the Panel at the First Meeting (Annex A-1), paras. 113-114.

subsidy exists. For Canada, the amount of a subs idy cannot be calculated, aggregated or allocated
until a subsidy is first determined to exist.154
(b) United States
7.74 The United States characterizes this claim by Canada as an issue of calculation of the rate of
subsidization (and hence the amount of countervaili ng duty), rather an issue concerning the existence
of the subsidy. According to the US, the USDOC correctly established the overall amount of subsidy
under the provincial stumpage programmes, as the pe r unit subsidy times the total quantity of Crown
logs entering sawmills, on a province-by-province basis. Then, the US argues, because the USDOC
performed its investigation on an aggregate basis, no pass-through analysis was necessary or required.
Rather, the USDOC simply spread the total subsidy amount that it had calculated over the value of
sales of the products produced from the "lumber produ ction process". The US argues that requiring a
pass-through analysis would effectively amount to requiring a company-specific analysis, which even
Canada does not argue is required by the Agreement. In this context, the US further argues that the
implication of Canada's argument in respect of pass-through would mean that a Member would
violate the SCM Agreement every time it imposed a countervailing duty on an uninvestigated
exporter or producer, although the last sentence of Article 19.3 makes clear that this does not
constitute a violation.
155
7.75 The United States argues that there are two basic situations in which Canada argues that a
pass-through analysis is required. First is the case of a timber harvester that does not own a sawmill
and sells logs to sawmills at arms'-length. Second is the case of re-manufacturers that purchase
lumber from sawmills for use in their re-manufacturing operations.
7.76 In respect of the first situation, the United Stat es considers that the existence of arms'-length
log sales by harvesters who are not lumber producers might reduce the amount of subsidy from
stumpage programmes that benefits the softwood lu mber products produced from those logs, but that
as a factual matter, the record demonstrates that the "vast majority" of Crown timber entering
sawmills (i.e., the basis for the subsidy calculatio n) is obtained from the sawmills’ own tenures.
According to the US, any portion of that timber that was purchased from independent harvesters could
only constitute a "comparatively small portion of the total" 156, and the many restrictions imposed on
tenure holders, including requirements to process timber locally, "suggests that all or most of the sales
by independent loggers may not be at arms'-length". 157 The US further argues that subsidies to
independent companies can only be addressed through an examination of individual producers of the
subject merchandise because of the necessity to examine the specific relationships and transactions
that may be at issue, and that such a company-spec ific analysis is not required by the Agreement, nor
does Canada make such a claim.158
7.77 Concerning the second situation, the United St ates provides a numerical example to explain
why, in its view, no pass-through analysis is necessary in respect of sales of lumber to re-
manufacturers.159 According to the US, in an aggregate case, such a pass-through analysis is not
required because the total subsidy amount from the sawmills' stumpage inputs is known, and can be
used in its entirety as the appropriate numerator in the subsidization calculation. This numerator is
then spread equally over a sales denominator consis ting of the total amount of sales of the subject
product produced by both first mills and re-manufac turers. Changing the denominator does not affect
the total subsidy amount, but rather, only the rate of subsidization.

155 United States Second Written Submission, para. 57 et seq.
156 United States First Written Submission, para. 113.
157 United States First Oral Statement, para., 36.
158 United States First Written Submission, para. 113.
159 United States Response to Questions from the Panel at the First Meeting (Annex A-2), paras. 23-27.

7.78 As for Canada's legal argument, the US argues th at Canada has raised in its arguments before
the Panel certain new provisions, in particular Ar ticle 1.1 SCM Agreement, which were not referred
to in the Request for Establishment of a Panel in connection with this claim. The US also argues that
the other provisions cited by Canada either do not contain the obligations asserted by Canada, or are
completely dependent on such provisions.
160
7.79 Concerning the various provisions of Article 19 SCM Agreement, the United States argues,
first, that Article 19.1 SCM Agreement requires a final determination of th e amount of the subsidy
and a final determination of injury as pre-conditi ons to the imposition of a countervailing duty, but
does not establish any requirements as to how a subsid y or injury are to be determined. Rather, these
requirements are found elsewhere in the SCM Agreem ent. As for Article 19.4 SCM Agreement, the
US argues that the role of this provision is to establish an upper limit to the amount of the
countervailing duty that may be levied, i.e., the amount of subsidy found to exist. The issue addressed
by Article 19.4 SCM Agreement is expressly the levying of duties after a subsidy has been "found to
exist", according to the US. Furthermore, the so le calculation requirement in Article 19.4 is to
calculate the subsidy on a per unit basis, and the US states that Canada concedes that its claim under
Article 19.4 SCM Agreement is dependent upon the existence of an inconsistency with some other
provision of the SCM Agreement that imposes obliga tions with respect to the subsidy calculation.
Concerning Article 19.3 SCM Agreement (no violatio n of which is claimed by Canada), the US
argues that this provision allows Members to conduct investigations other than on a company-specific
basis, in that it foresees the possibility to levy countervailing duties on producers not individually
investigated. Concerning the obligations in Article 19.3, the US argues that these are: (1) that when
imposing countervailing measures, a Member must do so on a non-discriminatory basis; and (2) that
when an uninvestigated exporter is subject to c ountervailing duties, it is entitled to an expedited
review to establish an individual countervailing duty rate. As for Article VI:3 of GATT 1994, the US
argues that it contains no obligation regarding the me thodology that a Member may use in calculating
the ad valorem subsidy rate.
161
7.80 Turning to the other provisions cited by Canada in connection with the pass-through claim –
Articles 10 and 32.1 SCM Agreement – the US argues that these are necessarily derivative of other
claims, which Canada has failed to establish. 162 Thus, the US argues, Canada has not made a prima
facie case of violation in respect of the pass-through claim.
2. Analysis
7.81 The basic question presented by this claim is whether USDOC was obligated to conduct a
pass-through analysis in respect of the input transactions between timber harvesters (both those that
produce lumber and those that do not) and unrelated sawmills, a nd between sawmills and unrelated
re-manufacturers, and if so, whethe r this obligation can be found in any of the provisions cited in
Canada's claim. 163 For Canada, failure to conduct such an analysis means that USDOC did not
establish the existence of a subsidy in those cases. For the US, the provisions cited by Canada do not
contain a requirement to conduct a pass-through anal ysis. On the substance, the US argues that the
issue is one of calculation of the rate of subsidization, which the US maintains it has done correctly by
specifying the total amount of subsidy to softwood lumber from the stumpage programmes, and then
allocating that total over all rele vant softwood lumber sales. Thus for the US, conduct of the
investigation on this aggregate basis obviates the need to perform a pass-through analysis.

160 United States Second Written Submission, paras. 54-55 and footnote 96.
161 United States First Written Submission, paras. 90-114.
162 United States Response to Questions from the Panel at the First Meeting (Annex A-2), para. 31.
163 We note that this claim only concerns such al leged arms'-length transactions between unrelated
entities, as Canada has acknowledged that "[w]here the timber harvester and the producer of subject
merchandise are the same 'recipient' of the alleged subsidy, no pass-through analysis would be required".
Canada Response to Questions from the Panel at the First Meeting (Annex A-1), para. 110.

(a) Legal requirements concerning pass-through analysis
7.82 We thus must consider whether, under the provisions cited by Canada, the USDOC was
required to conduct an analysis of the extent to which any (alleged) subsidy benefits from stumpage
were passed through by timber harvesters when they sold logs to unrelated lumber producers or when
they sold lumber to re-manufacturers. Here, it se ems that the issue of "existence" of a subsidy and
calculation of the rate of subsidiz ation on lumber in practice are somewhat conflated in the case
before us. In particular, we note that Canada do es not challenge the USDOC's aggregate approach to
determining subsidization, namely determining a total amount of subsidy provided through the
stumpage programmes and then a llocating that total subsidy amount over sales of the relevant
products.164 Thus, as a practical matter, given the methodology used by USDOC in the investigation,
the question as posed by Canada of the "existence" of subsidization in the transactions at issue would
manifest itself in the calculation of the aggregate rate of subsidization. In particular, if any subsidy
amounts were improperly imputed to the subject me rchandise, due to the absence of a pass-through
analysis in respect of the transactions at issue, th is would manifest itself as an overstatement of the
aggregate rate of subsidization, as no company-specific rates would have been calculated. We note
that the panel in US – Softwood Lumber III addressed this same issue.
165
7.83 We now turn to an examination of the provisions cited by Canada in its pass-through claim,
starting with Article 10 SCM Agreement and Article VI:3 of GATT 1994.
7.84 In considering Canada's pass-through claim in detail, we recall that countervailing measures
are applied to imports of certain products (the su bject merchandise), which in the countervailing duty
investigation in dispute before us comprises softwood lumber products produced by sawmills from
logs, and re-manufactured softwood lumber products produced by re-manufacturers from lumber
obtained from sawmills. That is, countervailing duties are not levied on companies that have received
subsidies, but rather ar e additional duties levied on imports of certain products in respect of the
manufacture, production or export of which subsidization has been found ("subsidized imports" as
referred to in the SCM Agreement)166.
7.85 With this as background, we understand Canada's claim, in essence, to be that where upstream
transactions between unrelated entities exist for inpu ts, any subsidies to the producers of those inputs
cannot be assumed also to be subsidies to the downs tream product under investig ation. We note that
Article 1.1, which contains the definition of a subsidy, and which Canada identifies as the underlying
substantive basis of its claim, uses relatively abstract language as to what a subsidy is, but does not
itself make the link between the existence of a subsidy as such and the subsidization of a particular
product.167 Indeed, while Article 1.1's reference to "b enefit" certainly implies the existence of a
recipient, Article 1.1 makes no reference to the natu re of the recipient or its link to any particular

164 Canada does challenge the product scope of the sales denominator used by the USDOC, however.
See, section VII.E.1(b), infra.
165 That panel noted that the US seemed to approach the issue of pass-through of benefits as if it could
be resolved solely by correctly identifying the total value of relevant sales of the subject merchandise (softwood
lumber) to use as the denominator of the subsidization calculation, so long as all of the entities whose sales were
included in the denominator were producers of softwood lumber. The panel disagreed, finding that the issue of
pass-through of benefits has to do in the first instance with correctly establishing the amount of the subsidy that
benefits the producers of the subject merchandise, i.e., the numerator. The panel went on to say that where a
producer of softwood lumber does not itself harvest lo gs, but instead buys logs or lumber from unrelated
suppliers, any alleged subsidy from the stumpage programmes that may have benefited the producer of the
upstream logs or lumber could only be included in the total subsidy amount to the extent that it has been
established as a factual matter that the purchaser has received some or all of the benefit.
166 As, for example, in Article 19.1 SCM Agreement, among many other references.
167 In the sense of "subsidy bestowed … upon the production, manufacture or export of any
merchandise" as per footnote 36 to Article 10 SCM Agreement, and Article VI:3 of GATT 1994. See also
Article 19.4 SCM ("subsidized and exported product").

product. For us, the core of the pass-through issue is the notion of subsidization of a product, i.e., in
respect of its manufacture, production, or export. Where the subsidies at issue are received by
someone other than the producer of the investigat ed product, the question arises whether there is
subsidization in respect of that product. The questi on before us in this claim, therefore, is whether
any of the provisions cited by Canada require an investigating authority to make a determination
linking subsidies (in the sense of Article 1.1) with a product subject to a CVD investigation.
7.86 Turning first to Article 10 SCM Agreement, Cana da's argument is that in failing to establish
the existence of a subsidy in the sense of Article 1.1 in respect of the upstream transactions at issue,
the US failed to impose countervailing duties in accordance with the provisions of the SCM
Agreement, a violation of Article 10 SCM Agreem ent, as that provision contains the general
requirement to respect the provisions of Article VI of GATT 1994 and the SCM Agreement in
applying countervailing measures. Canada further argues that by not establishing the existence of a
subsidy, the US also violated Article VI:3 of GA TT 1994 by imposing duties in the absence of an
indirect subsidy finding.
7.87 Article 10 SCM Agreement reads as follows:
Article 10

Application of Article VI of GATT 1994 [footnote omitted]

"Members shall take all necessary step s to ensure that the imposition of a
countervailing duty
36 on any product of the territory of any Member imported into the
territory of another Member is in accordance with the provisions of Article VI of
GATT 1994 and the terms of this Agreement. Countervailing duties may only be
imposed pursuant to investig ations initiated [footnote omitted] and conducted in
accordance with the provisions of this Agreement and the Agreement on Agriculture.
36 The term "countervailing duty" shall be understood to mean a special duty levied for
the purpose of offsetting any subsidy bestowed directly or indirectly upon the manufacture,
production or export of any merchandise, as provided for in paragraph 3 of Article VI of
GATT 1994."
7.88 The first sentence of Article 10 makes explicit that, as Canada argues, imposition of a
countervailing duty must be in accordance with Arti cle VI of GATT and with the SCM Agreement.
On its own, however, this does not shed much lig ht on the question before us in this claim, i.e.,
whether a pass-through analysis is required to establish subsidization of the subject product where
there are upstream transactions between unrelated pa rties. By contrast, we find footnote 36 to
Article 10 to be illuminating. This footnote defi nes what a countervailing duty is, and in so doing
makes explicit the link between a “subsidy” to a recipient in the sense of Article 1.1 and the
manufacture, production or export of a product that is the subject of a CVD investigation and
ultimately a countervailing duty. In particular , we note in this regard the phrase “any subsidy
bestowed directly or indirectly upon the manufacture, production or export of any merchandise , as
provided for in paragraph 3 of Article VI of GATT 1994”.
7.89 Article VI:3 of GATT 1994 reads as follows:
“No countervailing duty shall be levied on any product of the territory of any
contracting party imported into the territor y of another contracting party in excess of
an amount equal to the estimated bounty or subsidy determined to have been granted,
directly or indirectly, on the manufacture, pr oduction or export of such product in the
country of origin or exportation, including any special subsidy to the transportation of
a particular product. The term “counterva iling duty” shall be understood to mean a

special duty levied for the purpose of offsetting any bounty or subsidy bestowed,
directly, or indirectly, upon the manufacture, production or export of any
merchandise.”
7.90 Thus, the definition of a countervailing duty that appears in the second sentence of
Article VI:3 of GATT 1994 mirrors the definition in footnote 36 to Article 10 SCM Agreement, by
referring to “any bounty or subsidy bestowed, directly, or indirectly, upon the manufacture,
production or export of any merchandise”. In other words, both of these provisions make explicit that
there must be direct or indirect 168 subsidization in relation to the manufacture, production or export of
a product for a "countervailing duty" in the sense of the Agreement and GATT Article VI to be
imposed on that product.
7.91 The heart of the pass-through issue is whether, where a subsidy is received by someone other
than the producer or exporter of the product under i nvestigation, the subsidy nevertheless can be said
to have conferred benefits in respect of that product. If it is not de monstrated that there has been such
a pass-through of subsidies from the subsidy recipient to the producer or exporter of the product, then
it cannot be said that subsidization in respect of that product, in the sense of Article 10, footnote 36,
and Article VI:3 of GATT 1994, has been found. Thus, we find that a pass-through analysis is
required by these provisions, both of which were cited in Canada’s pass-through claim, where there
are such upstream transactions. Given this conclusion, the US argument that none of the provisions
cited by Canada requires a pass-through analysis fails.
7.92 Our analysis is consistent with the findings of the 1990 GATT Panel on US – Canadian Pork.
In that dispute, Canada claimed that the USDOC's failure to conduct a pass-through analysis to
determine the extent to which subsidies on live swine benefited production and exportation of pork
products violated Article VI:3 of GATT 1947.
169 That panel found, as we do, that investigating
authorities had the affirmative obligation to make a determination of subsidization in respect of a
product, and could not simply assume such subsidiz ation where the subsidies were bestowed in
respect of a product (the input product) that was different from the product subject to countervailing
duty, and where the input producers were unrelated to the producers of that subject merchandise.
(b) Pass-through analysis in the present dispute
7.93 We recall that in the present dispute, the US has not contended that it did conduct a pass-
through analysis in respect of any of the upstream tr ansactions at issue. Thus, the factual question of
whether a pass-through analysis was conducted is not in dispute before us. Rather, the US argues that
no such analysis was necessary given the particular circumstances of, and methodology used in,
USDOC’s softwood lumber investigation. We next consider these arguments by the US.
(i) Sales of logs by tenured timber harvesters to unrelated lumber producers
7.94 In respect of the first type of arms’-length tran saction at issue before us, i.e., log sales to
lumber producers by timber harvesters that do not produce lumber, the US acknowledges that any
such sales could overstate the aggregate amount of subsidization of softwood lumber, but argues that
in fact such sales accounted for only a “comparatively small” portion of the total, that they "may not
be" at arms'-length, that in any event the US has no obligation to examine individual transactions in an
aggregate case, and finally, that legally the provisi ons cited by Canada are inapposite. According to

168 We note that Canada makes specific arguments as to what constitutes an “indirect” subsidy, and
equates a pass-through analysis to an indirect subsidy analysis. We do not consider it necessary for the
resolution of this claim to try to define or analyze the co ncepts of direct versus indirect subsidization. Rather,
we consider Canada's Article 10 SCM and Article VI:3 of GATT claim to be about subsidization in respect of
the manufacture, production or export of the product at issue, which these provisions make clear can be either
direct or indirect.
169 We note that the wording of Article VI:3 of GATT 1994 is identical to its analog in GATT 1947.

the US, the record evidence on these points is that the vast majority of Crown timber enters harvesters'
own sawmills, and that the tenures are more than su fficient to meet the tenure holders' needs, that
there were few if any such sales, and that in the investigation, Canada never attempted to submit
information pertaining to such sales.
7.95 The US does not cite to any specific quantitative information from the record that establishes
the volume of the possible arms'-length log sales at issue, nor does it argue that the USDOC made
efforts to collect such information. The US inst ead seems to suggest that the burden was on Canada
to present such evidence. We disagree. Th e obligation under Article 10 SCM Agreement and
Article VI:3 of GATT 1994 to con duct a pass-through analysis in respect of production of softwood
lumber from Crown logs purchased from unrelated harvesters falls on the US as the Member taking
countervailing action. The US did not do so, and points to no factual basis in the record for its
conclusion that such an analysis was not necessary. We thus find that in respect of the upstream log
sales at issue, the US acted inconsistently with Article 10 SCM and Article VI:3 of GATT 1994.
(ii) Sales of logs or lumber by tenured harvester-sawmills to sawmills or re-manufacturers -
Conduct of the investigation on an aggregate basis
7.96 We similarly disagree with the US reasoning in respect of the second category of transactions
at issue, i.e., where logs are sold by a tenure-holding harveste r-sawmill to another unrelated sawmill,
or where lumber is sold by a tenure-holding harvester-sawmill to an unrelated lumber re-
manufacturer. In its aggregate investigation, the USDOC deemed that a pass-through analysis in
these types of transactions was not necessary because both the sellers and the purchasers of the inputs
were themselves producers of softwood lumber, the subject merchandise. That is, according to the
US reasoning, the issue of pass-through, which is about the subsidy amount numerator in a
subsidization calculation, does not arise in an aggregate investigation where all of the producers
selling the upstream inputs also ar e producers of subject merchandis e, as any subsidy amounts from
the stumpage programmes, if not passed through to the downstream log or lumber purchasers (who
are lumber producers), will remain with the upstream log or lumber sellers (who likewise are lumber
producers), thus benefitting their own production of softwood lumber, rather than that of their
customers.
7.97 We are not convinced by this argument, however, which unjustifiably assumes in both
situations that 100 per cent of any subsidy received by the tenure-holding harvester/sawmill is
attributable to the softwood lumber products subject to investigation, when in fact the
harvester/sawmill may produce and sell other products as well. Where logs rather than lumber are
sold by a harvester/sawmill, then some portion of any subsidy that it receives under a stumpage
programme is attributable to its production of logs (i .e., not all of the subsidy can be attributed to the
other lumber products that it produces). If the subs idies attributable to the production of logs are not
passed through to the lumber producer that purchases them, then those subsidies should not be
included in the numerator of the subsidization calculation for lumber, as they can be said to have
benefited production of the logs, but not production of the lumber produced from the logs by their
purchaser. The same holds true where lumber is sold by a harvester/sawmill to a re-manufacturer
whose products are exported to the US: some portion of any subsidy from stumpage is attributable to
the harvester/sawmill’s production of the lumber for re-manufacturing and some is attributable to the
other products (including lumber) that the harv ester/sawmill produces. Here, if the subsidies
attributable to the lumber for re-manufacturing are not passed through to the re-manufacturer that
purchases it, then those subsidies should not be included in the numerator of the subsidization
equation, as in this situation it is the re-manufactured product, not the upstream lumber product, that is
the subject merchandise under investigation. Thus, where the recipient of a stumpage subsidy sells
inputs (logs or lumber) to unrelated downstream lu mber producers producing subject merchandise, a
pass-through analysis is the only way to determine whether the subsidies on the production of the
inputs also are subsidies on the products produced from those inputs. Only if so can any subsidy

amounts attributable to the production of those inputs be included in the numerator of the
subsidization calculation for the subject lumber products.
7.98 Thus, contrary to the US argument, the question of pass-through has to do with correctly
identifying the subsidy amount attributable to the subject merchandise entering the US (the
numerator). The fact that the US conducted the lumber investigation on an aggregate basis does not
prevent and cannot cure the overall numerator (the aggregate subsidy amount from the stumpage
programmes) from being overstated where upstream transactions for inputs between unrelated entities
are present and subsidies have not been passed thr ough. Moreover, the fact that the Agreement may,
as a general matter, permit the conduct of countervail investigations on an aggregate basis cannot
absolve the US from its legal obligation to conduct a pass-through analysis in a particular
investigation to establish the subsidization in resp ect of the manufacture, prod uction or export of the
product being imported into the United States, where that product is produced from logs or lumber
purchased from tenure holders by unrelated lumber producers. Furthermore, we are not convinced
that the need to conduct a pass-through analysis fo r these transactions would necessarily or inevitably
convert every aggregate case into a company-specific case.
170 Even if, in a particular case, it was not
possible to conduct a pass-through analysis except by conducting the investigation on a company-
specific basis, the basic requirement to determin e subsidization in respect of the subject product
where, in a particular investigation, upstream transactions between unrelated entities are present, must
prevail. Finally, the fact that the USDOC is now conducting reviews of uninvestigated companies in
response to individual requests fails adequately to address the problem, as it is post hoc, while the
obligation to determine subsidization in respect of the product is a precondition for being allowed to
apply a countervailing measure. Nor does the US ar gue that individual reviews in this case are being
conducted for all producers potentiall y affected by the pass-through issue, meaning that the reviews
by definition will not be able fully to address this problem, even after the fact.
(iii) Conclusion
7.99 We therefore conclude that, for the reasons set forth above, the USDOC's failure to conduct a
pass-through analysis in respect of logs sold by tenure-holding timber harvesters (whether or not also
lumber producers) to unrelated sawmills producing subject softwood lumber; and in respect of lumber
sold by tenure-holding harvester/sawmills to unrela ted lumber re-manufacturers was inconsistent with
Article 10 and thus Article 32.1 SCM Agreement, and with Article VI:3 of GATT 1994. In light of
our finding, we do not find it necessary to address Canada's pass-through claims pursuant to Articles
19.1 and 19.4 SCM Agreement. That is, havi ng determined that the USDOC subsidization
determination is inconsistent with the cited Article s, including because of the failure to conduct a
pass-through analysis, and exercising the discretion implicit in the principle of judicial economy, we
do not deem it necessary to examine whether the failu re to conduct a pass-through analysis gave rise
to further substantive inconsistencies with Articles 19.1 and 19.4 SCM Agreement.
(c) Has Canada introduced a new claim, i.e., a violation of Article 1.1, which is outside the
Panel's terms of reference?
7.100 We recall that in respect of its pass-through claim, Canada refers to a number of provisions of
the SCM Agreement and one provision of the GATT 1994, all of which, according to Canada, require
a pass-through analysis where the recipient of the alleged subsidy is not a producer of the subject
merchandise, specifically, where th e producer of the subject mercha ndise obtains its inputs at arms'-
length from a recipient of the alleged subsidy. For Canada, the central issue is the existence of a
subsidy in the sense of Article 1.1 SCM Agreemen t: Canada alleges that USDOC assumed rather

170 For example, inquiry into possible relationships between the entities concerned, and the use of
sampling or other statistical techniques in respect of the relevant transactions at issue, might offer possible
approaches to be explored.

than established the existence of a subsidy in resp ect of the arms-length transactions at issue, in
violation of the cited provisions.
7.101 Canada's first reference to Article 1.1 SCM Ag reement in the context of the pass-through
issue appears in response to a question that we posed at our first substantive m eeting with the parties.
We asked Canada to summarize its legal argumentatio n in respect of each of the provisions that it
cited in its request for establishment of a panel in respect of its pass-through claim, i.e., Articles 10,
19.1, 19.4 and 32.1 SCM Agreement, and Article VI:3 of GATT 1994. In response, Canada states,
inter alia , that under these provisions, a countervailing duty may be imposed only where the
investigating authority demonstrates that the producer of subject merchandise has received a
"subsidy" in the sense of Article 1.1 SCM Agreement. Canada further states that where, in its view,
the US presumed rather than demonstrated the existe nce of a subsidy, it "acted inconsistently with"
Article 1.1 SCM, and "therefore violated" the cited provisions.
171
7.102 The US counters, inter alia , by arguing that Canada is raising a claim outside the Panel's
terms of reference by citing Article 1.1 SCM Ag reement. The US argues that, by referring to
Article 1.1 SCM Agreement in its answer to the Pane l, Canada "seems to accept" that its claims under
the above-cited provisions depend on a finding that the "calculation of the ad valorem subsidy rate" is
inconsistent with Article 1.1 SCM Agreement. Th e US argues that while the US's actions were
wholly consistent with that provision, the Panel ne ed not reach this issue as this provision was not
cited in the Request for Establishment in connection with the pass-through issue. In particular, the US
argues that if a claim of a violation of one provis ion depends on a finding of violation of another
provision, which latter was not cite d by the complaining party in its request for establishment of a
panel, the panel has no jurisdiction to resolve that claim.
7.103 We note here that Canada does not argue that it did cite Article 1.1 SCM in its Request for
Establishment of the Panel in resp ect of the pass-through claim, so there is no disagreement between
the parties on this point. Thus, if Canada's referen ce to this provision in its explanation of its pass-
through claim does constitute a new "claim" of a "violation", as the US argues, then such a claim
would clearly seem to be outside our terms of reference. The question before us therefore is whether
this reference is or is not a new "claim".
7.104 The chapeau of Article 1.1 SCM Agreement explicitly states that the concept and definition of
what constitutes a "subsidy", as set forth in that Article, applies to the entire Agreement.
172 Thus, it is
clear that this most basic definition of the Agreement informs every other reference to "subsidy" in the
Agreement. We understand from its response to our question that Canada is claiming that the US has
violated the provisions it cites in its pass-through claim (Articles 10, 19.1, 19.4 and 32.1 SCM
Agreement, and Article VI:3 of GA TT 1994) by virtue of USDOC's failure to establish the existence
of the subsidies or subsidization to which those pr ovisions refer, which refe rences by definition can
only be to "subsidies" or "subsidization" in the sense of Article 1.1. For example, we understand
Canada to argue that Article 19.1 requires, inter alia, a determination of the existence of a subsidy,
which by definition must be a subsidy in the sense of Article 1.1.
7.105 We thus do not consider that Canada's referenc e to Article 1.1 in its response to our question
constitutes a new "claim" of a "violation" of Artic le 1.1. Rather, we understand Canada, by this
reference, to have clarified its view that all references to "subsidy" or "subsidization" in the provisions
that it cites must be understood in the same sense as in Article 1.1, and in particular, that the cited
provisions, by referring to "subsidies" or "subsidization", require the "existence" of a subsidy in the
sense of Article 1.1 before a countervailing duty can be applied.

171 Canada Response to Questions from the Panel at the First Meeting (Annex A-1), paras. 113-114.
172 "1.1 For purposes of this Agreement, a subsidy shall be deemed to exist if:….." (emphasis added).

D. CLAIM 4: CANADIAN STUMPAGE PROGRAMMES ARE NOT SPECIFIC TO CERTAIN ENTERPRISES
1. Arguments of the parties
(a) Canada
7.106 Canada submits that, even if the USDOC had correctly determined that provincial stumpage
programmes were a subsidy, it failed in the Fina l Determination to correctly determine that the
programmes are specific subsidies within the meaning of Artic le 2 SCM Agreement. Canada asserts
that the USDOC found that the provincial stumpage programmes are specific in fact because they
were used by only a limited number of certain enterprises. Canada argues that, even if the
programmes were used by a limited number of users, this does not suffice for a finding of specificity.
According to Canada, under Article 2 SCM Agreemen t, a Member may find that the alleged subsidy
is specific in fact only where the total configur ation of facts and evidence relating to these factors
points to a deliberate limiting of access to a certain limited number of enterprises or industries
engaged in the manufacture of similar products.173
7.107 First, Canada asserts that provincial stumpage programmes are not used by a limited number
of certain industries. Canada submits that the USDOC failed to accurately determine the actual users
of the stumpage programmes and failed to addres s the record evidence that established that many
enterprises and industries use stumpage programmes. 174 According to Canada, while some producers
of the subject merchandise may use stumpage programmes, they are not the only users, and neither
can the producers of the subject merchandise be c onsidered as a single industry, as many producers
produce multiple products, many of which are not subject to the investigation. Canada asserts that the
USDOC Determination failed to address what the term s "industry" or "group of industries" mean.
The USDOC applied a circular reasoning and simp ly grouped the users of the programme as one
industry for the simple reason that they all use the programme. Canada asserts that an industry cannot
be identified for purposes of spec ificity without reference to the end-products produced. Canada
argues that the USDOC's circular reasoning effectively writes the specificity requirement out of the
SCM Agreement, as all programmes are by definition used only by the users of the programme.
7.108 Second, Canada considers that, even if the programmes were used by a limited number of
enterprises, this limited use is easily explaine d by the nature of forestry resources and the
diversification of provincial economies. According to Canada, the inherent characteristics of the
good provided limit the number of users of the programme, not any deliberate government
favouritism, as is required under Article 2 SCM Agreement. Moreover, in Canada’s view, a
determination of de facto specificity under Article 2.1 (c) SCM Agreement in this case would have
required at a minimum an examination of all four factors listed in that provision as well as the
consideration of the extent of diversifica tion of the economic activities in Canada. 175 Canada submits
that where these factors do not indicate that a Me mber is deliberately limiting access to a programme

173 Canada draws a parallel with de facto contingency on export performance under Article 3.1 SCM
Agreement to argue that a Member may find de facto specificity only where the total configuration of facts
allows it to infer that the government is deliberately limiting access to the programme. Canada refers to
Appellate Body report, Canada - Aircraft, para. 167.
174 According to Canada, studies on the record demonstrated that at least 23 separate and varied classes
of industries, producing over 200 widely diverse goods, use stumpage programmes, and that softwood lumber
production was not the dominant end use of the wood fibre harvested from Canadian forests.
175 Canada argues that the USDOC for example failed to take into consideration that in British
Columbia forestry-related activities are responsible for a substantial share of economic activity, in spite of the
explicit obligation under Article 2.1 (c) SCM Agreement to take into account the economic diversification of
provincial economies.

(that is, if the factors may be explained by other circumstances) then the programme is not specific.
176
In light of the nature of the forestry resource in que stion, Canada considers that it is untenable to base
a specificity finding on the "limited-users" factor alone, as use of natural resources will always be
limited in fact to those enterprises and industries that are capable of extracting the resource and
processing it into a good. In sum, Canada considers that the legal standard established by Article 2
SCM Agreement is whether a government is limiting access to a programme, in law or in fact, to
certain enterprises over other eligible enterprises. Canada is therefore of the view that the USDOC
has rendered the specificity test and the limited-us ers factor redundant by using the entire Canadian
economy as a benchmark and finding that the vast majority of companies and industries in Canada do
not receive benefits under these programmes.177
7.109 Canada therefore submits that the USDOC determ ination of specificity of the alleged subsidy
programmes is inconsistent with Article 2.1 (c) SCM Agreement and, since under Article 1.2 SCM
Agreement the United States may impose countervailing duties only against subsidies found to be
specific, the countervailing duties at issue thus violate Article 1.2, 10, 19.1, 19.4, and 32.1 SCM
Agreement.
(b) United States
7.110 The United States considers that the USDOC's conclusion that the provincial stumpage
programmes are specific in fact is consistent with Article 2.1 (c) SCM Agreement as these
programmes are used by a limited group of industries consisting of the lumber and pulp and paper
industries, while the vast majority of companies within Canada do not receive stumpage. 178 The
United States asserts that there is no basis in the text of Article 2 SCM Agreement for Canada's
arguments that a product based industry analysis should have been performed and that the USDOC
was required to determine that it was the government 's intention to limit the users of the programme
to certain eligible enterprises only.
7.111 According to the United States, the USDOC's definition of a group of industries is based on
the common practice of referring to industries by the general type of products they produce. The
United States argues that the plain language of Article 2 SCM Agreement ("specific to certain
enterprises") indicates that the specificity test is concerned not with products, but with enterprises
and industries. According to the United States, the USDOC found that the stumpage programmes
were used by a limited number of wood product industries consisting of the lumber and pulp and
paper industry, which constitutes a limited group of industries. The United States submits that
Canada's argument that the USDOC undercounted the number of industries that used stumpage
subsidies because it used an improper definition of the word "industry" should thus be rejected.
7.112 The United States further considers that the text of Article 2 SCM Agreement does not require
the authority to make any findings as to the granting authority's intent to limit a subsidy to certain
eligible producers only, as Canada is suggesting, sin ce the very purpose of Article 2.1 (c) is to let the
facts speak for themselves. In the United States view, the fact that, due to its "inherent
characteristics", a subsidized input has economic u tility for a limited number of potential recipients

176 Canada argues that the negotiating history surrounding Article 1.2 and 2 SCM Agreement confirms
its interpretation that specificity relates to a determination that government action deliberately restricts access to
the alleged subsidy. Canada Second Written Submission, para. 60.
177 In Canada's view, using the entire economy of a Member as a benchmark misinterprets Article 2,
since it ignores the fact that the universe of eligible users under Article 2.1 (b) SCM Agreement can be
something less than "everyone" and still this subsidy would not be specific. The relevant benchmark must be
the universe of eligible users, since Article 2.1 (b) contemplates a finding on non-specificity where a programme
is limited pursuant to neutral and objective criteria.
178 USDOC Determination, p. 51 – 52. (CDA-1). The USDOC found that the stumpage programmes
were used by a single limited group of wood product industries, comprised of pulp and paper mills, and the
sawmills and remanufacturers that produce the subject merchandise.

does not exempt the provision of this input from th e subsidy disciplines of the SCM Agreement, nor
does it mean that a further analysis is required to see whether actual use of that input is in fact
restricted to some subset of the potential or eligible users.
7.113 The United States does not consider that all four factors mentioned in Article 2.1 (c) SCM
Agreement need to be examined for a finding of de facto specificity. It suffic es that the subsidy is
used by a limited number of users for it to be considered specific under article 2.1 (c) SCM
Agreement. The United States acknowledges that Article 2.1 (c) SCM Agreement provides that an
investigating authority must take into account th e extent of diversification of economic activities
within the jurisdiction of the granting authority. According to the United States, this is so because a
subsidy may be widely distributed within the economy, and yet appear specific, simply due to the
limitations of the domestic economy where the subsidy was granted. The United States submits that
the Canadian provinces are far from being un-diversified economies, and that the USDOC recognized
this aspect of the specificity test in its finding th at the majority of companies in Canada do not receive
benefits under these programmes.
2. Analysis
7.114 Article 1.2 SCM Agreement provides that a subsidy is only countervailable if "such a subsidy
is specific in accordance with the provisions of Article 2". Article 2 provides as follows:
Article 2
Specificity
2.1 In order to determine whether a subsidy, as defined in paragraph 1 of
Article 1, is specific to an enterprise or industry or group of enterprises or industries
(referred to in this Agreement as "certain enterprises") within the jurisdiction of the
granting authority, the following principles shall apply:
(a) Where the granting authority, or the legislation pursuant to which the
granting authority operates, explicitly li mits access to a subsidy to certain
enterprises, such subsidy shall be specific.
(b) Where the granting authority, or the legislation pursuant to which the
granting authority operates, establishes objective criteria or conditions 2
governing the eligibility for, and the amount of, a subsidy, specificity shall
not exist, provided that the eligibility is automatic and that such criteria and
conditions are strictly adhered to. The criteria or conditions must be clearly
spelled out in law, regulation, or other official document, so as to be capable
of verification.
(c) If, notwithstanding any appearance of non-specificity resulting from the
application of the principles laid down in subparagraphs (a) and (b), there
are reasons to believe that the subsidy may in fact be specific, other factors
may be considered. Such factors are: use of a subsidy programme by a
limited number of certain enterprises, predominant use by certain
enterprises, the granting of disproportionately large amounts of subsidy to
certain enterprises, and the manner in which discretion has been exercised
by the granting authority in the decision to grant a subsidy.
3 In applying this
subparagraph, account shall be taken of the extent of diversification of
economic activities within the jurisdictio n of the granting authority, as well

as of the length of time during which the subsidy programme has been in
operation.
2.2 A subsidy which is limited to certain enterprises located within a designated
geographical region within the jurisdiction of the granting authority shall be specific.
It is understood that the setting or change of generally applicable tax rates by all
levels of government entitled to do so shall not be deemed to be a specific subsidy for
the purposes of this Agreement.
2.3 Any subsidy falling under the provisions of Article 3 shall be deemed to be
specific.
2.4 Any determination of specificity under the provisions of this Article shall be
clearly substantiated on the basis of positive evidence.

2 Objective criteria or conditions, as used herein, mean criteria or conditions which are
neutral, which do not favour certain enterprises over others, and which are economic in nature
and horizontal in application, such as number of employees or size of enterprise.
3 In this regard, in particular, information on the frequency with which applications for a
subsidy are refused or approved and the reasons for such decisions shall be considered.
7.115 In essence, we understand Canada to argue that for a subsidy to be specific under
Article 2.1 (c ) SCM Agreement, the granting authority must have deliberately limited access to the
subsidy to a group of enterprises producing similar products . In particular, Canada argues that a
subsidy which consists of the provision of a good wh ich can only be used as an input by a particular
industry should not be considered to be specific unless the granting authority has deliberately limited
its use to a certain subgroup of enterprises in that industry. Under the facts of this case, Canada
moreover argues that the USDOC finding that ther e were only a limited number of users of the
stumpage programmes was flawed. In addition, Canada considers that the USDOC should have
analysed the end-products of the industries it alle ged were the users of the programme in order to
determine whether they constituted a group of industries producing similar products.
7.116 We first address Canada's argument that a su bsidy is specific only when the authority
deliberately limits access of this subsidy to certai n enterprises within the group of enterprises eligible
or naturally apt to use the subsidy. In our view, Article 2 SCM Agreement is concerned with the
distortion that is created by a subsidy which eith er in law or in fact is not broadly available.
179 While
deliberate action by a government to restrict access to a subsidy that is in principle broadly available,
through the use of discretion, could well be the basis for a finding of de facto specificity, we see no
basis in the text of Article 2, and 2.1 (c) SCM Agr eement in particular, for Canada's argument that if
the inherent characteristics of the good provided limit the possible use of the subsidy to a certain
industry, the subsidy will not be specific unless access to this subsidy is limited to a sub-set of this
industry, i.e. to certain enterprises within the potential users of the subsidy engaged in the
manufacture of similar products. Article 2 spea ks of the use by a limited number of certain

179 We note that the availability of a subsidy which is limited by the inherent characteristics of the good
cannot be considered to have been limited by "objective" criteria in the sense of footnote 2 to Article 2.1 (b)
SCM Agreement, i.e. "criteria or conditions which are neutral, which do not favour certain enterprises over
others, and which are economic in nature and horizontal in application, such as number of employees or size of
enterprise".

enterprises or the predominant use by certain enterprises, not of the use by a limited number of certain
eligible enterprises. In the case of a good that is provided by the government - and not just money,
which is fungible – and that has utility only for certain enterprises (because of its inherent
characteristics), it is all the more likely that a s ubsidy conferred via the provision of that good is
specifically provided to certain enterprises only. We do not consider that this would imply that any
provision of a good in the form of a natural resource automatically would be specific, precisely
because in some cases, the goods provided (such as for example oil, gas, water, etc.) may be used by
an indefinite number of industries. This is not the situation before us. As Canada acknowledges, the
inherent characteristics of the good provided, st anding timber, limit its possible use to "certain
enterprises" only.
7.117 We now turn to Canada's argument that the USDOC failed to properly determine that the
stumpage programmes were used by only a limited number of industries. On the basis of the facts of
this case, Canada argues that specificity should have been analyzed based on the end-products sold by
the industry or industries using the programme. Canada argues that more than 200 separate products
are manufactured by companies holding harvesting rights, together forming about 23 separate
industries.
180 This, according to Canada, is hardly a "limited number of industries".
7.118 We note that the USDOC determined that
"Benefits under these Provincial stumpage [programmes] are limited to those
companies and individuals specifically author ized to cut timber on Crown lands.
These companies are pulp and paper mills and the saw mills and remanufacturers
which are producing the subject merchandis e. This limited group of wood product
industries is specific under section 771 (5A)(D)(iii)(I) of the Act" "181
7.119 We recall that a subsidy is specific under Articl e 2 SCM Agreement, if it is specific to an
enterprise or industry or group of enterprises or industries (referred to in the SCM Agreement as
"certain enterprises"). The SCM Agreement does not define an "industry" nor does it provide for any
other rules concerning which enterprises could be considered to form an industry for the purposes of
Article 2 SCM Agreement or whether a group of industries have to produce certain similar products in
order to be considered a "group".
7.120 The New Shorter Oxford Dictionary defines an industry as "a particular form or branch of
productive labour; a trade, a manufacture".
182 Both parties seem to agree that the common practice is
to refer to industries by the type of products they produce. 183 It seems therefore that the term
"industry" in Article 2 SCM Agreement is not used to refer to enterprises producing specific goods or
end-products. Indeed, even Canada agrees that a single industry may make a broad range of end
products and still remain a "i ndustry" within the meaning of Article 2 SCM Agreement. 184 We note in

180 Exhibit CDA-73 provides an overview of these 23 allegedly separate industries and the 201
products. produced by these industries. We note that Canada considers as separate industries such industries as
the "wooden kitchen cabinet and bathroom vanity industry" and the "wooden door and window industry" to
mention just two.
181 USDOC Determination, p. 52. (CDA-1). Accordin g to the USDOC, "whether we classify the users
of the stumpage programs as sawmills and pulp mills, th e primary timber processing group, the wood products
industry, the forest products industries, the wood fibre user industry, the "industries" suggested by respondents,
or any combination thereof, the subsidies provided by these stumpage programs are not "broadly available and
widely used". The vast majority of companies and industries in Canada does not receive benefits under these
programs." USDOC Determination, p. 52. (CDA-1).
182 CDA-66, p. 1356. We note that this is a definition relied on by both parties.
183 See United States First Written Submission, para. 150; Canada Response to Questions from the First
Meeting (Annex A-1), para. 153.
184 Canada Response to Questions from the First Meeting (Annex A–1), para. 149. By contrast, we
find that the fact the domestic industry is defined in Article 16 SCM Agreement by reference to a particular

this respect that Canada considers that "it may be completely appropriate to find that producers of a
wide variety of steel products (or automobile products or textile products, etc) are a group of "steel
industries" ( or "automobile industries", "textile in dustries", etc.) because of the similarity and the
relatedness of their output products".
185 Canada also does not dispute that a subsidy limited to a single
large industry (such as "steel", "autos", "textiles" , "telecommunications", or the like) could be found
specific, even though the producers make a diversity of products.186
7.121 The USDOC Determination considered that only a group of wood product industries,
consisting of the pulp and paper mills and the sa wmills and re-manufacturers which are producing the
subject merchandise used the stumpage programmes. It does not seem that USDOC simply labelled
an aggregation of producers as a group of industries merely because they use a particular programme.
In our view, the opposite was the case. As Canada recognized, the stumpage programme can clearly
only benefit certain enterprises in the wood product industries which can harvest and / or process the
good provided, standing timber. In sum, the te xt of Article 2 SCM Agreement does not require a
detailed analysis of the end-products produced by the enterprises involved, nor does Article 2.1 (c)
SCM Agreement provide that only a limited number of products should benefit from the subsidy. In
our view, it was reasonable of the USDOC to reach the conclusion that the use of the alleged subsidy
was limited to an industry or a group of industries. We consider that the "wood products industries"
constitutes at most only a limited group of industries - the pulp industry, the paper industry, the
lumber industry and the lumber remanufacturing industry - under any definition of the term
"limited".
187 We do not consider determinative in this respect the fact that these industries may be
producing many different end-products. As we discussed above, specificity under Article 2 SCM is to
be determined at the enterprise or industry level, not at the product level.188
7.122 Canada argues that there were other users of the programmes than the ones identified by the
USDOC. We understand Canada to be arguing that not only "the pulp and paper mills and the saw
mills and remanufacturers which are producing the subject merchandise" are using the stumpage
programmes, but also the pulp and paper mills and the sawmills and remanufacturers which are not
producing the subject merchandise. In our view, a ll these producers can reasonably be found to form
part of the same industries, which produce both the subject merchandise and other merchandise. It is
evident that in order to countervail a specific subs idy it is necessary that the subsidy benefits the
producers of the subject merchandise, but that does not mean that the subsidies should be specific to
these producers only, nor is it required under Article 2 SCM Agreement that the subsidy be
specifically targeted at subsidizing only the subject merchandise of producers who produce both
subject merchandise and non-subject merchandise.

"like product" does not provide useful context for the interpretation of the term "industry" in general in light of
the different and specific purpose of this definition of domestic industry in the SCM Agreement. We note again
that there is no definition of the term "industry" in general in the SCM Agreement.
185 Canada Response to Questions from the First Meeting (Annex A-1), para. 150.
186 Canada Response to Questions from the First Meeting (Annex A-1), para. 149.
187 The New Shorter Oxford Dictionary defines "limited" as "confined within definite limits; restricted
in scope, extent, amount, etc.; (of an amount) small". New Shorter Oxford Dictionary, Edited by Lesley Brown,
Clarendon Press Oxford, 1993 ed., p. 1592.
188 We consider therefore not determinative either the fact that a distinction may be made on the basis
of the specific products produced into 23 industries, as Canada is suggesting. Irrespective of the question
whether 23 industries could still be considered to be a limited number in absolute or relative terms, we are of
the view that for the purposes of Article 2 SCM Agreement, it was entirely legitimate of the USDOC to group
such alleged separate industries as the "wooden kitchen cabinet and bathroom vanity industry" and the "wooden
door and window industry" together with other similar industries into a group of wood products industries. In a
similar vein, it appears to us that, whether a "group" is required to produce similar products or not in order to be
considered a "group" under Article 2 SCM Agreement, an issue which we need not and do not decide, the
industries producing wood products are, in our view, obviously producing sufficiently similar products to be
considered as a "group" of industries for the purposes of Article 2 SCM Agreement.

7.123 Canada also argues that an authority is requi red to examine all four factors mentioned in
Article 2.1 (c) SCM Agreement in order to determine de facto specificity. We note in this respect
that Article 2.1 (c) SCM Agreement provides that if there are reasons to believe that the subsidy may
in fact be specific, other factors may be considered. The use of the verb "may" rather than "shall", in
our view, indicates that if there are reasons to belie ve that the subsidy may in fact be specific, an
authority may want to look at any of the four factors or indicators of specificity. We note the
difference in language between Article 2.1 (c) SC M Agreement and, for example, Article 15.4 SCM
Agreement concerning injury which provides that "the examination of the impact of the subsidized
imports on the domestic industry shall include an evaluation of all relevant economic factors and
indices having a bearing on the state of the industry including …", and then lists the factors which
have to be included in the evaluation. Article 15.4 SCM Agreement is almost identical in language to
Article 3.4 Anti-Dumping Agreement, which it is well established, contains an obligation on the part
of the investigating authority to at a minimum examine and evaluate all factors listed in the
provision.
189 In our view, if the drafters had wanted to impose a formalistic requirement to examine
and evaluate all four factors men tioned in Article 2.1 (c) SCM Agre ement in all cases, they would
have equally explicitly provided so as they have done elsewhere in the SCM Agreement. 190 They did
not do so. We conclude therefore that there wa s no obligation on the USDOC to examine whether
disproportionately large amounts of the subsidy were granted to certain enterprises or the manner in
which discretion has been exercised by the granting authority in the decision to grant a subsidy, the
two factors mentioned in Article 2.1 (c) SCM Agreement which the USDOC did not explicitly
examine.
7.124 We finally note that Article 2.1 (c) SCM Ag reement provides that "[I]n applying this
subparagraph, account shall be taken of the extent of diversification of economic activities within the
jurisdiction of the granting authority, as well as of the length of time during which the subsidy
programme has been in operation". While it is cl ear that the USDOC did not explicitly and as such
address the extent of economic diversification in its Final Determination, we consider that in noting
that "the vast majority of companies and industries in Canada does not receive benefits under these
programmes"191, the USDOC showed that it had taken account of the extent of economic
diversification in Canada and its provinces, i.e. the publicly know n fact that the Canadian economy
and the Canadian provincial economies in part icular are diversified economies. Although we
understand the wood product industry to be an important industry for Canada, it is clear that the
Canadian economy is more than just wood products alone. In light of the fact that, in our view, all
that is required under the last sentence of Article 2.1 (c) SCM Agreement is that "account be taken of
" the extent of economic diversification, we find that USDOC Determination complied with this
obligation.
7.125 We find therefore that the USDOC determination that the stumpage programmes which are
used only by a limited group of wood product industries are in fact specific, is not inconsistent with
Article 2.1 (c ) SCM Agreement and reject all of Canada's claims in this respect.

189 Appellate Body report, Thailand – H-Beams, para. 128. Panel report, EC – Tube and Pipe Fittings,
190 We note that it appears that on the basis of the facts before the USDOC, it was reasonable to
conclude that certain of these factors, such as the granting of disproportionately large amounts of the subsidy to
certain enterprises or the manner in which discretion has been exercised by the granting authority in the decision
to grant a subsidy, were not relevant in this situation, and thus did not have to be examined.
191 USDOC Final Determination, p. 52. (CDA-1).

E. C
LAIM 5: INCONSISTENT CALCULATION OF THE AMOUNT OF SUBSIDIZATION
1. Claims and arguments of the parties
(a) Alleged improper conversion from US to Canadian log volume measurement system
(i) Canada
7.126 Canada claims that the USDOC inflated the subsidy amount (the numerator of the
subsidization rate equation), and hence the rate of subsidization and the countervailing duties applied,
by impermissibly using a "manifestly incorrect" conversion factor to compare US stumpage rates that
it used as benchmarks with the Canadian Provincial stumpage rates. In particular, Canada claims that
by using an inaccurate factor to convert the US lo g measurements to cubic meters, the amount of the
alleged subsidy on lumber was inflated. As a result, Canada alleges, the countervailing duties
imposed are in excess of any alleged subsidy on softwood lumber, in violation of Article 19.4 SCM
Agreement and Article VI:3 of GATT 1994. Canada also alleges violations of Articles 10 and 32.1
SCM Agreement, on the basis of the alleged violat ions of Articles 19.4 SCM Agreement and VI:3 of
GATT 1994.
192
7.127 Stumpage volumes and prices in the United States are recorded in thousand board feet, while
those in Canada are recorded in cubic meters. Because the United States used US stumpage prices as
the benchmark against which to compare Canadian stumpage rates in order to determine the existence
and amount of the alleged subsidies, the USDOC needed to apply a conversion factor to restate the
US prices in cubic meters.
7.128 According to Canada, the USDOC erred by appl ying a single national average conversion
factor to all provinces. 193 Canada argues that because log scales vary widely, depending on the
diameter, taper, and length of the logs in question, no one average conversion factor can be applied.
According to Canada, moreover, the conversion factor used by the USDOC is outdated, does not
reflect the current harvest in any of the jurisdictions, or does not account for differences in scaling or
utilization practices, and is not empirically verifiable.
7.129 In response to a question from the Panel concerning the basis for Canada's assertion that the
data used by the USDOC were "manifestly incorr ect", Canada submits a document of record, the
"Minnesota Public Stumpage and Price Review ", which Canada argues uses a much higher
conversion rate than that used by USDOC in conver ting prices per thousand board feet to prices per
wood volume. 194 According to Canada, the USDOC used the prices in the Minnesota Review but
ignored its conversion factor, using instead the one that Canada believes to be "manifestly incorrect".
(ii) United States
7.130 The United States argues in the first place that the cited provisions do not contain substantive
obligations in respect of subsidy calculations. Further, and in more specific response to this claim, the
US argues that the question raised is purely one of fact, and that the USDOC considered the record
evidence in respect of conversion factors in selecting the ones used in its investigation, and provided a
reasoned explanation for this selection in its Fi nal Determination. For the US, this fulfilled its
obligations under the Agreement.195 In this connection, the United States recalls, citing the Appellate

192 Canada First Written Submission, paras. 183 et seq.
193 Canada acknowledges that the USDOC also used a second factor from Western Washington to
convert stumpage rates for the coastal British Columbia calculation.
194 Canada Response to Questions from the Panel at the First Substantive Meeting (Annex A-1), paras.
131-132.
195 United States First Written Submission, paras. 117 et seq.

Body in the US – Lamb dispute196, the standard of review under Article 11 of the DSU that in the US
view, panels should apply in consid ering issues of fact in countervailing duty disputes. This standard
of review is that panels should limit their consider ation, in respect of questions of fact, to whether
competent authorities have considered all of the re levant factors, and have provided a reasoned and
adequate explanation of how the facts support their determination. In other words, panels should not
conduct de novo examinations of the facts.
7.131 The United States describes the record evidence that was before the USDOC in respect of
conversion factors. In particular , the parties submitted a range of pr oposed factors, from 3.48 to 8.51
cubic meters per thousand board feet, which had been developed specifically for the purpose of the
investigation. According to the US, the USDOC decided, in view of the conflicting suggestions
received from parties, to rely exclusively on publishe d information prepared in the ordinary course of
business by public agencies, as this would be the surest way to avoid using a biased conversion factor.
There were two such sources in the record, and the US argues that USDOC found the older one to be
more reliable, because it contained a detailed expl anation of how the numbers in it were derived,
whereas the newer one contained no such explanation. According to the US, the USDOC thus
weighed the evidence and made a well-reasoned choice, which it fully explained in the Final
Determination, and whether the Pane l or Canada would have reached a different conclusion based on
the same evidence is irrelevant.
197
7.132 In specific response to Canada's arguments concerning the Minnesota Review, the US argues
that the conversion factors referred to by Canada were only necessary to convert the price data in
Table 1 of the Review, which are presented in dollars per thousand board feet, to those shown in
Table 2, which are presented in dollars per cord (a measure of wood volume, not directly convertible
to cubic meters).198 The US argues that Canada failed to establish that the conversion factors used by
the USDOC were flawed, and states that the existence of alternative sources does not mean that the
USDOC's selection was manifestly incorrect. The US argues that were the Panel to reach such a
conclusion, this would amount to an impermissible de novo review.199
(b) Alleged failure to account for the multiple uses of softwood logs produced from Crown
timber
(i) Canada
7.133 This claim of Canada pertains primarily to the alleged overstatement of the numerator
(subsidy amount) of the subsidization rate calculat ion. Canada claims that by failing to limit the
numerator amount only to the amount of the alleged su bsidy that could be said to have benefited logs
used to produce softwood lumber, the USDOC ov erstated the numerator and thus the rate of
subsidization. Canada notes that the standing timber , the alleged financial contribution in this case, is
provided to producers of multiple downstream products, only one of which is the subject
merchandise. According to Canada, the USDOC calculated the benefit amount at the point at which
logs were sawn into lumber, when it had not yet apportioned the volume of logs between the subject
and non-subject merchandise produced therefrom, and th en allocated that (total benefit) amount over
the sales value of softwood lumber. Canada argues that this impermissibly inflated the subsidization
rate, and thus the countervailing dut y rate, because it treated alleged subsidies in respect of inputs
used to produce poles, posts, ties and a variety of other non-subject products as subsidies to the
subject merchandise.

196 Appellate Body Report, US – Lamb, para. 103.
197 United States First Written Submission, para. 124.
198 United States Response to Questions from the Panel at the First Meeting (Annex A-2), paras. 39-40.
199 United States Second Written Submission, paras. 66-67.

7.134 In other words, Canada asserts, the USDOC pu t in the numerator the alleged subsidy to the
whole log, then attributed that entire subsidy to on ly some of the products produced from that log,
thereby mismatching the numerator and the denominator in such a way as to artificially inflate the rate
of subsidization. For Canada, this alleged overstatement violated Articles 10, 19.4, and 32.1 SCM
Agreement, and Article VI:3 of GATT 1994. Ca nada clarified in its arguments that it sees
Article 19.4 SCM Agreement as the provision cont aining the substantive obligations in respect of
calculation of the rate subsidization.
200
(ii) United States
7.135 The United States argues again that, in the first place, and contrary to what Canada implies,
Article 19.4 SCM Agreement does not contain any obligation to use a specific methodology to
calculate the "subsidy found to exist". In addition, according to the US, the methodology proposed by
Canada would in fact understate the amount of the subsidy, especially when combined with Canada's
proposed methodology for the deno minator. The US argues that when a sawmill receives a certain
amount of subsidy by paying too low a price for the timber that it uses as its input, that subsidy
benefits all of the products produced by that sawmill from the timber, not just the subject
merchandise. Therefore, the US argues, the US DOC took the total subsidy amount received by
sawmills through the allegedly subsidized timber and allocated it to all products (subject and non-
subject) resulting from the processing of the timber . Thus, according to th e US, the numerator and
denominator are calculated on the same basis. The US asserts that Canada's claim amounts to an
argument that the US was required to allocate subsidies on a volume rather than value basis. As such
an obligation cannot be found in any of the provisions cited by Canada, the US argues, Canada has
failed to make its prima facie case of a violation in respect of how the USDOC calculated the
numerator.
201
(c) Alleged understatement of the value of "final mill" sales
(i) Canada
7.136 Canada claims that the denominator used by the USDOC as the value of sales of subject
merchandise by "final mills" is understated, lead ing to an impermissible in flation of the rate of
subsidization, once again violating Articles 10, 19.4 , 32.1 of the SCM Agreement and Article VI:3 of
GATT 1994. Canada notes that in all past US soft wood lumber cases, the USDOC calculated the rate
of subsidization and assessed the countervailing duties, on a "first mill" rather than "final mill" basis.
7.137 The United States imposed the countervailing duty on the "final mill" value of the subject
softwood lumber products, which includes the value of lumber shipped to end-users by "first mills"
(i.e., those that process logs into lumber), plus the value added by lumber remanufacturers (those that
purchase lumber products for further processing into other lumber products). Canada's claim
concerns the USDOC's calculation of the amount of value added by the remanufacturers. On this
point, Canada argues that the USDOC based its estimate of this value added on outdated and
incomplete statistics provided by Statistics Canada at the request of the USDOC (in "GOC
Exhibit 36" from the CVD investigation), in spite of having in the record what Canada views as
verified, complete and up-to-date information derive d by Canada from another source (a study by the
Pacific Forestry Centre, or "PFC"). Canada asserts that the PFC information was the most accurate on
the record concerning the factual point at issue, an d that by ignoring this information, and relying
instead on the much less reliable data provided by Statistics Canada, the US overstated the
subsidization rate, in violation of the cited provisions. 202

200 Canada First Written Submission, paras. 189-194.
201 United States First Written Submission, paras. 103-106.
202 Canada First Written Submission, paras. 195-203.

(ii) United States
7.138 The United States argues that Canada is simp ly disagreeing with the USDOC's choice of
which record data to rely on in estimating the valu e added by lumber remanufacturers. In the view of
the US, the USDOC properly and thoroughly considered all of the relevant record evidence, and made
a reasonable choice as to which da ta to use, and then provided in its Final Determination a reasoned
explanation of that choice.
7.139 Concerning the USDOC's assessment of the evidence that was before it, the US argues that,
contrary to Canada's characterization, the USDOC at verification found various flaws and
shortcomings in the PFC study, leading it to concl ude that the data in GOC Exhibit 36 were more
accurate. In particular, at verification, the US DOC learned that the PFC data included products
outside the scope of the investigation, as well as a value for kiln-drying (a service, not a good). By
contrast, the derivation of the data in GOC Exhibit 36 was clear, according to the US, and the figures
were able to be used to derive a ratio of rema nufactured shipments from independent remanufacturers
for the two provinces covered by GOC Exhibit 36, wh ich ratio was then applied to the total Canadian
lumber shipment values to estimate the value of remanufactured products.203
2. Analysis
7.140 In the light of our findings pursuant to Articles 10, 14, 14(d) and 32.1 SCM Agreement and
Article VI:3 of GATT 1994 in respect of the US DOC's subsidy determination, we do not find it
necessary to address Canada's calculation-related cl aims described above. That is, having determined
that the USDOC determination in respect of subsidiz ation is inconsistent with the cited Articles, and
exercising the discretion implicit in the principle of judicial economy, we do not deem it necessary to
examine whether certain methodological issues gave rise to further inconsistencies in respect of that
determination.
F. CLAIM 6: FAILURE TO CONDUCT THE INVESTIGATION IN ACCORDANCE WITH ARTICLE 12 SCM
AGREEMENT
1. Arguments of the parties
(a) Canada
7.141 Canada argues that the USDOC imposed countervailing duties based on an investigation that
violated Articles 12.1, 12.3 and 12.8 SCM Agreement. In particular, Canada argues that the United
states did not comply with its obligations under Article 12 SCM Agreement in regard to two aspects
of the investigation concerning the change in the choice of benchmark state from the preliminary to
the final determination and the use of informatio n based on a letter of the Maine Forest Products
Council.
7.142 First, Canada argues that the USDOC changed the US state used as the comparative basis for
Alberta and Saskatchewan from the preliminary dete rmination to the final determination without any
prior notice to the interested parties in violation of Article 12.8 SCM Agreement. 204 Canada argues
that the choice of the state which is used for the comparison with the stumpage prices of certain
Canadian provinces, is clearly an essential fact which will form the basis for the determination that
should have been disclosed to the interested partie s in sufficient time for the parties to defend their
interests and in any case before the final determin ation as required by Article 12.8 SCM Agreement.
In addition, Canada argues, the interested parties were not given an opportunity to present evidence or

203 United States First Written Submission, paras. 107-113.
204 The benchmark state chosen at the time of the preliminary determination was Montana, while for
the final determination, the benchmark state used was Minnesota.

prepare presentations regarding the appropriateness of the choice of Minnesota as the new benchmark
state, and the USDOC therefore acted in a manner inconsistent with Articles 12.1 and 12.3 SCM
Agreement.
7.143 Second, Canada argues that the USDOC failed to give interested parties the opportunity to
present evidence and arguments concerning a letter from the Maine Forest Products Council (the
"MFPC") that was relevant to the calculation of the US benchmark price applied to Quebec.
205
Canada asserts that this letter was not put on the record until two months after it had been received by
the USDOC, and only after Quebec had requested the inclusion in the record of this information.
Canada submits that because of th e delay in putting the letter on the record, and the deadlines set by
the USDOC for commenting on the MFPC informatio n, USDOC deprived the province of Quebec of
any meaningful opportunity to rebut new factual in formation contained in tw o reports filed by the
petitioners concerning this letter, in violation of Article 12.3 SCM Agreement. Canada asserts that
the petitioners' new information based on the MFPC letter was used by the USDOC, in spite of the
fact that interested Canadian parties were denied the opportunity to present comments on this new
evidence. Thus, Canada argues, the USDOC denied interested parties the timely opportunity to see
the relevant information as required by Article 12.3 SCM Agreement and to prepare presentations on
the basis of the relevant information. Canada su bmits that the USDOC therefore failed to conduct the
investigation in a manner consistent with Article 12.3 SCM Agreement.
(b) United States
7.144 The United States submits that the investig ation was conducted in full compliance with
Article 12 SCM Agreement as all parties were gi ven notice of the information required for the
investigation, had ample opportunity to submit all re levant information, had access to all information
submitted during the investigation and were informed of the essential facts under consideration.
7.145 First, with regard to the change of benchmark state, the United States argues that the selection
of the benchmark for the stumpage programmes of Alberta and Saskatchewan was consistent with the
requirements of Article 12 SCM Agreement. The Unite d States asserts that both Canadian provinces
challenged the use of data from the US state of Montana as the basis for the benchmark calculation in
the preliminary determination, and notes that the USDOC ultimately agreed with these provinces'
arguments and rejected data from Montana, using data from Minnesota instead.
206 The United States
is of the view that USDOC was not obliged under Article 12 SCM to provide notice of the new
benchmark state chosen and to allow for parties to, once again, comment on the choice of the
benchmark state. According to the United States , nothing in Article 12 SCM Agreement imposes on
the investigating authority an obligation to engage in an endless cycle of notice and comment. The
United States considers that Article 12.3 SCM Agr eement explicitly recognizes that information be
provided "whenever practicable" reflecting the time constraints imposed on the completion of the
investigation.
7.146 According to the United States, the USDOC pr eliminary determination announced that the
United States was using US northern border states as the benchmarks for the Canadian stumpage
programmes and set forth the criteria used in se lecting such benchmarks . The USDOC identified
Minnesota as a possible alternative, and all of the information regarding Minnesota was provided to
all of the interested parties. For all these reasons, the United States submits that the interested parties

205 Canada notes that there can be little debate about the relevance of the information as the USDOC
itself requested the information and characterized the information as "important to some of the central issues in
the proceeding". USDOC Final Determination, p. 61. (CDA-1). Canada First Written Submission, para. 222.
206 The United States argues that these provinces thus took advantage of the opportunity to use record
information to argue that the forests of Montana were not sufficiently similar to compare to those of Alberta and
Saskatchewan, and thus that neither government can no w claim surprise when the USDOC considered their
arguments and agreed that Montana was not the appropriate benchmark.

were informed of the "essential facts under cons ideration" in accordance with Article 12.8 SCM
Agreement.207 The United States argues that Canada is re ally challenging the change in the basis for
the legal determination between the Preliminary and th e Final determination, and submits that there is
no obligation under Article 12.8 SCM Agreement to in form interested parties of this change in the
legal determination before the final determination.
7.147 Second, concerning the MFPC letter, the United St ates submits that the interested parties had
access to the information contained in the letter in su fficient time to use it in the preparation of their
legal arguments and the USDOC thus acted in accordance with Article 12.3 SCM Agreement. 208 The
United States considers that intere sted parties were provided an opp ortunity to comment, and in the
case of Quebec did comment, on information releva nt to the benchmark for Quebec submitted by the
Maine Forest Products Council. According to the United States there is no basis in the text of the
SCM Agreement that interested parties should ha ve been given additional time to respond to
information submitted by petitioners to re but the information in the MFPC letter 209, and Article 12.3
SCM Agreement does not require the United States to engage in an endless cycle of allowing each
interested party to reply to every submission made by every other interested party.
2. Analysis
7.148 In light of our findings on Articles 10, 14, 14 (d), and 32.1 SCM Agreement, as well as
Article VI:3 of GATT 1994, we do not find it necessar y to address, in this context, Canada's claims
under Article 12 SCM Agreement. That is, having determined that the measure at issue is
inconsistent with the cited Articles, and exercising th e discretion implicit in the principle of judicial
economy, we do not deem it necessary to examin e whether the investigation which led to the
inconsistent measure was consistent with the procedural rules on evidence set forth in Article 12 SCM
Agreement.
G. CLAIM 7: INCONSISTENT INITIATION OF THE INVESTIGATION
1. Arguments of the parties
(a) Canada
7.149 Canada argues that the USDOC failed to make an objective and impartial examination and
determination of the level of support among dome stic producers for the petition as required by
Article 11.4 SCM Agreement since support of the domestic producers was actively canvassed with the
promise, and the prospect of payments under the United States Continued Dumping and Subsidy
Offset Act of 2000 (the " Byrd amendment ").210 According to Canada, for the obligation in
Article 11.4 SCM Agreement to have any meaning, a Member's determination that the petition was
made "by or on behalf of" the dome stic industry must be objective and impartial, which it cannot be

207 The US argues that the Panel in Argentina – Ceramic Tiles also found that "the requirement to
inform all interested parties of the essential facts under consideration may be complied with in a number of
ways" and that this obligation could be met "through the inclusion in the record of documents – such as
verification reports, a preliminary determination or correspondence exchanged between the investigating
authorities and the individual exporters – which actually disclose to the interested parties the essential facts …"
Panel report, Argentina – Ceramic Tiles, para. 6.125.
208 The United States explains that the reason why the MFPC letter was not put on the record earlier
was simply because it was not filed in accordance with the USDOC Regulations.
209 The United States asserts that the letter from petitioners of 4 March, attaching the report by the
James W. Sewall company did not contain any new factual information which respondents should have been
given an opportunity to comment on.
210 Canada explains that under the "Continued Dumping and Subsidy Offset Act of 2000" the
United States distributes the duties collected to domestic producers that bring or support countervailing duty
petitions.

where a Member induces the subjects of the examination, through payment of cash rewards or the
imposition of penalties to act in one way or another, as is the case with the Byrd amendment. Canada
argues that a Member's authorities may not simply rely on quantitative criteria for the establishment
of the level of domestic support, as was confirmed by the Panel in the US – Offset Act (Byrd
Amendment) case. Canada submits that the investigation was initiated on the basis of domestic
producer support that was actively solicited by the promise and prospect of a direct payment by the
United States and as a result the USDOC initiate d the investigation and imposed definitive
countervailing duties in violation of Articles 10, 11.4 and 32.1 SCM Agreement.
(b) United States
7.150 The United States argues that the softwood lumber petition contained uncontested evidence
establishing that US softwood lumber producers representing 67 per cent of total US softwood lumber
production supported the petition and that the USDOC thus initiate d the investigation based on
adequate domestic industry support consistent with the requirement of Article 11.4 SCM Agreement.
The United States asserts that Canada is injec ting a requirement into the SCM Agreement that
investigating authorities examine the motives of pr ospective petitioners. The United States points out
that a recent Appellate Body report in the US – Offset Act (Byrd Amendment) case rejected that
argument and overturned the Panel's ruling on which Canada is relying by concluding that
Article 11.4 requires "no more than a formal examin ation of whether a sufficient number of domestic
producers have expressed support for an application".
211 As the determination of industry support is
an issue of quantity and not of quality, and since even Canada agrees that 67 per cent of the industry
supported the petition, the United States submits th at the investigation was initiated in accordance
with Articles 10, 11.4 and 32.1 SCM Agreement.
2. Analysis
7.151 In light of Canada's statement at the first s ubstantive meeting of the Panel with the parties
that it does not consider it appropriate to press its claims as set out in paragraph 1 of its request for the
establishment of a panel, we will refrain from ad dressing this claim and from making any ruling on
this claim.212
VIII. CONCLUSIONS AND RECOMMENDATIONS
8.1 In light of our findings above, we conclude:
(a) that the USDOC's determination that provision of stumpage constituted a financial
contribution in the form of the provision of a good or service was not inconsistent
with Article 1.1 (a) (1) (iii) SC M Agreement, and we therefore reject Canada's claim
that the United States' imposition of co untervailing duties on the basis of that
determination was inconsistent with Articles 10, 19.1, 19.4 and 32.1 SCM
Agreement, and Article VI:3 of GATT 1994;
(b) that the USDOC's determination of the existence and amount of benefit to the
producers of the subject merchandise was inconsistent with Articles 14 and 14(d)
SCM Agreement, and we therefore uphold Canada's claim that the United States'
imposition of countervailing duties on the basis of that determination was inconsistent
with Articles 14, 14(d), 10 and 32.1 SCM Ag reement; having reached this conclusion
we apply judicial economy and therefore do not rule on Canada's allegations under
this claim that the United States acted in a manner inconsistent with Articles 19.1 and
19.4 SCM Agreement and Article VI:3 of GATT 1994.

211 Appellate Body report, US – Offset Act (Byrd Amendment), para. 286.

(c) that the USDOC's failure to conduct a pass-t hrough analysis in respect of upstream
transactions for log and lumber inputs be tween unrelated entities was inconsistent
with Article 10 SCM Agreement and Article VI:3 of GATT 1994, and we therefore
uphold Canada's claim that the United States' imposition of countervailing duties in
respect of such transactions was incons istent with Articles 10 and 32.1 SCM
Agreement and Article VI:3 of GATT 1994; having reached this conclusion, we
apply judicial economy and do not rule on Canada's allegations under this claim that
the United States imposed countervailing duties in a manner inconsistent with
Articles 19.1 and 19.4 SCM Agreement; and
(d) that the USDOC's determination that the provincial stumpage programmes are
specific was not inconsistent with Art. 2.1(c) SCM Agreement, and we therefore
reject Canada's claim that the United Stat es' imposition of countervailing duties on
the basis of that determination was inconsistent with Articles 1.2, 2.1, 2.4, 10, 19.1,
19.4 and 32.1 SCM Agreement;
8.2 Having reached the conclusions set forth above that the USDOC Final Countervailing Duty
Determination is inconsistent with Articles 10, 14, 14(d) and 32.1 SCM Agreement, and Article VI:3
of GATT 1994, we apply judicial economy and do not rule on:
(a) Canada's claims under Article 19.4 SCM Agreement and Article VI:3 of GATT 1994
concerning the methodologies used to calculate the subsidy rate; and
(b) Canada's claims of violation of the procedural rules of evidence set forth in Article 12
SCM Agreement.
8.3 In the light of Canada's statement at the first substantive meeting of the Panel with the parties
that it does not consider it appropriate to press its claims under Articles 10, 11.4 and 32.1 SCM
Agreement concerning the initiation of the investig ation, we refrain from addressing and making a
ruling on this claim.
8.4 Under Article 3.8 of the DSU, in cases where there is infringement of the obligations assumed
under a covered agreement, the action is considered prima facie to constitute a case of nullification or
impairment of benefits under that agreement. Ac cordingly, we conclude that, to the extent the
United States has acted inconsistently with the provisions of the SCM Agreement and of GATT 1994,
it has nullified or impaired benefits accruing to Ca nada under that Agreement. We recommend that
the Dispute Settlement Body request the United States to bring its measure into conformity with its
obligations under the SCM Agreement and GATT 1994.