UNITED STATES – INVESTIGATION OF THE INTERNATIONAL TRADE COMMISSION IN SOFTWOOD LUMBER FROM CANADA
Document: Recourse to Article 21.5 of the DSU by Canada Report of the Panel
Date: 15 November 2005
Document codes: WT/DS277/RW
Complainant: Canada
Respondent: U.S.
Third parties: China, EU, Japan, South Korea
Dispute stage: Mutually Agreed Solution
Agreements cited: Art. VI:6  GATT 1994Art. 1, 3.1, 3.2, 3.3, 3.4, 3.5, 3.7, 3.8, 12, 18.1  Anti-dumpingArt. 10, 15.1, 15.2, 15.3, 15.4, 15.5, 15.7, 15.8, 22, 32.1  Subsidies and Countervailing Measures (SCM)

UNITED STATES – INVESTIGATION OF THE
INTERNATIONAL TRADE COMMISSION IN SOFTWOOD
LUMBER FROM CANADA

Recourse to Article 21.5 of the DSU by Canada

Report of the Panel

I. INTRODUCTION
1.1 On 14 February 2005, Canada requested the est ablishment of a panel pursuant to Article 21.5
of the Understanding on Rules and Procedures Gove rning the Settlement of Disputes (hereinafter
"DSU") concerning the United States' alleged failu re to implement the recommendations and rulings
of the Dispute Settlement Body (her einafter "DSB") in the dispute " ".
1.2 At a special meeting on 25 February 2005, the DSB referred this dispute to the original panel,
in accordance with Article 21.5 of the DSU, to examine the matter re ferred to the DSB by Canada in
document 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 , the ma tter referred to the DSB by Canada in
that document, and to make such findings as will assist the DSB in making the
recommendations or in giving the rulings provided for in those agreements".
1.3 On 2 March 2005, the Panel was composed as follows:
 Chairman: Mr. Hardeep Singh Puri
 Members: Mr. Paul O'Connor
 Ms. Luz Elena Reyes de la Torre

1.4 China and the European Co mmunities reserved their rights to participate in the Panel
proceedings as third parties.
1.5 The Panel met with the parties on 28-29 June 2005. It met with the third parties on
29 June 2005. The Panel issued its interim report to the parties on 29 August 2005.

II. FACTUAL ASPECTS
2.1 This dispute concerns the parties' disag reement as to the consistency with the Agreement on
Implementation of Article VI of GATT 1994 (hereinafter "AD Agreement") and the Agreement on
Subsidies and Countervailing Measures (hereinafter "SCM Agreement") of the measure taken by the
United States to comply with the recommendation of the DSB arising out of the Panel's report .
1
2.2 The original dispute concerned the investigation and determination of threat of material injury
of the United States International Trade Commission (USITC) in Softwood Lumber from Canada and
the final definitive anti-dumping and countervailing duti es applied following the final determination.
In that determination, the USITC had unanimously de termined that an industry in the United States
was threatened with material injury by reason of imports of softwood lumber from Canada found to
be subsidized and sold in the United States at dumped prices, and antidumping and countervailing
duty orders on imports of softwood lumber from Canada were subsequently issued.
2.3 In its final determination, the USITC had de termined that the domestic softwood lumber
industry was not materially injured by reason of subject imports from Canada found to be dumped and

1 Panel Report, ("US – Softwood Lumber VI"), WT/DS277/R, adopted 26 April 2004.

subsidized, but found that there was a threat of mate rial injury by reason of such imports. In making
that determination, the USITC found that the domestic industry producin g softwood lumber was
vulnerable to injury in light of declines in its performance over the period of investigation,
particularly its financial performance. The USITC noted that the United States Department of
Commerce (USDOC) had determined that there we re 11 programs that c onferred countervailable
subsidies to Canadian producers and exporters of softwood lumber. The USITC found that Canadian
dumped and subsidized imports (subject imports) were likely to increase substantially based on a
series of factors. The USITC found that there was a moderate degree of substitutability between
subject imports and the domestic like product, and th at prices of different species affected the prices
of other species.
 Given its finding of likely significant increases in subject import volumes, and its
finding of at least moderate substitutability between subject imports and domestic product, the USITC
concluded that subject imports were likely to have a significant price depressing effect in the
immediate future. The USITC recognized that while i nventories generally were not substantial in the
softwood lumber industry, Canadian producers’ in ventories as a share of production had increased
and were consistently higher than that reported by US producers during the period of investigation.
Finally, the USITC noted that a number of domestic producers had repor ted actual and potential
adverse effects on their developmen t and production efforts, growth, investment, and ability to raise
capital due to subject imports fro m Canada. Thus, the USITC determined that further significant
increases in dumped and subsidized imports were imminent, that these imports were likely to
exacerbate price pressure on domestic producers, and that material injury to the domestic industry
would occur.
2.4 Before the Panel, Canada had alleged viol ations of various provisions of the AD and
SCM Agreements in the USITC's determination of injury. In particular, Canada alleged specific
violations of Article 3.7 of the AD Agreement a nd Article 15.7 of the SCM Agreement, arguing that
the USITC failed to properly consider the particular factors relevant in threat of injury determinations,
and violations of Article 3.5 of the AD Agreemen t and Article 15.5 of the SCM Agreement, arguing
that the USITC failed to properly analyze causation and failed to properly apply the "non-attribution"
requirement, which specifies that in jury caused by other factors must not be attributed to dumped
and/or subsidized imports.
 These claims required the Panel to consider the substance of the USITC's
final determination of threat of material injury to determine whether it was consistent with US
obligations under the AD and SCM Agreements.
2.5 The Panel found, inter alia:
(a) that the USITC determination was not consistent with Article 3.7 the AD Agreement
and Article 15.7 of the SCM Agreement in that the finding of a likely imminent
substantial increase in imports was not one which could have been reached by an
objective and unbiased investigating authority in light of the totality of the factors
considered and the reasoning in the USITC determination.
(b) With respect to the allegations of violati ons of Article 3.7 of the AD Agreement and
Article 15.7 of the AD Agreement in respect of other aspects of the USITC
determination, the Panel concluded that the USITC determination was not
inconsistent with the asserted provisions.
 2
2.6 In light of these findings, the Panel concluded
(a) that the USITC determination was not consistent with Article 3.5 of the
AD Agreement and Article 15.5 of the SCM Agreement in that the causal analysis
was based on a finding which was, itself, not consistent with Article 3.7 the
AD Agreement and Article 15.7 of the SCM Agreement.

2 Panel Report, US – Softwood Lumber VI, supra note 1, at para. 8.1.

(b) With respect to the allegations of violati ons of Article 3.5 of the AD Agreement and
Article 15.5 of the AD Agreement in respect of other aspects of the USITC
determination, the Panel concluded that it was neither necessary nor appropriate to
make findings with respect to these claims.
 3
2.7 Accordingly, the Panel concluded that to the ex tent the United States had acted inconsistently
with the provisions of the AD and SCM Agreements, it had nullified or impaired benefits accruing to
Canada under that Agreement, and therefore recomm ended that the Dispute Settlement Body request
the United States to bring its measures into confor mity with its obligations under the AD and SCM
Agreements.
2.8 Under US law (commonly referred to as "secti on 129"), if a WTO Panel or Appellate Body
report finds that a determination by the USITC is not consistent with US obligations, then, upon
request by the USTR, the USITC "shall issue a dete rmination in connection with the particular
proceeding that would render the Commission's acti on...not inconsistent w ith the findings of the
panel".4 In this case, the USTR made such a request to the USITC on 27 July 2004. The USITC
issued its "section 129" determination within the statutory deadline set out in US law, on
24 November 2004. In that determination, the USITC again concluded that there would be a
substantial increase in imports, at prices which would adversely affect the vulnerable domestic
industry, threatening material injury, and that no other known causes of threatened material injury to
the domestic industry. It is that determination wh ich is challenged by Canada in this Article 21.5
dispute.5
2.9 In the course of the section 129 proceeding, th e USITC reopened the record of the original
investigation to gather additional information from public data sources and from questionnaires sent
to US and Canadian producers, held a public hear ing, and gave parties opportunities to submit written
comments. The USITC stated that its task was to "mak[e] a determination that would render its
original action not inconsistent with the findings of" the Panel. 6 Therefore, the USITC addressed in
its determination only the issues related to the Pa nel's findings set forth in the request from USTR,
and did not address issues that were not in dispute in the original Panel proceeding or which the Panel
had found not inconsistent with the United States' obligations under the WTO Agreements.7
2.10 In its section 129 determination, the USITC found, based on a significant rate of increase in
imports from a significant baseline level, and taki ng into account increases in imports during periods
of no import restraints, that there was a likelihoo d of substantially increased imports, and concluded
that dumped and subsidized imports would increase in the imminent future. Looking at current
import trends, the restraining effects of the US -Canada Softwood Lumber Agreement (SLA), excess
Canadian capacity and projected increases in capacity, capacity utilization and production, and
demand projections, the USITC concluded that imports would increase at a substantial rate in the

3 Panel Report, US – Softwood Lumber VI, supra note 1, at para. 8.2.
4 19 USC. §3538(a)(4).
5 Similar to the situation during the original dispute, this is one in a series of Canadian challenges, now
to the US implementation of the various Panel and Appellate Body reports in the original cases. A WTO Panel
recently considered a challenge to the US Department of Commerce's Section 129 determination regarding
subsidisation and calculation of the amount of countervailing duties, (United States – Final Countervailing Duty
Determination with respect to Certain Softwood Lumber from Canada - Recourse to Article 21.5 by Canada ,
WT/DS257 (circulated 1 August 2005)) and another Panel is now considering the US Department of
Commerce's final anti-dumping determination ( United States – Final Dumping Determination on Softwood
Lumber from Canada - Recourse to Article 21.5 by Canada, WT/DS264 (pending before Panel)). However,
these disputes do not have any direct bearing on the issues before the Panel in this case, which concerns
exclusively the Section 129 determination regarding the injury aspects of the investigations, which is not at issue
in the other disputes
6 Views of the Commission, Exhibit CDA-1, at 4.
7 Ibid.

imminent future beyond historical levels. The USITC concluded that imports were entering the United
States at prices that were likely to have a significant depressing or suppressing effect on domestic
prices and likely to increase demand for further imports, that imports were therefore likely to
adversely impact the US lumber industry in the i mminent future. Looking at the question of other
factors threatening injury, the USITC concluded th at excess supply from the domestic industry, third
country imports, importation relative to demand, th e integration of the North American softwood
lumber industry, substitute produc ts, and domestic production constrai nts, were not other factors
potentially causing injury to the domestic industry, a nd therefore considered that there was no basis to
examine whether any injury could be attributed to them.
8

III. PARTIES' REQUESTS FOR FINDINGS AND RECOMMENDATIONS
3.1 In its first written submission, Canada requested that the Panel:
 (a) find the USITC’s Section 129 affirmative thr eat of injury determination, and the definitive
anti-dumping and countervailing duty orders that remain in effect, inconsistent with the United States’
obligations under Articles 3.5 and 3.7 of the AD Agreement and Articles 15.5 and 15.7 of the SCM
Agreement;
 (b) find that the US measures taken to comp ly are inconsistent with the rulings and
recommendations of the DSB; and
 (c) recommend that the United States bring its measures into conformity with its WTO
obligations, including by revoking the final determina tion of threat of injury, ceasing to impose anti-
dumping and countervailing duties and returning the cash deposits imposed as a result of the United
States’ actions in this matter.
3.2 In its first written submission, the United Stat es requested that the Panel reject Canada’s
claims in their entirety.
3.3 In its second written submission, the United States requested that, in the event the Panel were
to accept Canada’s arguments, it nevertheless decline Canada’s requested recommendation.

IV. ARGUMENTS OF THE PARTIES
4.1 The arguments of the parties are set out in their written submissions and oral statements to the
Panel. The parties' arguments as presented in their written submissions and oral statements are
summarised in this section.
A.
FIRST WRITTEN SUBMISSION OF CANADA
4.2 The following summarizes Canada's arguments in its first written submission.
1. INTRODUCTION
4.3 This case is about the failure of the Un ited States to implement the rulings and
recommendations of the DSB. The new affirmative threat of injury determination made by the

8 One Commissioner of the USITC dissented, finding that the domestic industry producing softwood
lumber was not threatened with material injury. Views of the Commission, Exhibit CDA-1 at 89.

USITC reaches the same conclusion on essentially th e same record and the same reasoning as the
original determination and does not comply with Articles 3.7 and 3.5 of the AD Agreement and
Articles 15.7 and 15.5 of the SCM Agreement.
4.4 The USITC’s new determination remains base d principally on its finding of a likely
substantial increase in imports in the imminent fu ture. The USITC majority rationalized what was
essentially a cosmetic rewriting of its original decision with little change in substantive analysis. This
was done in a number of ways: (i) by changing, wit hout acknowledgement or explanation, findings in
its original determination; (ii) by ignoring th e Panel’s concerns with the evidence, or more
appropriately lack of evidence, for the USITC’s or iginal threat determination; (iii) by repeating
previous findings without addressing concerns the Panel raised about those findings; and (iv) by
saying it would rely on the new evidence gathered in the proceeding it had conducted in response to
the DSB’s rulings and recommendations and then ignoring most of this evidence.
2. BACKGROUND
4.5 USITC’s Section 129 Determination. The United States issued its new determination
pursuant to Section 129(a) of the Uruguay Round Agreements Act, which authorizes the USITC to
“make a new [or second] determination … that is not inconsistent with the [WTO] panel or Appellate
Body recommendations.” At the outset of its Section 129 proceeding, the USITC re-opened the
administrative record it previously described as “r eliable, comprehensive and complete,” without
offering any rationale for doing so.
4.6 In its Section 129 Determination the USITC stat es that it thought the Panel’s primary concern
was with the USITC’s failure to explain itself suffi ciently. It rarely acknowledged that the Panel’s
concerns went far beyond this issue. The USITC discussed a number of factors in support of its
renewed affirmative threat determ ination, namely; (i) the volume of imports during the POI and in
the imminent future, including the new finding of a “significant rate of increase” in subject imports
and the new finding that Canadian market share would increase (but it did not find that increase would
be “significant”); (ii) the new finding that the r estraining effect of the SLA was significant; (iii)
imports during periods of no import restrictions; (iv) Canadian producers’ capacity and production in
2002/03, including “excess capacity”; (v) the export orientation of Canadian producers; and (vi) US
demand forecasts, including the USITC’s new finding that US demand in the imminent future would
be essentially unchanged.
4.7 In its original determination, the USITC conclude d that subject imports we re likely to have a
significant price-depressing effect in the future because of likely substantial increases in subject
import volumes and the at least moderate substitu tability between subject imports and domestic
product. In its Section 129 Determination, the USITC again relied on these findings.
4.8 The new determination also considered the vulnerability of the domestic industry. The
USITC admitted the financial recovery of the US industry at the end of the period of investigation, but
found that this performance was less favourable when compared to first quarter 2000.
4.9 The USITC’s new causal link conclusions were a consequential effect of its findings
regarding likely substantial increases in subject im ports and the likely price effect these would have
on the domestic industry. Instead of conducting a non-attribution analysis, the USITC discussed six
“other factors” that it indicated Canadian parti es identified as threatening the US industry. The
USITC dismissed each factor in turn. In other wo rds, the USITC took the position that, in the context
of the USITC’s threat analysis, the only source of injury to the US industry was or could be imports of
Canadian softwood lumber.
4.10 Commissioner Pearson, who did not participate in the original determination, dissented. He
relied on evidence that the majority failed to acknowledge. He concluded, as did the USITC

originally, that there was no signifi cant rate of increase in subject imports and that the effects of the
SLA had been “quite modest.” He also concluded that any short-term changes in import trends did
not outweigh the long history of steady participation in the US market by subject imports and were
usually explained by their correlation with the im position of or relief from provisional measures.
Finally, he found that subject import prices were not likely to have any significant suppressive or
depressive effect in the imminent future.
3. LEGAL ARGUMENT
4.11 Standard of Review.
 In its report, the Panel stated that its role is not to substitute its judgment
for that of the USITC, but it must carry out a de tailed and searching analysis of the evidence relied
upon and the reasoning and explanations given by the USITC. Canada agrees.
4.12 With respect to this Article 21.5 review, the principal task of the Panel is to determine
whether the measure taken by the United States is c onsistent with the United States’ obligations under
the AD and SCM Agreements. The Appellate Body has held that “a panel acting pursuant to
Article 21.5 of the DSU would be expected to refer to the initial panel report, particularly in cases
where the implementing measure is closely related to the original measure, and where the claims
made in the proceeding under Article 21.5 closely resemble the claims made in the initial panel
proceedings.”
4.13 Legal Requirements for a Finding of Threat of Material Injury. Article 3.7 of the AD
Agreement and Article 15.7 of the SCM Agreement require that a determ ination of threat of material
injury “shall be based on facts and not merely on allegation, conjecture or remote possibility” and that
any threatened injury must be “clearly foreseen and i mminent.” Factors must be considered in their
totality and that “totality” “must lead to the conclusion that further dumped [or subsidized] exports are
imminent and that, unless protective action is taken, material injury would occur.” Taken together,
these requirements reflect the longstanding recogni tion of the “danger of taking an antidumping
[countervailing duty] action too easily and without sufficient evidence.”
(a) Factors Cited By The USITC Do Not Support Its Conclusion That There Would Be A
Substantial Increase In Imports
4.14 Volume Trends . In its Section 129 Determination, the USITC made a “new” finding of a
significant rate of increase in imports, which it did not even consider, let alone make, in its original
determination. The USITC’s rationale for this “new” finding suffers from a number of deficiencies.
4.15 First, in saying that subject import volumes were significant, the USITC offered nothing new
in terms of evidence. Similarly, in saying that th e market share of subject imports was significant, the
USITC failed to add that in its original negative in jury determination it found that subject imports had
essentially the same market share. In fact, in the original determination the USITC found that this
same market share was “relatively stable” during th e POI and that the increase in market share was
“small.” These findings were not retracted in th e Section 129 Determination. Moreover, in now
saying that “subject imports would increase their market share in the imminent future,” the USITC did
not find that the increase in market share would be significant.
4.16 Second, in now claiming that the 2.8 percent absolute increase in imports over the POI “is a
significant rate of increase in the volume of impor ts” the USITC has not only reversed itself without
explanation, it has done so notwithstanding the Pane l’s recognition that the USITC originally did not
find this increase to be “significant.” The USITC’s substantive analysis continues to address only the
absolute increase in the volume and market penetration of subject imports, rather than their rate of
increase during that time. The actual “ rate of increase” in the volume of imports from 1999 to 2001
was essentially flat at only 1.4 percent annually.

4.17 Regarding additional evidence to which the USIT C referred – the “14.6 percent” increase in
subject import volume in the first quarter of 2002 ov er the same period in 2001 – the USITC failed to
put this number in perspective. This 14.6 percent increase in subject import volume, represented a 0.4
percentage point increase in Canadian market share for all of 2001 and a 1.5 percentage point increase
in Canadian market share compared to the first quart er of 2001. Yet an increase of either 0.4 or 1.5
percentage points fits comfortably within the market share “range” the USITC discussed as “relatively
stable” and the increase it described as “small” in its original determination and that the Panel
accepted as being well within historical patterns. There is simply no basis in the evidence for the
USITC claim that subject imports “will increase at a substantial rate in the imminent future beyond
historical level.”
4.18 Furthermore, the first quarter of 2002 was not a period of normal conditions because the
provisional countervailing duty measures had been withdrawn in December (this period between
remedies is referred to as the “gap period”). Th e majority’s failure to acknowledge and take into
account the effects of the “gap” in the application of provisional measures is even more difficult to
understand when one realizes that US industry repr esentatives and their counsel conceded that the
first quarter spike in imports was due to the gap in duties. Comparing import trends for the first
quarter of 2002 with the same period in 2001 is particularly unhelpful because opposite commercial
incentives existed in the two quarters. Wh ile Canadian producers had a short-term incentive to
increase shipments to the United St ates during the “gap period” in the first quarter of 2002 before
final duties were imposed, they had a short-term disincentive to ship to the United States in the first
quarter of 2001 until the SLA expired on March 31.
4.19 The Panel’s finding that, at most, the volume evidence relied upon by the USITC could
support a conclusion that imports would continue at hi storic levels remains true regarding the Section
129 Determination. The evidence and explanation provided do not support USITC’s conclusions on
volume trends and its “new” finding of a “significant rate of increase.”
4.20 Softwood Lumber Agreement.
 Perhaps the most extraordinar y of the new “findings” in the
USITC’s Section 129 Determination was its “new ” finding that the effects of the SLA were
“significant.” The majority not only changed, without explanation, its original finding that the SLA
“appears to have restrained the volume of subject im ports at least to some extent” but it did so even
though it acknowledged that virtually all of the evid ence it cited was in the r ecord of the original
investigation.
4.21 The evidence demonstrates that the USITC was right the first time. For instance, the USITC
now emphasizes the fact that subject imports increased during the pendency of the SLA – yet this was
true before, and as has been seen, the USITC found no material injury, in part on the basis of the
“small increase” in the market share of subject imports during the POI.
4.22 The USITC also relied on certain studies that it stated “appraise or quantify the magnitude or
impact of the SLA [and] are consistent with our findings that the SLA had constrained subject
imports.” What is first noteworthy about this statement is that the USITC did not use the word
“significant” to characterize the findings of these stud ies. There is no dispute that the SLA may have
had “some” effect on subject imports at some point during the five years it was in effect, which is at
most what these studies show. All of these studies were in the original record, and the USITC did not
interpret them in its original determination to show that any restraining effect of the SLA was
significant.
4.23 Moreover, these studies do not address the key issue of whether the SLA had any significant
restraining effect at the time it expired . If the SLA no longer had a significant effect at that time, its
expiration could not have lead to any significan t increase in subject imports. The petitioner’s own
economist acknowledged at the hearing that these studies were not probative with respect to that
issue. The data on which these studies were base d ended in 1999, well over a year before the SLA

expired. The evidence in fact shows that the ef fect of the SLA changed during the period it was in
effect as reflected in shifts in production within Canada, increased imports from third countries and
the very significant decline in the purchase of “$50 tickets” (fee quota) during the final year of the
agreement.
4.24 The only “new” evidence cited by the USITC wa s a study by Dr. Stoner submitted by the US
petitioners and a memorandum from the USITC’s Office of Economics. In citing the Stoner study,
the USITC appeared oblivious to serious methodological criticisms levelled by the USITC’s own staff
economists. Although the USITC relied on its economists’ memorandum as supportive for its
finding, the principal point of that memorandum was that the Stoner study did not effectively control
for other factors during the SLA that affected the volume of imports and the price of lumber.
4.25 The majority also never addressed evidence, noted by Commissioner Pearson, that indicated
the SLA “exerted little influence on price” and that “the expiration of the SLA would not lead to
significant or lasting price changes, just as the e xpiration would not likely lead to significant changes
in volume.”

4.26 Therefore, the implications of the Panel’s obser vation that the USITC did not originally find
that the SLA had significantly restrained exports remain the same. The evidence relied on by the
USITC in the Section 129 Determination and the explanation the USITC provided for its “new”
conclusions, do not support those conclusions.
4.27 Periods of No Import Restrictions. In rejecting the USITC’s reliance on import trends in the
April – August 2001 period, the Panel noted that the USITC had not discussed whether this period
represented an accurate gauge of what would happen in the future in the absence of anti-dumping or
countervailing duty measures or whether the increase represented nothing more than a shift in timing
of exports to take advantage of the window be tween the expiry of the SLA and the provisional
measures.
4.28 The USITC did not conduct the analysis the Pane l required. Instead it largely repeated its
earlier analysis and concluded that “[c]laims that the substantial increase in imports during the April –
August 2001 period only reflects ‘a shift in the timing of imports’ fail to address the simple fact that
imports increased both during the period and afterward.” In rejecting the ‘shift in the timing of
imports’ argument, the USITC analysis contains several critical deficiencies.
4.29 First, by focusing on total imports during this entire five-m onth period, the USITC failed to
confront the central question the Panel raised– wh ether the increase in imports represented simply a
shift in their timing. Only by examining month-to-month changes, including the months before the
SLA expired and after the imposition of bonding requirements, could the USITC determine whether
imports fluctuated in anticipation of and in response to these events.
4.30 Second, it focused exclusively on increases in the absolute volume of subject imports, not
market share. The change in ma rket share was not “significant,” as the USITC found in its original
determination.
4.31 Moreover, comparing the absolute volumes of imports in April – Augus t 2001 to levels in
prior years would be appropriate only if US consum ption had been the same in prior years, but it
demonstrably was not. For this reason, and given the USITC’s finding of “relatively stable” Canadian
market share in reaching its negative current injury determination, the USITC would have needed to
examine monthly market share shifts during the April – August 2001 period. However, had it done
so, it could not have supported its finding of likely substantial increases in imports in the imminent
future.

4.32 As Exhibit CDA-26 demonstrates, the record evidence does not support the inferences the
USITC drew from the aggregate trends in the absolute volume of imports for the April – August 2001
period. This exhibit uses Canadian market share rath er than absolute volumes, in order to control for
the higher US demand in 2001. As even a cursory gl ance at this chart shows, the fluctuations in
subject imports’ share of the US market – and partic ularly the sharp spike in April just after the SLA
expired – are entirely consistent with the obvious e xplanation that importers adjusted the timing of
their exports to avoid export restraints.
4.33 Finally, the USITC’s reliance on the increase in imports between April and August 2001 also
cannot be reconciled with its rene wed finding that “[b]ased on the record of these investigations,
Canada does not find that material injury by reason of subject merchandise that is subsidized and sold
at less than fair value would have been found but for any suspension of liquidation of entries of such
merchandise.” In other words, the USITC found that imports would not have increased to injurious
levels in the period before its vote in May 2002 even if the provisional measures had not been
imposed in August 2001. There is no way to reco ncile this conclusion w ith the USITC’s proposition
that import trends from April to August 2001 foresha dowed a substantial increase in imports in the
imminent future sufficient to threaten material injury.
4.34 In an effort to bolster its claim that imports increased substantially after the expiration of the
SLA, the USITC also relied on new da ta showing that imports increased in the first quarter of 2002.
As with its flawed analysis of volume trends discussed above, here again the majority ignored the role
that timing played on first quarter 2002 imports. Th e USITC’s failure to acknowledge and take into
account the effects of the four-month “gap” in th e application of provisional measures is not
understandable, particularly when one takes in to account the exactly opposite incentives facing
Canadian producers regarding their shipments to the United States in the first quarter of 2001
compared to the first quarter of 2002.
4.35 The USITC again relied on import trends in the period between 1994 and 1996. However, the
USITC did not address the Panel’s concerns with its fa ilure to provide an analysis of whether market
conditions in this period before th e POI were sufficiently similar to predicted market conditions to
warrant the conclusion that imports would increase substantially.” The USITC considered only one
factor – apparent US consumption. The USITC did not analyze why imports were increasing then, i.e.,
whether conditions other than the absence of import rest raints affected the volume. It did not analyze
why imports also increased in the immediatel y preceding 1991 – 94 period as well when import
restraints were in effect. Nor did the USITC even coll ect the data necessary to analyze whether
increasing imports had any injurious effect on the US industry during that time, even though it would
be impossible to draw inferences about the future effect of increasing imports without knowing what
impact they had had in earlier periods.
4.36 The deficiencies the Panel identified in the US ITC’s reliance on information for each of these
two periods and the lack of meaningful analysis of the information concerning these periods persists
unabated in the Section 129 Determination.
4.37 Excess Capacity, Production and Export Orientation. As the Panel observed, “the evidence
before the USITC indicated that Canadian capacity was projected to increase by less than one per cent
in 2002, and a further 0.83 per cent in 2003.” The Panel concluded that “[t]his certainly does not, in
our view, support a conclusion that there would be a substantial increase in capacity, and indeed, the
USITC does not appear to have found otherwise.” The USITC agreed when it recognized that the
increases in capacity projected by Canadian producers were “slight.” Nonetheless, it continued to rely
on these slight increases to support its finding that s ubject imports would increase substantially in the
imminent future.
4.38 Because the record showed only “slight” incr eases in total Canadian capacity, the Panel
recognized that “it is only the existing excess capaci ty that might be viewed as supporting a finding

that imports would increase substantially in the fu ture.” Nothing in the “new” data supports a
different conclusion. The Canadian producers’ proj ections of the percentage of production that they
expected to export to the United States in 2002 a nd 2003 remain the same as those the Panel already
concluded to be “well within the historical range” of their own prior experience. Equally important, it
is now clear that those projections were completely consistent with the historical average for the
Canadian industry as a whole. As the USITC re luctantly admitted in a footnote, “the revised
[production and export] percentages are consistent with those reported by Canadian producers in
questionnaire responses in the original investigati on.” The USITC nonetheless continued to cling to
its position that “Canadian Producers’ Export Proj ections Are Inconsistent with Other Record
Evidence.”
4.39 The new data demonstrate that the USITC wa s simply wrong, and vindicates the projections
of the Canadian producers. The revised data in Table VII-7 of the Posthearing Staff Report for the
Section 129 proceeding show that the subset of Ca nadian producers that responded to the original
questionnaires had basically the same past and project ed export orientation as all Canadian producers,
including those that did not respond. The USITC acknowledged this revision, but did not recognize
that the new data completely vitiated its argume nt that these producers’ export projections were
inconsistent with their historical experience.
4.40 The USITC’s conclusion that Canadian producer s would have the same export orientation in
the future that they had during the POI does not support an affirmative threat finding because it means
a continuation of the non-injurious status quo.
4.41 US Demand Forecasts.
 The final factor on which the Panel found the USITC had relied was
the forecast of “strong and improving” demand in the US market. The Panel noted that all the USITC
found in this regard was that the United States would continue to be an important market for Canadian
producers. The Panel held that “a conclusion which simply posits the continuation of the historical
situation” did not support the USITC ‘s finding of a substantial increase in imports.
4.42 In response, the USITC has once again reversed itself without acknowledging the switch in its
position or trying to reconcile it with its prior fi nding of “strong and improving” demand – and again,
did it almost entirely on the basis of evidence from the original record. The USITC stated in one
place that “[t]he evidence dispels any claims that projected substantial growth in demand for softwood
lumber in the imminent future” and in another that “demand in the US market was forecast to remain
relatively unchanged or increase only slightly as th e economy improved.” Elsewhere in the Section
129 Determination the USITC stated that “demand is either static or improving slightly” and again
“forecasts expected [demand] to be relatively unchanged until the second half of 2002, and then
would begin to increase in 2003 as the US economy rebounded from a recession.”
4.43 Perhaps this about-face reflects a tacit acknow ledgement by the USITC that it could not
reconcile an affirmative threat finding with forecasts of improving demand, because the record
contains no evidence that any increase in subject imports would outstrip improving US demand.
Whatever the explanation, the fact remains that the forecasts in the record for the Section 129
Determination were the same as those in the original record. All of these forecasts agreed that
demand would improve in the 18 months after the USITC’s vote in mid-2002.
4.44 The one forecast on which the USITC relied in the Section 129 Determination, (the
November 2001 Bank of America report), was issued five months before the RISI and Clear Vision
forecasts, and thus well before the US economy be gan its recovery from the post-9/11 recession. By
March – April 2002, a consensus had developed am ong forecasters that the 2001 recession caused by
the terrorist attacks of September 11 were over. Moreover, forecasters in the first quarter of 2002
were continuously revising upwards their predictions for GDP growth in 2002 and 2003. The USITC
therefore could not objectively have concluded that the Bank of America forecast undermined its prior
reliance on the RISI and Clear Vision forecasts.

4.45 As for the USITC’s new-found suggestion that demand for softwood lumber did not really
correlate with housing starts, its own Staff Report observed that “US housing starts nearly always
consume the greatest portion of softwood lumber, with changes in overall consumption generally
tracking those starts.”
4.46 The USITC’s final attempt to justify its about-face with respect to future demand conditions
is equally unconvincing. While acknowledging that “housing starts increased in January and
February of 2002 to the highest levels for single- family home starts in over 20 years,” the USITC
seized upon the 10.2 percent decline in March as ev idence that “the improvements in demand during
the mild winter of 2001-2002 were not sustainable. ” But even with this decline, the March 2002
housing starts were the fifth or sixth highest mont hly total for the preceding 26 months, and housing
starts in the first quarter of 2002 were 5.5 per cent higher than in 2001, foreshadowing a future
increase in demand for softwood lumber and confirming the forecasted consensus.
4.47 Nothing in the Section 129 Determination addressed the Panel’s holding that a conclusion that
posits the continuation of the non-injurious histori cal situation does not support the USITC’s finding
of a substantial increase in imports.
(b) The Factors Cited Do Not Support The USIT C’s Finding Of Likely Adverse Price
 Effects
4.48 Article 3.7 (iii) of the AD Agreement and Ar ticle 15.7 (iv) of the SCM Agreement provide
that an investigating authority should consider “whether imports are entering at prices that will have a
significant depressing or suppressing effect on domes tic prices, and would likely increase demand for
further imports.” The focus of this factor is, therefore, on actual current prices, as a predictor of
future price and demand effects.
4.49 In its original determination, the USITC conclude d that subject imports we re likely to have a
significant price-depressing effect in the future because of likely substantial increases in subject
import volumes and the at least “moderate substit utability” between subject imports and domestic
product. In its new determination, the USITC again relied on these findings. It also noted that prices
declined in mid and late 2001 to levels as low as 2000 and that there was “limited” improvement in
the first quarter of 2002, which it attributed “large ly” to an increase in consumption. The USITC
found that “this improvement was not likely to be sustained, in light of the decline in housing starts in
March 2002 from the record high reported for Februa ry 2002. Further, record US housing starts
throughout the period clearly did not guarantee higher prices in the US market, given price
competition and excess supply.”
4.50 These conclusions were also based in part on a “price trends” analysis the USITC undertook
that simply described the decline in prices in the last two quarters of 2001 without any analysis of the
cause of that decline.
4.51 What is first of interest about the USITC’s new price trends analysis is that it did not
acknowledge the pricing analysis the USITC undertook in its original determination. At that time, the
USITC found no evidence of significant price underselling by subject imports, and found
unsubstantiated all of the US industr y’s allegations of lost sales and lost revenues due to lower-priced
imports. Because the USITC attributed these decl ining prices to excess supply caused by “both
subject imports and the domestic producers,” it could not “conclude from this record that the subject
imports had a significant price effect during the POI.”. With r espect to its original affirmative threat
finding, the USITC again referenced the declining price trends in the third and fourth quarters of 2001
in its original price effects discussion, but did not cite these trends in support of its original finding
that imports “are entering” at prices likely to cause future significant price suppression.

4.52 In its Section 129 Determination, the USITC cite d the same declining trends in prices in the
third and fourth quarter of 2001 that it considered in its negative injury determination and now found
that they supported the “conclusion that imports at the end of the period are entering at prices that are
likely to have a significant depressing or suppressing effect on domestic prices.”
4.53 What is missing in the new determination is any explanation of how the USITC could
conclude that the same “price trends” analysis that could not support a finding that subject imports
had significant current price effects could demonstr ate that imports are likely to cause significant
future price suppression. Perhaps no explanation was offered because the two findings simply cannot
be reconciled. Nor is there any question regarding which of the two findings can be sustained. The
evidence supports the USITC’s first finding and not its new finding in the Section 129 determination.
4.54 The USITC’s new price trends “analysis” is essen tially nothing more than a recitation of the
undisputed fact that prices of both imported and domes tic lumber declined in the final two quarters of
2001. The fact that prices declined, however, says nothing about “whether imports are entering at
prices that will have a significant depressing or suppressing effect on domestic prices.” More
specifically, the fact that prices declined says nothing about the cause of their decline – in particular,
whether it can be attributed to Canadian impor ts. As noted above, in its negative injury
determination, the USITC identified the general ca use when it concluded that the price declines
during the POI were the result of excess supply from both domestic production a nd subject imports
and also found that while subject imports had “ some effect on prices,” they had not yet “had a
significant price effect” so as to be a substantial cause of material injury to the domestic industry.
4.55 The USITC’s “new” price trends analysis suffers from another defect – it is incomplete and
inaccurate. While the USITC repeatedly referred to th e substantial decline in prices at the end of the
POI, it discounted the fact that prices rose steadily after the fourth quarter of 2001. By the time the
record closed in mid-April 2002 – the actual “end of the period of investigation” – first quarter 2002
prices were more than 10 percent above prior y ear levels, and higher than the fourth quarter 2001
lows by roughly the same amount. The USITC attempted to dismiss this evidence of 2002 prices on
the ground they were not as high in absolute terms as in prior years or prior quarters. But by the
USITC’s own (flawed) reasoning, this was beside the point: the key question according to the USITC
was the direction in which prices were moving at the end of the POI, not their level relative to the
same period in prior years. The direction in the first quarter of 2002 was precisely opposite to what
the USITC claimed.
4.56 In the absence of a sustainable price trends anal ysis and in the light of extensive, contrary
record evidence, the USITC’s findi ng that subject imports are likely to have a significant price-
depressing effect necessarily is dependent on its finding of likely future substantial increases in import
volumes. As has been shown above, that volum e finding remains unsupported. Moreover, it is
important to recall that the Panel has already he ld that a substantial increase in imports in absolute
terms, without a finding of a significant increase in market share, was insufficient to support a finding
that subject imports will cause significant price depression or suppression in the future. Therefore, the
USITC’s pricing analysis fails to support its finding th at subject imports are likely to enter at prices
that will have a significant depressing or suppressing effect on prices.
4.57
 Substitutability Analysis. In its original determination, the USITC found the degree of
substitutability between subject imports and domestic product was not “high” but “at least moderate.”
In its Section 129 determination, the USITC ch aracterized this relationship as “substitutable” but
never rejected its prior characterization. A finding of “at least moderate s ubstitutability” means that
competition between imported and do mestic goods is “attenuated to a certain extent,” and in such
circumstances, it is necessary to consider what portion of any predicted increase in subject imports
would involve lumber with limited substitutability because such imports would be unlikely to have a
material adverse effect on domestic prices. Thus the USITC’s finding of “at least moderate
substitutability” requires it to consider whether, and to what extent, the predicted increase in subject

imports would likely involve purchases by US cons umers that do not consider Canadian and US
lumber to be close substitutes, because the greater the percentage of subject imports that serve these
segments of the US market, the lower would be the potential for price suppression.
4.58 Rather than confront the implications of its own finding of “at least moderate
substitutability,” the USITC described eviden ce supporting the proposition that imported and
domestic lumber are interchangeable in certain applications, while ignoring evidence that many
purchasers do not consider them substitutable to a significant extent. The USITC still does not
acknowledge, much less analyze, the evidence in its own Staff Report that many customers list timber
species as the most important factor in their lu mber purchasing decisions, and for these purchasers,
competition among different species of lumber is attenuated.
4.59 As with its price trends analysis, the USITC’s revised substitutability analysis simply does not
stand up to scrutiny. Its price effects finding remains predicated entirely on its finding of the
likelihood of a substantial increase in imports in the imminent future, a finding that is neither
supported by the evidence on which the USITC relied nor its explanation for the finding.
(c) Factors Cited By The USITC Do Not Support Its Finding That The US Domestic
 Industry Was “Vulnerable”
4.60 The USITC emphasized that in both its orig inal determination and in its Section 129
determination it found that the domestic industry’s condition was “deteriorating.” However, new data
obtained in its Section 129 proceeding for the first quarter of 2002 showed significant improvement in
the US industry’s condition, including capacity, pro duction, capacity utilization, shipments, per-unit
revenues, operating income, cash flow, employme nt, wages, productivity, and, most importantly,
financial performance.
4.61 The USITC acknowledged this improvement in the US industry’s condition, but sought to
dismiss this evidence that contradicted its claim of a deteriorating US industry because “financial data
for a single quarter … is not necessarily an accurate indicator of the industry’s performance for the
entire year.” But on the very next page of its de termination the USITC argued that the increase in US
consumption of softwood lumber would not be sust ained because of a drop in housing starts for a
single month. Nor did the USITC acknowledge that housing starts for the entire first quarter of 2002
were well above first quarter 2000 or 2001, and remained at very high levels compared to the prior 26
months.
4.62 Moreover, the evidence before the USITC showed that the profitability of the US industry had
been improving over a period much longer than three months. After reporting a negative operating
margin for the final three quarters of 2000 and the first quarter of 2001, the domestic industry reported
a positive operating margin of 3.7 percent in th e final three quarters of 2001, notwithstanding the
adverse effects caused by the 9/11 induced recession. Seen in this light, the improvement in the first
quarter of 2002 compared to the first quarter of 20 01 is a continuation of a consistent trend that had
developed over the course of a full year, a pattern that does not support a finding that an industry is
“vulnerable.”
4.63 It is also hard to see the relevance to the lik elihood of injury to the US industry that its
financial performance in the first quarter of 2002 was less favourable than in the first quarter of 2000.
The more important consideration was whether th e US industry’s condition was deteriorating or
improving as the US economy emerged from the post-9/11 recession. As Commissioner Pearson
noted, the data showed “notable improvements in the condition of the domestic industry” and that
“[i]n the first quarter of 2002, the domestic indust ry appeared neither injured nor particularly
vulnerable.” Nor was any “injury” that the US industry may allegedly suffer “on the brink of
happening.”

4.64 Thus, when considered in the context of the tota lity of factors considered, it is clear that the
USITC’s renewed affirmative threat finding is not on e that could have been reached by an objective
and unbiased investigating authority.
(d) The USITC's "Causal Link" Continues To Suffer From The Same Defects As Originally
 Determined By The Panel
4.65 In its single page of causation analysis in its Section 129 determination, the USITC repeated
its previous finding that the deterioration in the condition of the US industry flowed from excess
supply in the market which led to price declines. The USITC found that going forward it is the
Canadian producers that will engage in “excess production which will result in excess supply in the
US market,” while “US producers have brought th eir production in line with consumption” in the
United States.
4.66 Yet, the basis for the conclusion about US pr oducers curbing production is a single footnote
in the section of the Section 129 Determination di scussing price declines during the POI. The last
sentence of that footnote cites a consultant’s re port stating that lumber overproduction had been
“curbed considerably [in the Unite d States] but remains a problem in Canada.” Here, the USITC is
again relying on the same Bank of America report th at the Panel previously found insufficient to
support the USITC’s conclusion. The USITC c ited no new evidence for the proposition that US
producers brought their production into line with US consumption. Even more striking, new data
gathered in the Section 129 proceeding relating to the first quarter of 2002 directly refuted the USITC
finding: they showed that US production was up by nearly 5 percent, while Canadian production
declined by over 2 percent.
4.67 The significance of these new data is difficult to overstate. The USITC said that the “central
problem” facing the US industry was that lumb er was still being overproduced by Canadian
producers, although US producers had curbed such overproduction. However, the undisputed facts
described above from the USITC’s own Staff Repor t in the Section 129 proceeding conclusively
demonstrated that the USITC got the facts concerning the “central problem” exactly backwards :
Because the US industry was at least as likely as the Canadian industry to contribute to any
oversupply in the imminent future, no objective and unbiased decision maker could conclude that
subject imports presented a threat of material injury.
4.68 As the Section 129 Determination contains no objective basis for the finding concerning any
imminent increase in subject imports, the causation analysis remains inconsistent with Article 3.5 of
the AD Agreement and Article 15.5 of the SCM Agreement.
(e) The USITC's Consideration Of "Other Factors" Fails To Satisfy The Requirements Of
 The AD And SCM Agreements
4.69 The USITC’s analysis in the Section 129 Determ ination fails to solve the Panel’s “serious
concerns” about its non-attribution analysis. The USITC was required to undertake the appropriate
analysis that would result in separating and distin guishing the injurious effects of any substantial
increase in imports from the injurious effects of other causal factors. The USITC did not conduct
such an analysis. Article 3.5 of the AD Agreem ent and Article 15.5 of th e SCM Agreement require
authorities to examine any known factors other than the dumped or subsidized imports “which at the
same time are injuring the domestic industry, and the injuries caused by these other factors must not
be attributed to” the dumped or subsidized imports.
4.70 In US – Hot-Rolled Steel, the Appellate Body found that the non-attribution language in
Article 3.5 of the AD Agreement required investigating authorities:

[A]s part of their causation analysis, first, to examine all “known factors”, “other than
dumped imports”, which are causing injury to the domestic industry “at the same
time” as dumped imports. Second, investiga ting authorities must ensure that injuries
which are caused to the domestic industry by known factors, other than dumped
imports, are not “attributed to the dumped imports.” (emphasis added)
4.71 In that case, the Appellate Body recognized that there may be a number of different causal
factors interacting and affecting the domestic industr y at the same time and that “their effects may
well be inter-related, such that they produce a combined effect on the domestic industry.” In EC –
Pipe Fittings, the Appellate Body went on to state that “we recognize that there may be cases where,
because of the specific factual circ umstances therein, the failure to undertake an examination of the
collective impact of other causal factors would result in the investigating authority improperly
attributing the effects of other causal factors to dumped imports.”
4.72 In its Section 129 Determination, the USITC pur ported to demonstrate, in defiance of the
evidence and its own current injury analysis, that there were no “other causal factors” relevant to its
investigation that could constitute a threat of inju ry to the domestic industry. The position taken by
the USITC was that it had no obligation to conduc t a non-attribution analysis, because in 2002 there
were no other known threat factors to the US industry other than Canadian softwood imports.
4.73 It is clear from the record that factors ot her than the subject Canadian softwood lumber
products were having substantial a dverse effects on the US domestic industry during the POI. In the
context of its original current injury analysis, the USITC acknowledged that the substantial declines in
price during the POI could not be explained by a slight increase in market share by Canadian imports.
The USITC was compelled to make this finding be cause it could not credibly assert that substantial
price declines and a decline in operating prof it by over one billion dollars between 1999 and 2000
could be explained by a 0.4 percent shift in market share for Canadian imports. Other factors must
have contributed to this reality.
4.74 However, in its Section 129 Determination, th e USITC purported to consider and dismiss as
irrelevant a number of “potential” or “alleged” other factors. The following discussion addresses
three of these other causal factors affecting the US industry.
4.75 Role of the US Industry.
 In its negative injury determin ation, the USITC found that subject
imports did not have any material injurious pri ce effects during the POI because domestic lumber
contributed to the excess supply during that time a nd precluded a finding that the subject imports had
a significant impact on the domestic industry. In the discussion of causation in the previous section,
Canada saw that the evidence before the USITC showed that Canadian producers curbed production
significantly (down 2.6 percent in the first quarter of 2002, i.e., at the end of the POI) while US
producers increased their production by 5 percent in th e same quarter – a substantial shift in relative
production. These data make it impossible to credib ly say that the central problem facing the US
industry in the imminent future was Canadian ove rproduction. The facts show the central problem
was US overproduction.
4.76 The USITC itself acknowledged that “the evidence does not support allegations that there are
constraints on domestic production wh ich would render the US industry unable to increase supply, if
demand increases substantially. On this basis, it is hard to see how the USITC could categorically
dismiss threat of injury from domestic oversupply.
4.77 Third Country Imports.
 The USITC concluded that non-subject imports from third countries
were not a causal factor in any injury to the US industry. However, none of its reasons withstands
scrutiny. At the very least, its reasons for dismis sing non-subject imports are inconsistent with the
reasoning in its threat analysis for subject imports.

4.78 The USITC’s principal reason for refusing to consider non-subject im ports was their small
market share. However, the real issue was the expected rate of incr ease in their market share at the
expense of the domestic industry. The USITC cited the increase of 1.1 percentage points in Canadian
market share from 1999 to 2001 in support of its finding that Canadian imports would increase
substantially in the future. However, third-count ry market share rose by a similar amount in this
period – 0.9 percentage points. Moreover, the rate of increase in market share was dramatically
higher for non-subject imports, compared to a static market share for subject imports. Third-country
imports more than doubled in absolute terms between 1998 and 2001, increasing by an average of
30 percent a year. This pattern accelerated in th e first quarter of 2002, in which non-subject imports
rose by 50 percent compared to the first quarter of 2001 and increased their market share by nearly 0.8
percentage points in the process. The rate of incr ease in market share, especially at the end of the
POI, is a critical factor in any prediction of future trends. The USITC simply ignored it.
4.79 The USITC’s second basis for re jecting non-subject imports as a causal factor was that
“individual country non-subject imports would have been deemed negligible under US law and the
WTO Agreements … .” But that fact, while true, is wholly irrelevant to whether the USITC attributed
to subject imports injury that would be caused by the cumulative effect of the continued increase of
these imports as a group.
4.80 The USITC’s third reason was that the market share of third-country imports was not likely to
increase relative to subject imports because subject imports, but not third-country imports, were
subject to import restraints for most of the POI. Putting aside the lack of any basis for the USITC’s
new finding that the SLA had a significant restraining effect, even if non-subject imports kept pace
with subject imports, they would have at least an eq ual effect on the US industry. In any event, the
USITC failed to analyze how the projected rate of continued increase in third-country imports would
compare with the projected rate of increase of subj ect imports, even though the first quarter of 2002
provided an opportunity to conduct such an analysis in light of the “gap period.”
4.81 The USITC suggested that it is “speculative” that non-subject imports would continue to
increase if no order were imposed. But nothing in the record indicates that the factors causing third-
country imports to increase would change, and it was the USITC’s obligation to determine whether
the factors that caused the large increase during the POI would continue in the imminent future.
4.82 Cross-Border Integration
. The USITC dismissed as “speculative” the notion that “integrated
firms will not harm their related companies.” This was not speculation but a common-sense
proposition recognized by the USITC itself in other cases where it has found, for example, that the
Canadian affiliate of a US producer is “not likely” to export subject merchandise “to the United States
in competition with” the US company’s US product. Many US producers that import or purchase
subject merchandise informed the USITC that they use this lumber to complement, not supplement,
their own production.
4.83 The USITC stated that “this integration is not new,” but the salient fact is the USITC’s own
acknowledgement that integration in the North Amer ican lumber market was “increasing.” The
USITC also cited its decision not to exclude an y domestic producers under the “related parties”
provision under US law. But this finding supports, rather than contradicts, the point that integrated
producers are unlikely to import lumber in injuriou s volumes or at injurious prices. The USITC
excluded domestic producers that import or that are related to foreign producers only when it
concluded that their interests were in effect more aligned with the foreign industry than the domestic
industry. The fact that the USITC in this case concluded that there were a number of “related”
parties, but that they should not be excluded, supports the proposition that these producers are more
closely aligned with the domestic industry and wo uld not import or purchase subject merchandise in a
way that depresses or suppresses prices.

4. REQUEST FOR FINDINGS
4.84 Canada requests that the Panel find the USITC’ s Section 129 affirmative threat of injury
determination, and the definitive anti-dumping and countervailing duty orders inconsistent with the
United States’ obligations under Articles 3.5 and 3.7 of the AD Agreement and Articles 15.5 and 15.7
of the SCM Agreement. Canada further requests th at the Panel find that the US measures taken to
comply are inconsistent with the rulings and reco mmendations of the DSB. Finally, Canada requests
that the Panel recommend that the United States bring its measures into conformity with its WTO
obligations, including by revoking the final determina tion of threat of injury, ceasing to impose anti-
dumping and countervailing duties and returning the cash deposits imposed as a result of the United
States’ actions in this matter.
B.
FIRST WRITTEN SUBMISSION OF THE UNITED STATES
4.85 The following summarizes the United States' arguments in its first written submission.
1. INTRODUCTION
4.86 At issue in this proceeding is the measure ta ken by the United States to comply with the
recommendations and rulings adopted by the DSB in the underlying dispute concerning the
investigation of the USITC in Softwood Lumber from Canada. To comply with those
recommendations and rulings, the United States followe d the procedure set out in domestic law, in
particular, section 129 of the Uruguay Round Agreemen ts Act (“URAA”). That procedure resulted in
a new determination by the USITC, issued on Nove mber 24, 2004 (“Section 129 Determination”).
The new determination was implemented as a matte r of domestic law on December 20, 2004, through
an amendment by the United States Department of Commerce ("USDOC") to the antidumping and
countervailing duty orders on softwood lumber from Canada to reflect the new determination.
4.87 The recommendations and rulings implemented in the Section 129 Determination relate to the
USITC’s determination that an industry in the United States is threatened with material injury by
reason of imports of softwood lumber from Canada found to be subsidized and sold in the United
States at less than fair value (“LTFV”). The USITC’s Section 129 Determination fully implements
the recommendations and rulings of the DSB and is consistent with the AD and the SCM Agreements.
The Panel should find, therefore, that Canada’s claims are unfounded, and reject them in their
entirety.
2. PROCEDURAL HISTORY
4.88 At issue in the underlying dispute was the USITC’s original determination of May 16, 2002,
in which it was found that an industry in the United States was threatened w ith material injury by
reason of imports of softwood lumber from Canada found to be subsidized and sold in the United
States at LTFV. The Panel Report in the underl ying dispute found that action by the USITC in
connection with its Softwood Lumber investigation was not in conformity with the obligations of the
United States under the AD and SCM Agreements. Following the DSB’s adoption of the Panel
Report on April 26, 2004, the United States undertook to come into compliance with its obligations
under the covered agreements.

4.89 On July 27, 2004, the USTR transmitted a request to the USITC “to issue a determination . . .
that would render the Commission’s action in connection with [its Softwood Lumber investigation] . .
. not inconsistent with the findings of the dispute settlement panel.”
4.90 After receiving the request from the USTR, the USITC issued a notice of institution in the
Federal Register on August 5, 2004 and a notice of scheduling in the Federal Register on August 26,

2004. In these notices, the USITC established pr ocedures for conducting the Section 129 proceeding,
including reopening the record to gather add itional information (from public data sources and from
questionnaires sent to domestic producers and Canadian producers) to be used to supplement the
information gathered in the original investigations.
9 The USITC sought such additional information
primarily to provide it with a more complete data series for the period closest to the USITC’s original
determination, and thereby to assist it in consider ing and addressing issues raised by the Panel Report
regarding the imminent future. Additional data from questionnaire responses were limited, because
the majority of Canadian producers either expressly refused to answer, or simply did not respond to,
requests in the Section 129 proceeding for addition al data. The USITC held a public hearing and
provided parties to the proceeding three opportunities to submit written comments in the form of pre-
hearing briefs, post-hearing briefs, and final comments.
4.91 After conducting its analysis, the USITC, on November 24, 2004, issued the Section 129
Determination, which found that “an industry in the United States is threatened with material injury
by reason of imports of softwood lumber from Canada found to be subsidized and sold in the United
States at less than fair value.” On December 20, 2004, the USDOC, at the direction of the USTR,
amended the antidumping and countervailing duty orders on softwood lumber from Canada to reflect
the new USITC determination. Accordingly, the United States had come into compliance with its
obligations under the AD and SCM Agreements, and so informed the DSB on January 25, 2005.
3. THE USITC ISSUED A NEW DETERMINATION CONSISTENT WITH THE AD
 AND SCM AGREEMENTS AND THE DSB’S RECOMMENDATIONS AND
 RULINGS
4.92 As discussed in detail in the Section 129 Dete rmination, the USITC responded to the DSB’s
recommendations and rulings by gathering additional information, conducting a thorough analysis,
and providing detailed and reasoned e xplanations for its findings. On the basis of its analysis of the
record evidence, the USITC made a new determin ation that an industry in the United States is
threatened with material injury by reason of impor ts of softwood lumber from Canada found to be
subsidized and dumped in the United States.
10 The USITC’s new determination is based on positive
evidence and an objective and unbiased evaluation of the facts.
(a) Standard Of Review And Burden Of Proof
4.93 In this Article 21.5 proceeding, the measure at issue is the USITC’s Section 129
Determination, which was taken to comply with the recommendations and rulings of the DSB. The
Appellate Body has recognized that “Article 21.5 pr oceedings involve, in principle, not the original
measure, but rather a new and different measure wh ich was not before the or iginal panel” and that
“the task of the Article 21.5 Panel” is to determ ine whether the new measure is consistent with the
covered agreements. While “a panel acting pursuant to Article 21. 5 of the DSU would be expected to

9 These procedures are contemplated in US law. See Statement of Administrative Action to the
Uruguay Round Agreements Act of 1994, H.R. Rep. No. 103-316, Vol. I at 1024 (“This 120-day limit will
provide the ITC sufficient time to gather additional information if necessary for it to decide on appropriate
implementing action.”).
10 The record evidence in the Commission’s Section 129 proceeding incorporated the record in the
Commission’s original Softwood Lumber investigations, the Panel Report, additional information gathered in
this Section 129 proceeding, and comments received in response to the Commission’s notice published in the
Federal Register on August 26, 2004. In addition, the Commission adopted from the original Commission
report its prior views and findings in their entirety regarding domestic like product, domestic industry and
related parties, use of publicly available information, conditions of competition, cross-cumulation, Maritime
Provinces, effects of subsidies or dumping, and consider ation of the nature of the subsidy and its likely trade
effects. See USITC Pub. 3509 at 3-13, 16-27, 27-29, 30-31, and 39. (Exhibit CDA-2). The findings by the
Commission in each of these portions of its original views were either not challenged or were found by the
original panel to be not inconsistent with US obligations under the covered agreements.

refer to the initial panel report,” the panel’s role is not to compare the old measure to the new
measure, as Canada repeatedly urges, but rather to review whether the measure taken to comply is
consistent with the covered agreements.11 In conducting that review, the Panel should apply the same
standard of review that the original panel applied in considering the original measure.
4.94 As the original panel observed in the underlying proceeding, given that the USITC’s
determination applies in both the antidumping and countervailing duty contexts, the standards set out
in both Article 17.6 of the AD Agreement and Article 11 of the DSU are relevant here. In the Panel
Report, the original panel stated, “[I]n a case such as this one, involving a single injury determination
with respect to both subsidized and dumped imports , and where most of Canada’s claims involve
identical or almost identical provisions of the AD and SCM Agreements, we should seek to avoid
inconsistent conclusions.” That rationale should guide the Panel’s re view in this proceeding too.
Similarly, the original panel’s observation that its “task is not to carry out a de novo review of the
information and evidence on the record of the un derlying investigation,” nor to “substitute its
judgment for that of the investigating authorities” applies with equal force to the present proceeding.
4.95 Canada glosses over these points, relying inst ead on selected quotations from the Appellate
Body reports in US - Cotton Yarn and US - Lamb. Rather than dwell on the matter, the United States
simply refers the Panel to the report in the u nderlying proceeding as an accurate statement of the
standard that should guide the Panel in its present review.
4.96 Similarly, the burden of proof in this proceeding, as in the original proceeding, lies with
Canada. As the original panel correctly stated, “I n this dispute, Canada, which has challenged the
consistency of the United States’ measures, thus b ears the burden of demonstrating that the measures
are not consistent with the relevant provisions of the relevant Agreements.”
(b) The DSB's Recommendations And Rulings
4.97 In considering how to come into complian ce with the DSB’s recommendations and rulings,
the United States took note of the fact that the orig inal panel focused on the explanation provided by
the USITC in support of its determinations in light of the evidence it had before it. For example, the
original panel discussed “the necessity of [the inv estigating authority] . . . providing an adequate
explanation of its analysis such that a Pane l can, with confidence, understand the reasoning
underlying the decision that was actually made in or der to be able to assess its consistency with the
relevant provisions of the Agreements.”
4.98 Earlier in the Panel Report, the original panel made clear that it based its findings on what it
saw as “no rational explanation in the USITC dete rmination, based on the evidence cited, for the
conclusion that there would be a substantial increase in imports imminently.” This concern regarding
insufficient explanation is repeated in the Report for several of the factors considered by the USITC in
its original threat of material injury determination.
4.99 Given the original panel’s consistent focu s on this point, the USITC understood that to
comply with the recommendations and rulings it s hould reconsider its analysis with a view to
providing detailed and thorough explan ations supporting its determinations. Thus, in the Section 129
Determination, the USITC articulated more reasoned and detailed explanations for issues material to
its determination so that its decisional path may reasonably be discerned by the Panel.
4.100 By contrast, at the heart of Canada’s argument that the United States has failed to come into
compliance is the strong suggestion that, based on the findings in the Panel Report, only a negative

11 Of course, the determination of what is the meas ure taken to comply can be a complicated one. See
Appellate Body Report, European Communities - Anti-dumping Duties on Imports of Cotton-Type Bed Linen
from India (Article 21.5), WT/DS141/AB/RW, adopted April 24, 2003, paras. 78-79.

determination would be consistent with the covered agreements.
12 Of course, that premise is patently
incorrect, as evidenced by th e fact that the original panel in th e underlying dispute expressly declined
Canada’s request that it suggest that the United States come into conformity by, inter alia, “‘revoking
the final determination of threat of injury.’” As the original panel recognized, its findings did not
compel one means of implementation to the exclusion of any other.
4.101 In suggesting that only a negative determinati on would constitute a measure taken to comply,
Canada makes a number of inconsistent and ot herwise erroneous arguments. For example, in
portraying the Section 129 Determination, Canada inexplicably vacillates between faulting it for being
essentially the same as the original determination a nd faulting it for making findings not contained in
the original determination. In a number of cases, Canada simply recycles arguments it made in the
original panel proceeding, disregarding the DSB’s recommendations and rulings, as well as the
additional information gathered in the Section 129 proceeding and the new analysis conducted by the
USITC, on which the new determination is based. In fact, Canada even goes so far as to question the
USITC’s reopening the record to collect additiona l information in the Section 129 proceeding to
address the original panel’s concerns, while at the same time contending that the original panel found
deficiencies in the evidence relied on by the USITC in the original determination. The United States
will discuss each of these flaws in Canada’s argument briefly below.
(c) Interrelationship Between Material Injury And Threat Of Material Injury Analysis
4.102 Article VI of the General Agreement on Tariffs and Trade 1994 (“GATT 1994”), as well as
the AD and SCM Agreements, permit a WTO Member to take an appropriate measure where dumped
or subsidized imports cause present material injury or threaten material injury to a domestic industry.
Accordingly, in its Section 129 proceeding, the USITC examined and made determinations with
respect to both present and threatened material injury.
4.103 In referring to the threat of material injury as a basis for taking appropriate action, the covered
agreements recognize that even though material injury to a domestic industry may not yet have
occurred (or injury to the industry may not yet be “material”), there may exist a progression or
accretion of adverse effects by reason of subject imports such that, in the imminent future, a threat of
material injury would become present material injury if protective measures were not taken. Threat of
material injury is material injury that has not ye t occurred, and thus is a future event whose actual
materialization cannot be assured with certainty. Nonetheless, the determination of its existence must

12 In support of this view, Canada makes repeated references to the decisions and determinations in the
proceeding reviewing the ITC’s original determination pursuant to the dispute settlement provisions of the
North American Free Trade Agreement (“NAFTA”). See Canada First Written Submission, paras. 4, 16 and n.
6, and Exhibits CDA-3, CDA-17, CDA-27, CDA-28, CDA-44, and CDA-45. Those references are
inappropriate for a number of reasons. First, the proceeding in the NAFTA is outside the terms of reference of
this WTO DSU Article 21.5 Panel. “Article 21.5 proceedings are limited to those ‘measures taken to comply
with the recommendations and rulings’ of the DSB.” AB Report, Canada-Aircraft (Article 21.5 - Brazil), para.
36. Any determination or decision in the NAFTA proceeding is not a measure taken to comply with the
recommendations and rulings of the DSB. Second, in i ssuing its third determination in the NAFTA proceeding,
the Commission majority reco gnized that the NAFTA “Panel’s Decisi on and Order can only be seen as a
reversal of the Commission’s affirmative determination of threat of material injury, despite the fact that neither
the NAFTA nor US law gives the Panel the authority to reverse the Commission’s determination in these
circumstances” and noted that “[b]ecause the Panel has precluded the Commission from engaging in any
analysis of substantive issues, the Commission has not reached and cannot reach any determination regarding
whether there is substantial evidence to support this negative determination.” See Views of the Commission in
Response to Panel Decision and Order of August 31, 2004, at 13 and n. 51 (September 10, 2004) (Exhibit CDA-
3). That remand determination and the panel’s decisions in the NAFTA proceedings are the subject of a
pending review by a NAFTA Extraordinary Challenge Committee. See Article 1904.13 and Annex 1904.13 of
the North American Free Trade Agreem ent. Finally, Canada fails to point out that the Commission was
erroneously precluded by th e NAFTA panel from reopening the record and that, accordingly, the Section 129
Determination is based on a different record than that in the NAFTA proceedings.

be based on evidence that is real, and not mere c onjecture or supposition. Therefore, the threat of
material injury and present material injury analy ses are intertwined, with many of the same factors
necessarily being considered in both analyses.
4.104 The USITC’s analysis in its Section 129 Determination includes consideration of all the facts
in the record, particularly regarding the volume of subject imports, their effect on prices of the
domestic like product, and their consequent impact on the domestic industry. Consideration of these
facts establishes the background against which the USITC evaluated the threat factors and whether
subsidized and dumped imports will imminently affect the industry’s condition in such a manner that
material injury would occur in the absence of protective action.
4.105 Canada, however, ignores the interrelationship betw een the present injury and threat of injury
factors. Canada suggests that, in reviewing the USITC’s Section 129 Determination, the Panel should
consider only the facts that may involve an incr emental change from the industry’s present state,
rather than the totality of the facts. In rejec ting Canada’s urging of a similar approach in the
underlying dispute, the original panel recognized th at the threat factors “are thoroughly intertwined
with” the present injury factors and that the determin ation of threat must be based on the “totality of
the factors considered.” The same principle applies to the present review.
(d) The USITC Addressed Each Of The Panel Report’s Findings
4.106 In its Section 129 Determination, the USITC full y addressed the findings in the Panel Report.
Canada’s assertions to the contrary simply are in correct. For example, the Panel Report recognized
that subject imports already were at significant leve ls in terms of absolute volume and in terms of
market share, but questioned whether the USITC relied on a significant rate of increase during the
period of investigation as support for its conclusion that subject imports would increase substantially
in the future. The Panel Report also found that the USITC did not address why the expiration of the
Softwood Lumber Agreement (“SLA”) would result in a further substantial increase in imports, rather
than a reallocation of imports from non-covered to pr eviously covered provinces or merely a shift in
timing of imports to avoid duties associated with new antidumping and countervailing duty petitions.
4.107 In its Section 129 Determination, the USITC a ddressed these and other findings in the Panel
Report. Specifically, the USITC evaluated the significance of the import levels and increases in
imports during the period of investigation, taking in to account the significant restraining effect of the
SLA. Moreover, the USITC considered the impact th at the expiration of that agreement would have
on the market for softwood lumber, analyzing import trends before and during the period of
investigation, specifically in the context of the pr evailing market conditions. The record evidence in
the Section 129 proceeding further indicated that ther e was a significant rate of increase of imports
during the period examined, especially considering that the baseline volume was significant,
13 and
that there was an even greater increase during period s with no import restraints in place. The record
also indicated that imports increased after bonding requirements associated with preliminary
countervailing duties were imposed, thereby dispelling the theory that a shift in timing accounted for
the higher level of imports immediately following the expiration of the SLA. Similarly, when the
expiration of the SLA left no restraint on imports from any of the Canadian provinces, imports from
the formerly covered provinces increased, but im ports continued at near SLA levels from the non-
covered provinces as well, resulting in an overall increase in subject imports.

13 The Commission recognized that even substantial increases in absolute volume from a significant
baseline will not result in large percentage increases. This, however, does not mean that such absolute volume
increases are not significant. Incr eases of the same absolute volume over a small baseline will result in
substantially higher percentage rates of increase than those same volume increases over a large baseline.
Canada ignores the significance of the baseline in discussing the importance of incremental increases in import
volume.

4.108 The USITC’s discussion in its Section 129 Dete rmination of the evidence regarding the
import trends after expiration of the SLA illustrates the thorough evaluation undertaken by the USITC
to address each issue raised by the original panel. The USITC stated:

During the period between expiration of th e SLA (April 2001) and before suspension
of liquidation resulting from the investigati on (August 2001), subject import volume was
substantially higher, by a range of 738 mmbf to 959 mmbf, or by 9.2 percent to 12.3 percent,
than the comparable April-August period in each of the preceding three years (1998-2000).
While the rate of increase in imports slowed when bonding requirements associated with the
preliminary countervailing duties were imposed in August 2001, subject imports entered the
US market in the April-December 2001 period at a rate 4.9 percent higher than the
comparable 2000 period. The evidence in this proceeding demonstrates an even more
significant increase of 14.6 percent for the fi rst quarter of 2002 compared with the first
quarter of 2001, and a significant increase of 6.2 percent compared with the first quarter of
2000. During these periods, market conditions ot her than the expiration of the SLA, such as
increases in consumption, do not lessen the imp act of these significant increases in subject
imports. For example, while apparent US consumption for first quarter 2002 increased
compared with first quarter 2001, it was at a s ubstantially lower rate, 9.7 percent, than the
14.6 percent increase in subject imports. More over, subject imports were 6.2 percent higher
in the first quarter of 2002 compared with th e first quarter of 2000, while apparent US
consumption declined by 2.3 percent for first quarter 2002 compared with first quarter 2000.

Claims that the substantial increase in im ports during the April-August 2001 period
only reflects “a shift in the timing of imports” fail to address the simple fact that subject
imports increased both during this period and afterward. Imports increased after expiration of
the SLA and have continued to substantia lly increase, even after bonding requirements
associated with the preliminary CVD findings were imposed. Thus, the evidence does not
support a theory that a shift in timing accounted for the higher level of imports immediately
after the SLA expired; rather, it indicates a change in import behavior.

We find these import trends during the most recent period in which there were no
trade restraints to be highly indicative of whet her imports are likely to substantially increase
in the imminent future. The fact that subject imports increased substantially after expiration
of the SLA and have continued to increase affirms our conclusion that subject imports
threaten material injury to the domestic industry.

4.109 This discussion is representative of the USITC’s thorough analysis of th e record and of the
totality of the facts that were before it. The USITC’s analysis of those facts demonstrates that there is
positive evidence to support the USITC’s finding of the likelihood of substantially increased imports.
4.110 Regarding the issue of demand relative to importation, the Panel Report found that the USITC
did not make any findings in its original determination that imports from Canada would increase more
than demand, thereby garnering an increased share of the US market, and that the USITC did not
discuss market share at all in the context of its original threat of material injury determination. In its
Section 129 Determination, the USITC considered and provided analysis of this issue. Specifically,
the USITC found that there is no basis in the reco rd evidence to conclude that likely substantial
increases in subject imports would be outpaced by increases in demand. Demand was high by
historical standards, but relatively stable during the period of investigation. Forecasts expected
demand to be relatively unchanged until the second half of 2002, and then begin to increase in 2003 as
the US economy rebounded from a recession. Record evidence showed that increases in subject
imports significantly outstripped the small increases in demand during the period of investigation. In
its evaluation of demand relative to importation during the period examined, the USITC stated:

First, the actual evidence in 2001 shows that the increase in subject imports
outstripped demand; imports of softwood lumber from Canada increased by 2.4 percent from
2000 to 2001 and US apparent consumption increased by only 0.2 percent for the same
period. Moreover, subject imports after remova l of the restraining effect of the SLA were
11.3 percent higher for the April-August 2001 period compared to the same period in 2000,
and 4.9 percent for the April-December 2001 period compared to the April-December 2000
period, while apparent US consumption for the entire year was only 0.2 percent. The
evidence in this Section 129 proceeding demons trates that while apparent US consumption
for first quarter 2002 increased compared with first quarter 2001, it was at a substantially
lower rate, 9.7 percent, than the 14.6 percent increase in subject imports. Moreover, subject
imports were 6.2 percent higher in the first quart er of 2002 compared with the first quarter of
2000, while apparent US consumption declined by 2.3 percent for first quarter 2002 compared
with first quarter 2000. Thus, the actual incr eases in subject imports during the period of
investigation substantially outstripped demand; similarly, actual data shows that subject
imports after expiration of the SLA have increased at a significantly higher rate than any
forecasts for increases in demand for softwood lumber for 2002 and 2003.

4.111 Based on its analysis of the totality of the facts, the USITC found that subject imports would
increase their market share in the imminent future.
4.112 On the issue of available excess Canadian capacity, the Panel Report found that the USITC’s
discussion regarding the Canadian industry’s export orientation did not support the conclusion that
excess capacity would be exported to the United States beyond the “historical” level. In its Section
129 Determination, the USITC analyzed capacity an d found that Canadian producers had sufficient
excess capacity, and projected increases in capacity and production in 2002 and 2003, to substantially
increase exports to the United States beyond the alr eady significant historical level. The record
indicated that Canadian production is tied to the US market, which continues to be the most important
market for Canadian producers. The US market accounts for about two-thirds of Canadian production
and shipments, whereas in 2001, other export mark ets accounted for only 8 percent of Canadian
production, and the Canadian home market accounted for only about 24 percent of production.
Therefore, the USITC recognized that there are limite d other markets to absorb the projected increase
in production of Canadian softwood lumber.
4.113 The record in the Section 129 proceeding prov ided further support for the USITC’s finding:
in first quarter 2002, as apparent Canadian consum ption declined, Canadian producers shifted sales
from the home market to the US market. Given the positive record evidence on the export orientation
of Canadian lumber producers, the USITC discounted Canadian producers’ projections that additional
production would be exported to the United States at below historical levels. Significantly, the
USITC found that the record was devoid of eviden ce, such as new supplier contracts or evidence of
increased demand in or sales to another country, th at would indicate that increased production was
likely to deviate substantially from past shipment patterns. Indeed, the US ITC found that the record
suggested that imports into the US market would increase beyond historical levels.
4.114 The USITC also evaluated, in its Section 1 29 Determination, the effects of the likely
substantial increases in subject imports on prices and the condition of the domestic industry. The
USITC found that, during the period of investigation, the substantial and increasing volume of subject
imports had some adverse effects on prices for the domestic product. Moreover, there was evidence
that the SLA had an effect on prices in the US ma rket. The evidence further demonstrated that the
condition of the domestic industry, and in particular its financial performance, deteriorated over the
period of investigation, largely as a result of the su bstantial decline in pri ces. The declines in the
industry’s performance, particularly its financial pe rformance, made it vulnerable to future injury.
Thus, the USITC found that the price trend evidence, particularly the fact that prices reached their
lowest levels as imports increased significantly after expiration of the SLA, provided positive
evidence that subject imports were entering at pri ces that were likely to have a significant depressing

or suppressing effect on domestic prices, and thereby were likely to adversely impact the US industry
in the imminent future.
4.115 Finally, the Panel Report expressed concern with the discussion, or more precisely what it
saw as an inadequate treatment, of other factor s potentially causing injury in the context of the
USITC’s threat analysis in the original determina tion. In its Section 129 Determination, the USITC
provided a detailed and reasoned analysis of such a lleged other factors. In particular, it analyzed
whether such alleged other factors are other “known factors” within the meaning of Article 3.5 of the
AD Agreement and Article 15.5 of the SCM Agreement. The alleged other factors analyzed were:
(1) the excess supply from the domestic industry itsel f; (2) third-country or non-subject imports; (3)
increases in importation to meet demand in the US market; (4) integration in the North American
market; (5) the growth in importance of engineer ed wood products (‘EWPs’); and (6) constraints on
domestic production/insufficient timber supplies in the United States.
4.116 The USITC properly examined “any known factors” other than the dumped and subsidized
imports that might be injuring the domestic industr y to ensure that it did not improperly attribute
injury from other causal factors to the subject im ports. Canada argues (as it did in the underlying
proceeding) that further consideration or examination is required even if an alleged factor is found not
to be an “other known factor.” As is plain from Article 3.5 of the AD Agreement and Article 15.5 of
the SCM Agreement, Canada simply is incorrect.
4.117 The covered agreements do not require an inve stigating authority to use any particular
methodology in examining the causal relationship be tween dumped or subsidized imports and injury,
provided that it “does not attribute the injuries of other causal factors to dumped imports.” Moreover,
such an analysis is warranted only if an alleged other factor is in fact having, or threatening to have, a
causal impact. If the factor is found not to have, or threaten to have, injurious effects on the domestic
industry, such a factor is not an “other known factor” for purposes of Article 3.5 of the AD
Agreement or Article 15.5 of the SCM Agreement. If a factor is not an “other known factor,” no
further consideration or examination of the factor is called for.
4.118 Based on its analysis of the evidence in the S ection 129 proceeding, the USITC found that the
alleged other factors identified by the original pa nel were not other known factors or causal factors in
the context of its threat analysis. In light of that finding, it had no basis to undertake a further
examination to ensure that injury from them was not attributed to subject imports in the context of its
threat determination.
4.119 One instance in which the evid ence demonstrated that an alleged other factor was not a
“known” other factor was nonsubject imports. As in the underlying proceeding, Canada attempts to
portray nonsubject imports as other known factors, notwithstanding evidence to the contrary. Non-
subject imports never accounted for more than 2.6 percent of apparent cons umption; subject imports
accounted for at least 34 percent of the US market . Moreover, individual country non-subject imports
would have been deemed negligible, with no indi vidual country accounting for more than 1.3 percent
of imports, while Canadian imports accounted for a bout 93 percent of all imports. In light of the
evidence regarding non-subject imports, the USITC found them not likely to be an other factor
potentially causing injury to the domestic industry in the imminent future. Thus, the USITC found no
basis to examine whether any injury could be attributed to non-subject imports in the imminent future.
4. CONCLUSION
4.120 For the reasons stated above, Canada’s claims against the US implementation of the DSB’s
recommendations and rulings in this dispute are gr oundless. The United States therefore requests that
the Panel reject Canada’s claims in their entirety.

C. SECOND WRITTEN SUBMISSION OF CANADA
4.121 The following summarizes Canada's arguments in its second written submission.
1. INTRODUCTION
4.122 Normally, a second or rebuttal submission in an Article 21.5 proceeding would provide a
response to the arguments put forward in the fi rst written submission of the Member defending a
claim that a measure it has taken to implement th e rulings and recommendations of the DSB is WTO
inconsistent. It is difficult for Canada to pr ovide such a response in the present case as the United
States has offered no analysis in support of the US ITC’s Section 129 Determination. Rather, the US
First Written Submission is little more than a summ ary of the USITC’s Section 129 Determination
interspersed with conclusory assertions to the effect that the United States has fully implemented the
DSB’s recommendations and rulings and that Canada is asking this Panel to exceed its authority under
Article 21.5 of the DSU.
4.123 If the United States were correct, there would be very little for Canada to say and for this
Panel to do. The United States has approached the WT O review of a threat of injury determination as
if it is a simple process of checking off findings made by the USITC and presuming that when the
USITC announces a finding or asserts that it has analyzed something then it must be taken at its word.
This approach would negate this Panel’s obligation to make an objective assessment of the facts of
this case in order to determine whether the Section 129 Determination satisfies the relevant
requirements of the AD and SCM Agreements.
4.124 Canada’s second submission will be relatively brief. It will focus on responding to the
following positions that emerge in the US submission:
(i) The US characterization of Canada’s position with respect to the Article 21.5 process and the
Panel’s role in that process –
4.125 Canada’s linkage of the flaws in the Section 12 9 Determination with the same flaws that the
Panel found in the Final Determination is entirely proper in light of the Appellate Body’s holding that
a compliance panel “would be expected to refer to the initial panel report, particularly in cases where
the implementing measure is closely related to the original measure, and where the claims made in the
proceeding under Article 21.5 closely resemble the clai ms made in the initial panel proceedings.” In
fact, the United States itself argues that the Secti on 129 Determination is compliant precisely because
it claims to address the Panel’s concerns with the original determination;
(ii) The US view of what constitutes an adequate response to the Panel’s recommendations and
rulings –
4.126 The United States contends that all it needed to do to comply was to provide a more detailed
and thorough explanation of its orig inal determination. However, as Canada demonstrated in its First
Written Submission, the Panel rejected many of the evidentiary underpinnings for the findings
supporting the USITC’s original determination. Yet the Section 129 Determination essentially repeats
the same findings, based on the same evidence that the Panel has already held insufficient, and fails to
respond to a number of the problems the Panel raised;
(iii) The US position that Canada has “ignored” the interrelationship between the present injury
and threat of injury factors –
4.127 It is in fact the United States that continues to ignore the implications of the USITC’s present
negative injury determination and the findings underl ying that determination for its failed efforts to
sustain a positive threat of injury determination;

(iv) The US characterization of USITC’s non-attribution analysis –
4.128 The United States continues to insist that the only
 thing that threatened to injure the US
industry was softwood lumber from Canada. Howe ver, clear evidence shows, among other things,
that it is overproduction by the US domestic industr y and not Canada that has posed and will pose the
“central problem” facing the US industry.
(a) Standard Of Review And Panel Role
4.129 There is very little disagreement between Canada and the United States as to the applicable
standard of review. Both parties agree that the Panel accurately articulated and applied the standard
of review in the original proceeding. While the United States highlights the deferential aspects of this
standard, it omits any reference to the Panel’s acknowledgement of its duty to carry out a detailed and
searching analysis of the evidence. As Canada noted in its First Written Submission, the Panel
understood that, while its role is not to conduct a de novo review or substitute its judgment for that of
the USITC, it nonetheless must carry out a detailed a nd searching analysis of the evidence relied upon
and the reasoning and explanations given by the US ITC. That is exactly the function the Panel
performed in the original case in concluding th at the principal finding underlying the USITC’s
affirmative threat determination was not one wh ich could have been made by an objective and
unbiased investigating authority.
4.130 The United States complains that Canada has relied on “selected quotations” from the
Appellate Body reports in US – Cotton Yarn and US – Lamb , but does not seriously question that
those decisions identify important aspects of the standard of review.
4.131 Nor is there any real disagreement between th e parties regarding the Panel’s proper role in
this Article 21.5 proceeding. The United States agre es with Canada that the Panel’s principal task is
to determine whether the Section 129 Determination is consistent with the United States’ obligations
under the AD and SCM Agreements. The United St ates concurs as well with the Appellate Body’s
acknowledgment in Mexico – Corn Syrup (Article 21.5 – US) that “a panel acting pursuant to
Article 21.5 of the DSU would be expected to refer to the initial panel report, particularly in cases
where the implementing measure is closely related to the original measure, and where the claims
made in the proceeding under Article 21.5 closely resemble the claims made in the initial panel
proceedings.”14
4.132 In US – Shrimp (Article 21.5 – Malaysia) , the Appellate Body endorsed the Article 21.5
panel’s frequent references to the reasoning in the original panel and Appellate Body reports:
Adopted panel reports are an important part of the GATT acquis. They are often
considered by subsequent panels. They create legitimate expectations among WTO
Members, and, therefore, should be taken into account where they are relevant to any
dispute.
15
4.133 The United States itself recognizes the importance of the Panel’s Report to this case when it
repeatedly, although erroneously, claims that all it needed to do to bring itself into conformity was
“reconsider its analysis with a view to providing detailed and thorough explanations supporting its
determinations.” Thus, the United States closely links the Section 129 Dete rmination to the Final
Determination.

14 Mexico – Corn Syrup (Article 21.5 – US), at para. 109.
15 US – Shrimp (Article 21.5 – Malaysia), Appellate Body Report, at para. 108. The text of Article 21.5
of the DSU underscores the role the original panel report can play in an Article 21.5 proceeding in requiring that
the disputes regarding the consistency of measures taken to comply with the DSB’s recommendations and
rulings shall be decided “wherever possible [by] resort to the original panel.” Were the original panel report and
underlying dispute settlement proceeding not relevant, there would be no reason for Article 21.5’s requirement
to resort to the original panel wherever possible.

4.134 The United States was correct to make this connection. Not only are the measures in question
– the Section 129 Determination and the Final Determination – closely related, but also the claims
made by Canada in this Article 21.5 proceeding mirror claims made by Canada in the original
proceeding. The Section 129 Determination reach ed the same conclusion on essentially the same
evidence and reasoning as the Final Determination. Thus, there can be no doubt that the Panel’s
consideration of and rulings with respect to th e Final Determination are relevant to the WTO
consistency of the Section 129 Determination.
(b) The Provision Of An Allegedly "More Detailed and Thorough Explanation" Of The
 USITC's Final Determination Does Not Br ing The United States Into Compliance
4.135 While the Panel found various explanations provided by the USITC in its Final Determination
wanting, the Panel’s concerns with the Final Dete rmination went well beyond the USITC’s original
explanations. In rejecting the USITC’s conclusion that there would be a substantial increase in
imports, the Panel made not one but three references to the insuffi ciency of the evidence the USITC
cited to support this conclusion. For this reason as well, the Panel concluded that the USITC’s finding
was one that could not have been reached by an objective and unbiased inves tigating authority. The
USITC’s previous statement that the record was “reliable, comprehensive and complete” confirms
that the fundamental problem is the lack of pos itive evidence to support an affirmative threat
determination. Furthermore, the USITC’s claim that more detailed explanation is all that was needed
appears to be at odds with its decision to re-open the record and gather more evidence in the Section
129 proceeding. If only additional explanations were necessary, there would have been no need to be
concerned about the evidence and no reason to re-open the record.
4.136 It is extraordinary that, having decided to re- open the record, the USITC subsequently turned
a blind eye to most of the evidence it gathered. Nowhere in its First Written Submission does the
United States provide an adequate explanation for th is failure. At the same time, it does not contest
that the new evidence demonstrated the substantially improved fina ncial position of the US industry
in the first quarter of 2002. Similarly, the United States does not contest Canada’s demonstration that
the new evidence shows that it was the US industry, not its Canadian counterparts, that continued to
be the source of lumber overproduction at the end of the POI and that Canadian producers’
projections were consistent with historical experience. What the new evidence emphatically did not
show was an industry on the “brink” of being injured as a result of imports of softwood lumber from
Canada.
4.137 The USITC has had two opportunities to compile a record and two opportunities before this
Panel to identify record evidence that would s upport an affirmative threat determination.
Notwithstanding the fact that the Panel found that mo st of the evidence the USITC cited in the Final
Determination did not support its fi ndings, the USITC proceeded largely to rely on the same evidence
to support the same conclusions in the Section 129 Determination.
16 Thus, the Panel should have no
doubt that the USITC’s failure to provide an object ive and unbiased affirmative threat determination
means that the evidence does not support such a finding.

16 The United States also claims that Canada “inexplicably vacillates between faulting it for being
essentially the same as the original determination and faulting it for making findings not contained in the
original determination.” (see US First Written Submission, at para. 17). The United States is correct that
Canada is faulting the Section 129 Determination both fo r repeating errors contained in the Final Determination
and for changing findings without explanation and without proffering new evidence and explanation to justify a
change of views. There is nothing in explicable or “vacillating” about this. The requirement to base a decision
on positive evidence, among other things, requires an unbias ed and objective investiga ting authority to explain
any changes to its views. Being responsive to the defi ciencies the Panel found in the Final Determination,
which the USITC claims it was trying to be, requires the USITC to acknowledge when it relies on evidence
already found by the Panel to be insufficient or not probative to the point made.

4.138 The United States complains that Canada mischaracterized the Panel’s report when it argued
that only a negative determinati on would constitute compliance. Canada has not argued that the
Panel’s rulings and recommendations required the USIT C to issue a negative determination. Rather,
Canada has demonstrated that only a negative dete rmination would be consis tent with the Panel’s
findings and logic and the underlying evidence. Th e problem with the Final Determination was not
that the USITC neglected to cite sufficient r ecord evidence to support an affirmative threat
determination. The problem was, and remains, th at the record does not contain evidence that will
support a finding of an imminent threat of injury.
17
(c) The Section 129 Determination Does Not Resp ond To The Deficiencies In The USITC's
 Final Report Identified By The Panel
4.139 What is perhaps most striking a bout the US submission is its near complete failure to address
any of Canada’s substantive challenges to the USITC’s Section 129 Determination, including each of
the following arguments:
That the Panel found that the USITC did not make a finding of a significant rate of increase in imports
in the Final Determination. Moreover, the USIT C’s “new” finding concerning a significant rate of
increase was incoherent and inconsistent with its previous findings (or lack of findings), including that
subject import market share remained “relatively stable” and showed a “small” increase over the
period of investigation. The USITC also displayed no recognition of the difference between an
increase and a rate of increase.
That the USITC’s arguments about the effect of the SLA did not address the USITC’s unexplained
about-face from the Final Determination, the SLA’s (l ack of) effect at the time it expired, and the
contrary analysis of the USITC’s own Office of Economics and the USITC’s sister agency, the
USDOC.
That the USITC’s findings about the April-August 2001 period ignored the fact that the
overwhelming portion of the increase in subject im ports was in April because Canadian producers
delayed shipments until the SLA expired on March 31, 2001. The USITC itself had found in its Final
Determination that the increase in imports after the case was filed on April 2, 2001, had no significant
price effect, but never explained how a predicte d similar increase in the future would suppress
prices.
18
That the USITC’s treatment of import data for the first quarter of 2002 was inconsistent and arbitrary.
That the USITC’s analysis of the period of no rest raints in 1994-1996 simply repeated the analysis
that the Panel found to be impermissible.
That the USITC’s findings concerning capacity were inconsistent with the Panel’s prior ruling that the
record evidence did not support a conclusion that there would be a substantial increase in capacity
sufficient to infer an imminent substantial increase in subject imports.
That the USITC’s continued criticisms of Canadian producers’ projections of exports to the United
States ignored the fact that the Panel had already ruled that the projections were “well within the
historical range,” a fact conclusively confirmed by the new evidence obtained in the USITC’s Section
129 investigation.

17 The United States argues unpersuasively that this Panel should not consider the binational panel
decisions and USITC remand determinations issued in the separate NAFTA panel proceeding involving the
Final Determination. (See US First Written Submission, at para. 16, fn. 23.) That such decisions and
determinations are outside the terms of reference of this Panel’s proceeding would be a relevant objection only
if Canada were citing them as “measures taken to comply” with the DSB’s rulings and recommendations, which
it is not.
18 The United States’ claim that subject imports continued to increase after preliminary bonding
requirements were imposed in the countervailing duty cas e in August 2001 is contradicted by the record.
Measured by market share, which is the only appropriate benchmark in light of differing demand conditions
from year to year (see Canada’s First Written Submission, at para. 76), subject imports in the September-
December 2001 period were lower than in the same period in each of th e previous three years (see Exhibit
CDA-24).

That the USITC’s analysis of projections of US demand for the second half of 2002 and for 2003
ignored unanimous record evidence, which led the US ITC to conclude in its Final Determination that
US demand would be “strong and improving.”
That the USITC’s repeated assertions that “imports were entering at prices” likely to depress US
prices ignored the USITC’s own findings that ther e was no evidence of significant price underselling
by subject imports and that the same “price trend s” the USITC now asserts show likely future price
depression confirmed that subject imports did not have any significant price effects during the period
of investigation.
19
That the USITC ignored the implications of its own finding that substitutability between subject
imports and US lumber was only “moderate” in many applications.
That the USITC provided no reasoned explanation for its dismissal of evidence that the US industry
was getting stronger, not more vulnerable, in the last 12 months of the POI – despite increased subject
imports in the so-called “gap” period.
20

4.140 The United States also contends that Canada “ignore[d] the interrelationship between the
present injury and threat of inju ry factors.” Nowhere in its First Written Submission does Canada
make this argument. To the contrary, one of Ca nada’s principal arguments is that the USITC’s
affirmative threat determination is inconsistent with its negativ e current injury determination.
21 The
USITC’s Section 129 Determination continues to i gnore key findings in the negative current injury
determination that had significant implications for the threat analysis in this case. These findings
include the express linkage between relatively stab le Canadian market share and the absence of
significant price effects, the lack of any evidence of adverse pricing by subject imports, and the US
industry’s role in contributing to the “excess supply” that was responsible for the price declines during
the period of investigation. Moreover, while Canada understands that a “progression of
circumstances” may establish the basis for an affirm ative threat finding, the improving condition of
the US industry in the last 12 months of the POI and the US industry’s continued overproduction
conclusively demonstrate that the progression of circumstances in this case did not and could not
establish an industry on the brink of experiencing material injury.

19 The United States seeks to rewrite history when it asserts that “the Commission found that the price
trend evidence, particularly the fact that prices reache d their lowest levels as imports increased significantly
after expiration of the SLA, provided positive evidence that subject imports were entering at prices that were
likely to have a significant depressing or suppressing e ffect on domestic prices.” US First Written Submission
at para. 28, citing Section 129 Determination, at 66-67. The USITC found no such correlation between
increasing imports and lower prices in the US market during the POI, in the cited pages or anywhere else in its
Section 129 Determination. Nor could such a finding withstand scrutiny. To the contrary, as Commissioner
Pearson noted in dissent, the final year of the POI established the opposite correlation: US prices increased
substantially during the period immediately after the SLA when subject imports increased, declined in the final
quarter of 2001 while Canadian mark et share declined, and increased agai n in the first quarter of 2002 while
Canadian market share increased. See Section 129 Determination, at 97-98 (Exhibit CDA-1). These are
precisely the opposite trends one would expect if subject imports were suppressing or depressing domestic
prices.
20 Nor does the United States respond to Canada’s points that the USITC’s decision to consider
(selectively) post-vote day information was inconsistent not only with its prior practice, but with its stated intent
in the Section 129 proceeding to use only data availa ble as of April 30, 2002. See Canada’s First Written
Submission, at para. 30.
21 In addition to the high standard reflected in the specific requirements set out in Articles 3.7 of the
AD Agreement and 15.7 of the SCM Agreement (see Ca nada’s First Written Submission, at para. 45),
Articles 3.8 of the AD Agreement and 15.8 of the SCM Ag reement provide that in th reat of injury cases the
application of antidumping or countervailing measures “shall be considered and decided with special care.”

(d) The United States' Characterization Of Its Non-Attribution Analysis And Its Continued
 Insistence That The Only Thing That Threate ned Injury To The United States' Industry
 Was Softwood Lumber From Canada
4.141 The US discussion of non-attribution issues is equally non-responsive. The United States
does not even try to respond to Canada’s points th at the USITC got exactly backwards its analysis of
the “central problem” facing the US industry – alle ged Canadian overproduction – and still relies on
the same Bank of America report that the Panel ef fectively dismissed as inadequate to support the
USITC’s conclusion.
4.142 The USITC relied on what are at most accretive changes in subject imports to support its
affirmative threat finding by reason of Canadian imports. Yet it dismissed as insignificant
comparable accretive changes in other factors a ffecting the US industry. The United States has
offered no explanation for this in consistency. Why, for example, would increasing US production at
the end of the POI pose no threat to the domes tic industry while Canadian production, which was
decreasing at the end of the POI, allegedly constitute an imminent threat?
4.143 The double standard employed by the USITC is obvious in the significance it attributed to a
1.1 percent increase in market share for subject imports from 1999 to 2001 while, at the same time,
dismissing a 0.9 percent market share increase for non- subject imports for this same period. The US
explanation is that these comparable increases in ma rket share cannot be comp ared because they are
starting from different baselines. This argument is nonsensical. The impact of a one percent loss of
market share will have the same effect on the domes tic industry, regardless of source. It is even
harder to justify in the context of a threat analysis when one comp ares the relatively stable trend lines
for imports of Canadian softwood lumber to the approximately 30 percent annual rate of increase in
non-subject imports during the POI.
4.144 The USITC attempted to dismiss other know n factors by considering their impact
individually, and then dismissing them one at a time using a negligibility standard of its own creation.
In EC – Pipe Fittings , the Appellate Body stated that “we recognize that there may be cases where,
because of the specific factual circ umstances therein, the failure to undertake an examination of the
collective impact of other causal factors would result in the investigating authority improperly
attributing the effects of other causal factors to dumped imports.” The “specific factual
circumstances” in the softwood lumber dispute provid e exactly the sort of circumstances referred to
by the Appellate Body.
4.145 The USITC’s threat of injury determination is premised on its prediction that excess supply of
Canadian softwood lumber will suppress prices in th e US market. Domestic overproduction and non-
subject imports, however, also are potential contribu tors of excess supply in that market and should
have been considered not just separately, but also collectively, and their effects distinguished from
subject imports.
4.146 The USITC alludes to high unit values for non-subject imports to justify its refusal to conduct
a non-attribution analysis. This apparent relian ce on an argument about attenuated substitutability in
order to avoid cumulating other known supply factor s is in stark contrast to USITC’s failure to
analyze the attenuated substitutability of Canadian imports. Given that the USITC has failed to
evaluate the implications of its own finding that Canadian imports and US lumber are only moderately
substitutable in many applications, the United St ates cannot, in this proceeding, raise attenuated
substitutability to avoid considering non-subject imports.
22

22 Canada notes that the United States also has failed to respond to Canada’s arguments that a
substantial portion of Canadian imports was imported by affiliated US companies, which used these imports to
complement and not supplant US production. See Canada’s First Written Submission, at paras. 135-138.

4.147 Finally, the United States has relied on the Appellate Body report in EC – Pipe Fittings to
excuse the USITC’s failure to conduct a non-attri bution analysis. Such reliance is misplaced.
Nowhere in EC – Pipe Fittings or elsewhere does the Appellate Body suggest that an investigating
authority can simply declare other factors to be non-existent, when the evidence demonstrates
otherwise. The United States fails to note that, in EC – Pipe Fittings, the Appellate Body found that a
non-attribution analysis was not required – in that dispute – because the complainant had not adduced
any evidence that injury w as caused by other factors. In this dispute, Canada has presented ample
evidence that other factors were having effects equal to or exceeding the effects of Canadian imports.
The US argument elevates form over substance a nd would preclude a detailed and searching analysis
of the evidence and the reasons and explanations given by the USITC.
2. CONCLUSION
4.148 It is clear that the Section 129 Determination could not have been made by an objective and
unbiased investigating authority in the light of th e totality of factors considered and the reasoning
provided. Therefore, Canada reiterates its reque st that the Panel find the USITC’s Section 129
Determination, and the definitive anti-dumping and countervailing duty orders th at remain in effect,
inconsistent with US obligations under Articles 3.7 and 3.5 of the AD Agreement and Articles 15.7
and 15.5 of the SCM Agreement. Canada also reiterates its request that the Panel recommend that the
United States bring its measures into conformity with its WTO obligations, including by revoking the
Final Determination of threat of injury, ceasing to impose anti-dumping and countervailing duties and
returning the cash deposits imposed as a result of US actions in this matter.
D.
SECOND WRITTEN SUBMISSION OF THE UNITED STATES
4.149 The following summarizes the United States' arguments in its second written submission.
1. INTRODUCTION
4.150 Canada’s critique of the USITC’s Section 129 Determination inappropriately assumes that
the Panel’s task is to compare the new determinati on with the original determination, rather than
review the new determination for consistency wi th the covered agreements. It also relies on
mischaracterizations of findings in both determinati ons. And, it is based on the patently incorrect
assumption that only a negative determination could bring the United States into compliance.
4.151 Canada questions the USITC’s reopening of the record in the Section 129 proceeding, which
was done precisely to collect additional information, primarily to provide it with a more complete data
series for the period closest to the original determin ation, and thereby to assist it in considering and
addressing issues raised by the original panel regard ing the imminent future. Additional data from
questionnaire responses were limited, because the majority of Canadian producers either expressly
refused to answer, or simply did not respond to, requests for additional data.
4.152 Canada raises concerns about the USITC’ s use of certain data in the Section 129
Determination that may not have been available at the time of the USITC’s original determination.
The data at issue covered the years during the period of investigation and first quarter of 2002. All of
the data at issue covered a period prior to the original determination.
2. THE USITC’S SECTION 129 DETERMINATION IS CO NSISTENT WITH THE
 COVERED AGREEMENTS
4.153 In its Section 129 Determination, the USITC’s analysis of likely substantial increases in
subject imports first took into account the fact that subject import volumes already were at significant
levels during the investigative period – accounting for between 33.2 percent and 34.7 percent of the
US market. The evidence showed volume increases fro m Canada even with the restraining effect of

the SLA in place and significant increases in subject import volume at the end of the period of
investigation, when such imports were no longer su bject to the SLA, includi ng when they were not
yet subject to preliminary antidumping or counterva iling duties. Moreover, Canadian producers had
increasing excess capacity during the period of investigation.

4.154 The USITC found that the likely substantial in creases in subject imports would result in
excess supply in the US market, putting further downward pressure on prices. Excess supply
generally caused the substantial price declines in 2000 that led to the deterioration in the condition of
the domestic industry. The evidence demonstrated that prices were weak toward the end of the period
of investigation, with prices in the third and fourth quarters of 2001 again at levels as low as they had
been in 2000. While prices increased in the first quarter of 2002, as consumption temporarily
increased, they were still at the low levels reporte d in 2000 when subject imports were impacting the
financial performance of the domestic industry.

4.155 Throughout its argument, Canada provides a snap shot focus on a given incremental increase
or decrease that it views as favorable to its asserti ons. For example, Canada ignores the significance
of the size of baseline volume, whether of imports or production. In addition, Canada frequently
compares percentage increases or decreases in two numbers – such as US production and Canadian
production – which may not be comparable, because the baseline for the numbers being compared is
different. Finally, Canada ignores the interrelationshi p between factors relevant to the determination
of present injury and factors relevant to the determin ation of threat of injury, as well as the fact that
evidence regarding any one factor often is intertwined with evidence regarding other factors.
4.156 Likelihood of Substantially Increased Imports . The original panel recognized that subject
imports already were at significant levels but questioned whether the USITC had relied on a
significant rate of increase during the period of i nvestigation as support for its conclusion that subject
imports would increase substantially in the future. The panel report also found that the USITC did not
address why the expiration of the SLA would result in a further substantial increase in imports, rather
than a reallocation of imports from non-covered to pr eviously covered provinces or merely a shift in
timing of imports to avoid duties associated with th e new petitions. In its Section 129 Determination,
the USITC evaluated the significance of the import le vels and increases in imports before and during
the period of investigation, taking into account the significant restraining effect of the SLA and
considered the impact that the expiration of that agreement would have on the market for softwood
lumber.
4.157 Volume of Imports Already Significant a nd Likely to Increase Substantially in the
Imminent Future. In the Section 129 Determination, th e USITC found that subject imports were
already at a significant level during the inves tigation period, increasing during 1999 to 2001 from
17,983 to 18,483 million board feet (mmbf) out of a to tal US market of about 54,000 mmbf. Subject
imports held a consistently large and increasing shar e of the US market, accounting for 33.2 percent
to 34.7 percent of the US market for softwood lumb er in the period examined. The USITC found that
the rate of increase in the volume of subject imports from 1999 to 2001 was 2.8 percent and stated
that “2.8 percent is a significant rate of increase when the baseline volume is already so significant.”
The USITC also recognized that the 2.8 percent increase in subject imports from 1999 to 2001 had
occurred even though such imports had been subjec t to the restrictive impact of the SLA, and even
though apparent US consumption had declined slightly, by 0.4 percent.
4.158 Canada focuses on the percentage without regard to the enormous size of the baseline, the
SLA’s restraining effects, and the relatively fl at demand for softwood lumber. Moreover, Canada
dismisses evidence showing a pattern of substantia lly increasing subject imports at the end of the
period of investigation (increases of 2.4 percen t (comparing 2001 to 2000), 4.9 percent (comparing
April-December 2001 to April-De cember 2000), and 14.6 percent (c omparing first quarter 2002 to

first quarter 2001)) . The USITC placed the 14.6 percent increase during the first quarter of 2002
compared with the same period in 2001, in perspective. The USITC found that “[w]hile apparent
US consumption also increased, it did so at a substantially lower rate, 9.7 percent for first quarter
2002 compared with first quarter 2001, leading subject import market share to be higher at
34.7 percent in first quarter 2002 compared with 33.2 percent in first quarter 2001.” By focusing
on the theory that “opposite commercial incentives existed in the[se] two quarters” – that is, that
there was an alleged “short-term disincentive to ship to the United States in the first quarter of
2001” – Canada misses the point that subject imports still were 6.2 percent higher in the first
quarter of 2002 compared with the first quarter of 2000, while apparent US consumption declined
by 2.3 percent. In any event, Canada’s argument rests on the incorrect assumption that there was
a four-month gap in the application of preliminary measures.
4.159 The SLA had a Restraining Effect on Subject Imports . To place subject imports in the
appropriate context, the USITC considered the restra ining effects of the SLA on imports and trends in
subject imports during periods when such imports were not subject to some type of restraint. Canada
incorrectly assumes that the USITC’s finding in the Section 129 determination diverged from its
finding in the original determination. It also incorrectly assumes that when it came to present material
injury, the USITC found that subject imports did not support an affirmative determination.
4.160 The evidence demonstrated that while the volum e of subject imports increased even with the
SLA in place, substantial increases occurred during pe riods when such imports were not subject to
import restraints. The USITC also considered evidence demonstrating the impact of the SLA on the
domestic market, including evidence that the constr aints on the volume of imports resulted in higher
prices for such imports and higher costs for construc tion than in the absence of the SLA. Additional
evidence demonstrating the restraining effect of the SLA included the fact that increases in subject
imports while the SLA was in effect did not keep pace with increases in demand from 1995 to 2001.
4.161 Canada’s focus on the economic studies referred to in a footnote is misplaced for two reasons.
First, Canada suggests incorrectly that the USIT C relied more heavily on one economic study than
others. Second, Canada provided no comments on that study during the Section 129 proceeding,
although specifically requested to do so by the USITC.
4.162 Another aspect of the SLA discussion that Canada mischaracterizes concerns the fact that,
during the final year of the SLA, a portion of one of the quotas provided for under the SLA went
unused. Canada misleadingly implies that this means th at subject imports declined in the last year of
the SLA. They did not. Moreover, Canada ignores the fact that in each year during the pendency of
the SLA, including 2000-2001, Canadian producer s exported significant quantities of softwood
lumber under the $100 fee quota and significant quantities of “bonus” exports.

4.163 Finally, the USITC recognized that, during th e pendency of the SLA, Canadian shipments
from provinces not covered by the SLA to the Unite d States more than doubled. The USITC found,
however, that the evidence demonstrated that when the expiration of the SLA left no restraint on
imports from any of the provinces, imports from the provinces formerly under the SLA increased,
while imports from the non-covered pr ovinces continued at levels much higher than those prior to the
SLA. The USITC also found that the redistribution theory failed to recognize that the volume of
production is much greater in formerly covered provinces than in non-covered provinces.
4.164 During Periods With No Import Restra ints, There Were Substantial Increases in
Subject Imports. To place subject imports in context in the Section 129 Determination, the USITC
considered trends in subject impor ts during periods when such imports were not subject to some type
of restraint (such as the SLA or preliminary count ervailing duties). The evidence demonstrated that
during the period following expiration of the SLA (April 2001) and before suspension of liquidation

of softwood lumber entries due to the inves tigation (August 2001), subj ect import volume was
substantially higher, by a range of 9.2 percent to 12.3 percent, than in the comparable April-August
period in each of the preceding three years (1998-2000). The USITC acknowledged that the rate of
increase in imports slowed when bonding requirements associated with the preliminary countervailing
duties were imposed in August 2001, but recognized that subject imports still entered the US market
in the April-December 2001 period at a rate 4.9 pe rcent higher than in the comparable 2000 period.
The evidence in the Section 129 proceeding demons trated an even more significant increase of
14.6 percent for the first quarter of 2002 compared with the first quarter of 2001, and a significant
increase of 6.2 percent compared with the first quarter of 2000.
4.165 Canada faults the USITC for not taking account of an alleged “four-month ‘gap’ in the
application of provisional measures” – i.e., the period from the expiration of provisional
countervailing duties, in December 2001 through the end of the investigation in April 2002.
However, what Canada fails to acknowledge is that even though bonding requirements with respect to
preliminary countervailing duties expired in Dece mber 2001, bonding requirements associated with
preliminary antidumping duty findings did not expire until April 2002.
4.166 Nor does the supposed existence of “opposite commercial incentives” in the first quarters of
2002 and 2001, respectively, explain away the increase in imports during the first quarter of 2002.
The suggestion that this comparison is anomalous is belied by the fact that there also was a significant
increase of 6.2 percent in subject imports in the first quarter of 2002 compared with the first quarter of
2000. Market conditions (other than the presence or absence of the SLA), such as differences in
consumption, did not explain the significant increases in subject imports.
4.167 Another concern of the original panel was that the USITC had not addressed claims that the
substantial increase in imports during the April-August 2001 period only reflects “a shift in the timing
of imports.” In its Section 129 Determination, the USITC found that subject imports increased both
during the April-August 2001 period and afterward, a fact inconsistent with the suggestion that import
volumes during the period could be explained as a simple timing shift. Canada’s focus on monthly
subject import data for the April- August 2001 period does nothing to undermine this finding. First,
the USITC found that “monthly subject import volumes were higher in each month between April and
August 2001 than the comparable month in 2000 , with the exception of June, by a range of
7.5 percent to 25.6 percent;” similarly, monthly import volumes were higher in each month between
October 2001 and March 2002 than the comparable month in the preceding year, with the exception
of November.
 These increases in the already significant volume were not the result of increases in
demand, which was relatively flat (0.4 percent) in 2001. Second, Canada contends that “[i]f the
USITC were correct, one would expect to see a steady increase in imports.” But, that is exactly
what the evidence demonstrates.
4.168 The USITC also considered the similar pattern of increases in subject imports during 1994-
1996, immediately prior to the adoption of the SLA, increases which ceased when the SLA entered
into force. The evidence in the record for 1995 to 1996 showed that subject import volume rose at a
rate higher than increases in US apparent consumption.
4.169 Importation Relative to Demand . The USITC found that there was no basis in the record
evidence to conclude that likely substantial in creases in subject imports would be outpaced by
increases in demand. First, the USITC found that evidence in 2001 showed that the increase in
subject imports outstripped demand. Moreover, subject imports after removal of the restraining effect
of the SLA were 11.3 percent higher for the April-August 2001 period compared to the same period in
2000, and 4.9 percent higher for the April-December 2001 period compared to the April-December
2000 period, while apparent US consumption for al l of 2001 was only 0.2 percent higher than it had
been in 2000. The evidence in the Section 129 proceeding demonstrates that while apparent US
consumption for first quarter 2002 increased co mpared with first quarter 2001, it was at a
substantially lower rate, 9.7 percent, than the 14. 6 percent increase in subject imports. Moreover,

subject imports were 6.2 percent higher in the first quarter of 2002 compared with the first quarter of
2000, while apparent US consumption declined by 2.3 percent for first quarter 2002 compared with
first quarter 2000.
4.170 The USITC found that the evidence dispelled any cl aims that projected substantial growth in
demand for softwood lumber in the imminent future. Canada points out that, in the Section 129
Determination, the USITC found that “[f]orecasts expected it [demand] to be relatively unchanged
until the second half of 2002, and then begin to increase in 2003 as the US economy rebounded from
a recession.” That finding is almost identical to the USITC findings in the original determination,
where it stated that “[d]emand for softwood lumber is forecast to remain relatively unchanged or
increase slightly in 2002, followed by increases in 2003 as the US economy rebounds from
recession.”
4.171 The USITC found that the demand forecasts for softwood lumber from industry analysts were
somewhat mixed. Whereas Canada focuses on the demand forecasts for softwood lumber in isolation,
the USITC considered those forec asts together with forecasts for softwood lumber’s primary end-use,
US housing. The USITC found that the lack of a correlation between forecasted lumber demand
growth and forecasted housing starts and the l ack of any agreement among forecasters raised
questions about the usefulness of these forecasts. The USITC also found that the sharp decline in
housing starts in March 2002 showed that the im provements in demand during the mild winter of
2001-2002 were not sustainable.
4.172 The Canadian Producers Had Sufficient Freely Disposable Excess Capacity and Projected
Increases in Capacity and Production in 2002 and 2003 to Substantially Increase Exports to the United
States. On the issue of available excess Canadi an capacity, the panel report found that the USITC’s
discussion regarding the Canadian industry’s export orientation did not support the conclusion that
excess capacity would be exported to the United States beyond the “historical” level. In its Section
129 Determination, the USITC analyzed capacity an d found that Canadian producers had sufficient
excess capacity, and projected increases in productio n and capacity in 2002 a nd 2003, to substantially
increase exports to the United States.
4.173 Canada has substantial capacity to produce soft wood lumber, equal to about 60 percent of US
consumption. Excess Canadian capacity in 2001 had increased to 5,343 mmbf, which was equivalent
to 10 percent of US apparent consumption, as capacity utilization declined to 84 percent from
90 percent in 1999. Even more telling was the fact that Canadian producers expected to further
increase their ability to supply the US softwood lumb er market, projecting increases in production of
8.9 percent from 2001 to 2003 and increases in their capacity utilization to 90 percent in 2003 (from
84 percent in 2001). These increases were projected at the same time that demand in the US market
was forecast to remain relatively unchanged or increase only slightly. Canada’s claim focuses
inappropriately on the incremental increase in production capacity.
4.174 Canadian production is tied to the US market, which continues to be the most important
market for Canadian producers. The US market accounts for 60-65 percent of Canadian production
and shipments, whereas in 2001 other export markets accounted for only 8 percent of Canadian
production, and the Canadian home market accounted for only about 24 percent of production. The
record in the Section 129 proceeding provided furt her support for the USITC’s finding: in the first
quarter 2002, as apparent Canadian consumption declined by 23 percent compared with the first
quarter of 2001, Canadian producers shifted sales from the home market to the US market. In the first
quarter of 2002, Canadian exports to the US market accounted for 63.8 percent of Canadian
production compared with 54.2 percent for the firs t quarter of 2001 and 55.8 percent for the first
quarter of 2000. Given the positive record eviden ce on the export orientation of Canadian lumber
producers, the USITC discounted Canadian producer s’ self-interested projections that additional
production would be exported to the United States at below historical levels of 20 percent of
production.

4.175 The USITC recognized that revisions to the pub lic data for Canadian production resulted in
slightly lower levels for exports to the United States as a share of revised Canadian production,
ranging from 57.5 percent to 61.3 percent for the 1999-2001 period, compared with the range reported
in the original investigation (63.1 percent to 68.1 percent). Canada’s claim that this “vindicates the
projections of the Canadian producers” is misplaced . The USITC discounted projections that showed
that only 20 percent of the projected additional production would be exporte d to the US market.
Canada’s claim only involves whether the accurate historical level of exports as a share of production
is 65 percent (under the original data) or 60 percent (under the revised data). Either of these numbers
is far greater than the 20 percent projected by Canadian producers.
4.176 Likely Adverse Price Effects . The USITC found that the price trend evidence, particularly
the fact that prices reached their lowest levels as imports increased significantly after expiration of the
SLA, constituted positive evidence that subject imports were entering at prices that were likely to
have a significant depressing or suppressing effect on domestic prices, and thereby were likely to
adversely impact the US industry in the imminent future.
4.177 Prices Declined During the Period of Investigation . The evidence demonstrated that prices
for softwood lumber declined substantially during the pe riod of investigation, particularly in 2000. In
mid-2001, at a time of considerable uncertainty in the market due to the expiration of the SLA and the
commencement of the original investigations, pri ces for softwood lumber incr eased. However, these
increases were temporary; prices began to declin e in the July - September 2001 period and fell
substantially in the October - December 2001 period to levels as low as those in 2000. Even with an
improvement in the January - March 2002 period, prices at the end of the period of investigation were
still near the lowest levels reported for the period examined. The USITC found that the price increase
in the first quarter of 2002 was largely due to an increase in consumption– an improvement that was
not likely to be sustained, in light of the sharp decline in housing starts in March 2002 from the record
high reported for February 2002. Further, the USIT C found that record US housing starts throughout
the period of investigation clearly did not guaran tee higher prices in the US market, given price
competition and excess supply.
4.178 Imports were Entering at Prices Likely to Have a Significant Depressing or Suppressing
Effect on Domestic Prices . Substantial price declines in 2000, and resulting deterioration of the
condition of the domestic industry, were due to excess supply from both subject imports and domestic
production. Thus, while the evidence supported a finding that subject imports had some adverse price
effect, the USITC concluded that during the peri od of investigation, they had not yet had a significant
price effect so as to be a substantial cause of mate rial injury to the domestic industry. However, the
USITC also found that the prices at the end of the period of investigation ( i.e., July-September and
October-December, 2001 and January-Mar ch, 2002) were at levels as low as those in 2000, and that
subject import prices, combined with the imminent significant increase in subject import volume,
were likely to have a significant depressing or suppressing effect on domestic prices in the imminent
future. Moreover, the SLA had a significant restrain ing effect on the volume of subject imports and,
therefore, limited the effect of subject imports on prices in the US market.
4.179 Canada’s discussion of the pricing data in the Section 129 Determination focuses, in a
snapshot approach, on the first quarter 2002 data and mischaracterizes the USITC’s analysis. In
evaluating the quarterly composite pricing data, the USITC found that the data showed that the
composite price per mbf for Janua ry - March 2002 period – $318 – was lower than the composite
price per mbf for July - September 2001 period – $322 – and substantially lower than for April - June
2001 period – $364. The USITC recognized that seasonality generally affects quarterly price
comparisons. Moreover, while the composite price for the January - March 2002 period – at $318 –
was higher than for the January - March 2001 period – at $284 – it was substantially lower than $384,
which was the composite price in the January - March period for both 1999 and 2000. Canada
focuses on the comparison between first quarters 2002 a nd 2001. In so doing, it ignores the evidence
that composite prices for the January - March 2001 period had not yet recovered from the low levels

of the July - September and October - December periods of 2000 ($294 and $277, respectively) and
were subject to considerable uncertainty in the market due to the pending expiration of the SLA.
4.180 Canada incorrectly asserts that the USITC made a finding of no significant price underselling.
Instead, the USITC found that, as agreed to by all parties to the investigations, making direct cross-
species price comparisons in order to assess underselli ng was inappropriate. Although the differences
in many of the imported and domestic species of softwood lumber limit the meaningfulness of any
direct price comparisons, the evidence indicates competition across species, such that prices of a
particular species will affect the prices of other species, particularly those that are used in the same or
similar applications.
4.181 Imported and Domestic Softwood Lumber are Interchangeable and Substitutable .
Rather than challenging interchangeability, Canada ba ses its argument with respect to price effects on
the premise that “purchasers do not consider them [ i.e., subject imports and domestic softwood
lumber] substitutable to a significant extent.” Ye t, the evidence demonstrat ed that Canadian spruce-
pine-fir (SPF), which accounted for more than 85 pe rcent of Canadian prod uct imported into the
United States, and US Southern Yellow Pine (SYP), which accounted for about 45 percent of US
production, compete and are substitutable. Moreov er, Canada also exports Douglas fir, hem-fir,
western red cedar, and a few other products; all of these species also are produced in the United
States, and thus there is direct competition betw een subject imports and domestic product. The
USITC found that regional preferences do not reflect a lack of purchasers’ willingness to substitute
subject imports for domestic product to a significan t extent, as Canada suggests, given an available
lower priced interchangeable product.
4.182 Impact of the Subject Imports on the Domest ic Industry and Vulnerability to Threat of
Injury. The condition of the domestic industry, a nd in particular its financial performance,
deteriorated over the period of investigation, as a r esult of the substantial decline in prices. Subject
imports were increasing substantially after expira tion of the SLA and at the end of the period
examined and were entering at prices at their lowest levels during the period of investigation. Thus,
the USITC found that the industry was vulnerable to future injury.
4.183 Domestic producers’ share of apparent domestic consumption decreased from 65.0 percent in
1999 to 64.4 percent in 2000 and to 63.1 percent in 2001. The data collected in the Section 129
proceeding showed a similar trend, with domes tic producers accounting for a 62.3 percent market
share in the first quarter of 2002, down from 64.6 pe rcent and 66.2 percent in the first quarters of
2001and 2000, respectively.
4.184 The domestic industry’s financial performance d eclined during the period of investigation,
with a dramatic drop from 1999 to 2000 as excess to tal supply contributed to price declines. The
domestic industry’s unit net sales value decreased from 1999 to 2001 with the largest decrease
occurring from 1999 to 2000. While unit cost of goods sold declined throughout the period of
investigation, unit net sales value fell by a great er amount, and the ratio of operating income to net
sales fell from 14.3 percent in 1999 to 1.8 percent in 2000, and 1.3 percent in 2001. Total operating
income declined from $1.26 billion in 1999 to $93 million in 2001, and over $1 billion of that decline
occurred in one year, from 1999 to 2000. Net income as a share of net sales followed a similar trend,
decreasing from 13.7 percent in 1999 to 0.8 percent in 2000 and 0.1 percent in 2001. Total net
income declined from $1.21 billion in 1999 to $8 milli on in 2001. While the data collected in the
Section 129 proceeding showed some improvements in the domestic industry’s financial performance
in the first quarter of 2002 compared with the firs t quarter of 2001, a single quarter’s performance did
not change the fact that, overall, the industry’s performance had deteriorated and remained weak. The
USITC, moreover, recognized that financial data for a single quarter is not necessarily an accurate
indicator of the industry’s performance for the entire year.

3. THE CAUSAL RELATIONSHIP AND ALLEGED OTHER “KNOWN” FACTOR
 ANALYSES
4.185 US Obligations Under Article 3.5 of the Antidumping Agreement and Article 15.5 of the
SCM Agreement. Consistent with the finding of the Appellate Body in EC - Pipe, a methodology for
evaluating causation that first asks whether an alle ged other factor is an “other known factor” – i.e.,
more than a tangential or minimal cause of injury or threat – and, only if the first question is answered
affirmatively, undertakes a further analysis to ensure that any injury from an other known factor is not
attributed to subject imports is permissible under Article 3.5 and 15.5. In the Section 129
Determination, the USITC found the evidence to dem onstrate that none of the factors alleged to be
other known factors were other known factors.
4.186 Causal Relationship Between Likely Substantia l Increases in Subject Imports at Depressed
Prices and Threat of Injury to the Domestic Industr y in the Imminent Future. The USITC found that
the evidence demonstrated that subject imports, already at significant and increasing levels even with
the restraining effect of the SLA in place, and w ith significant increases in volume after expiration of
the SLA, would continue to enter the US market at significant levels and were projected to further
increase substantially. Prices were weak toward the e nd of the period of investigation, with prices in
the third and fourth quarters of 2001 again at levels as low as they had been in 2000. While prices
increased in the first quarter of 2002, as consumpti on temporarily increased, they were still at the low
levels reported in 2000 when subj ect imports were impacting the financial performance of the
domestic industry. The USITC found that the likel y substantial increases in subject imports would
result in excess supply in the US market, putting further downward pressure on prices.
4.187 Excess supply generally caused the substantial price declines in 2000 that led to the
deterioration in the condition of the domestic i ndustry. Although both U.S and Canadian producers
had contributed to the excess supply in 2000, by the end of 2001, US producers had brought their
production into line with consumption. Cana dian producers, however, had excess capacity, and
projected increased production, with the United States being the likely market for this excess
production. This latter condition would result in ex cess supply in the US market. Thus, the USITC
found that subject imports were likely to incr ease substantially and were entering at prices,
particularly at the low levels seen at the end of the period of investigation, that were likely to have a
significant depressing or suppressing effect on domes tic prices, were likely to increase demand for
further imports, and thereby were likely to adversel y impact the US industry in the imminent future,
unless protective action were taken.
4.188 In the Section 129 Determination, the USIT C integrated its causation discussion into its
analysis of the threat factors, particularly its analysis of the likely volume and likely price effects of
subject imports on the already vulnerable domestic industry. Rather than address this integrated
analysis, Canada focuses its critique of the USITC’ s causation findings on a separate section of the
Determination that merely reviewed the factors in volved in those findings. Moreover, in a glaring
mischaracterization of the USITC’s Section 129 Determination, Canada incorrectly asserts that “the
basis for the conclusion about US producers curbin g production is a single reference in a footnote in
the section of the Section 129 Determination discussing price declines during the POI.”
4.189 Alleged Other “Known” Factors Analysis . In its Section 129 Determination, the USITC
provided a detailed and reasoned analysis of the following alleged other factors potentially causing
injury to the domestic industry: (1) excess supply fro m the domestic industry itself; (2) third-country
or non-subject imports; (3) increases in importation to meet demand in the US market (discussed
above, as a possible factor weighing against the threat of injury) ; (4) integration in the North
American market; (5) the growth in importance of engineered wood products (‘EWPs’); and (6)
constraints on domestic production/insufficient timber supplies in the United States. The USITC
found none of these factors to be more than a tangential or minimal threat to the domestic

industry. Canada makes arguments regarding only three of these factors: domestic supply, third-
country imports, and integration in the North American market.
4.190 Excess Supply From the Domestic Industry. While the USITC found in its present material
injury analysis that excess supply from both s ubject imports and the domestic industry were
contributing factors to price declines in 2000 that adversely affected the performance of the domestic
industry, it found that the evidence demonstrated that domestic supply would not be an other known
factor in the imminent future, as it had been in the 1999-2000 period. The USITC based its finding on
evidence regarding domestic production and capacity as well as evidence indicating that the domestic
producers had brought their production in line with consumption. Canadian producers, however, had
excess capacity, and projected increases in producti on; the likely market for this excess production
was the US market, and Canadian exports continue to oversupply the US market.
4.191 Canada’s contention that the “USITC got ex actly backward what it called the ‘central
problem’” is based on a single snapshot of the incremental rate for Canadian and US production in the
first quarter of 2002 compared with the first quarter of 2001. Domestic production capacity was fairly
level during the period of investigation, following a small but steady increase between 1995 and 1999,
as apparent consumption increased. Public data indicate that domestic production of softwood lumber
steadily declined from a peak of 36,606 mmbf in 1999 to 34,996 mmbf in 2001, a decline of 4.4
percent. While domestic production in the first qua rter of 2002 was 4.9 percent higher than the first
quarter of 2001, apparent US consumption was 9. 7 percent higher; moreover, domestic production in
the first quarter of 2002 was 9.3 percent lower than in the first quarter of 200 0. Domestic capacity
utilization was 87.4 percent in 2001 and, with the exception of a peak in 1999 at 92 percent, had
consistently held this level from 1995-2001. Based on revised US production data, domestic capacity
utilization was 86.4 percent in 2001.
4.192 In contrast to US industry capacity utilizati on, Canadian capacity utilization had declined
from 90 percent in 1999 to 84 percent in 2001 (a rate substantially lower than that reported for any
other year in the 1995-2001 period). In 2001, excess Canadian capacity was equivalent to 10 percent
of apparent US consumption. Still, Canadian producers projected increases in production of
8.9 percent from 2001 to 2003, and a return of capacity utilization to 90.4 percent in 2003.
4.193 While production data for the 2000-2001 period s how that both Canadian and US production
declined by similar quantities, the evidence also demonstrated that Canadian exports to the US market
increased for this period. Moreover, Canadian producers projected increases in production of
8.9 percent from 2001 to 2003. When Canadian c onsumption declined by 23 percent in the first
quarter of 2002 compared with the first quarter of 2001, Canadian producers apparently made some
adjustments to production, but primarily shifted sal es to the US market, since subject imports were
14.6 percent higher in the later of the same comparable periods.
4.194 Third-Country or Non-subject Imports . Non-subject imports never accounted for more
than 3.0 percent of apparent consumption; in contrast, subject imports accounted for at least
34 percent of the US market. Moreover, individual country non-subject imports would have been
deemed negligible, with no individual country accoun ting for more than 1.3 percent of imports, while
Canadian imports accounted for about 93 percent of all imports. Canada ignores the significance of
the baseline in focusing on incremental increases in import volume. The USITC recognized that the
incremental increase in subject import volume in mmbf between 1999 and 2001 was
approximately the same as the increase in nonsubject import volume. However, placed in
perspective, subject imports are responsible for an enormous volume of imports (18,483 mmbf in
2001) and accounting for about 34 percent of US apparent consumption in the 1999-2001 period,
compared with higher valued non-subject imports, which never exceeded 1,378 mmbf or
2.6 percent of apparent domestic consumption.

4.195 Imports from Canada were subject to import restra ints for most of the period of investigation;
non-subject imports were not restrained. Canada’s assertions regarding “projected rates of continued
increases in third-country imports” are based entirely on its contention that what is relevant is the rate
of increase, even when comparing small baselines to large baselines, and not the absolute volumes.
Furthermore, Canada relies on the incorrect assump tion that a “gap period” began in December 2001,
even though subject imports were still subject to pr eliminary AD duties for the entire first quarter of
2002, which duties remained in place until April 2002. Canada fails to explain its basis for believing
that any significant increase in non-subject imports would be imminent and how any likely imminent
increase in such a small volume of non-subject imports relative to apparent consumption might rise to
the level of having a causal impact on the domestic industry.
4.196 Integration of North American Softwood Lumber Industry. The USITC pointed out that
“[n]o evidence whatsoever has b een proffered to support speculativ e assertions that integrated firms
will not harm their related companies.” Canada cont ends that its assertions were “not speculation but
a common-sense proposition,” at least based on the f acts in a completely unrelated case concerning a
different product (pipe and tube). The USITC pr operly declined to rely on the evidence in an
unrelated case for its findings in this case. Simi larly, Canada fails to support its assertion that
integration “would be even less likely to cause any adverse price effects.” It relies only on its
incorrect contention that the USITC found no price effects in its present material injury analysis.
4.197 Canada refers to the USITC’s decision not to exclude from its analysis any domestic
producers under the “related parties” provision under US law. In Canada’s view, “this finding
supports, rather than contradicts, the point that in tegrated producers are unlikely to import lumber in
injurious volumes or at injurious prices.” But, in this case, no related parties were excluded precisely
because there was no evidence that they were “closely aligned” and likely to be shielded from harm.
Furthermore, such claims about related firms says nothing at all about the impact of the integrated
companies’ operations on the remainder of the US industry or on the industry as a whole, which is the
required focus of the injury analysis.
4. CONCLUSION
4.198 For the reasons stated above and in the First US Submission, Canada’s claims are groundless.
The United States therefore requests that the Panel rej ect Canada’s claims in their entirety. In the
event the Panel were to accept Canada’s arguments, it nevertheless should decline Canada’s requested
“recommend[ation],” for the reasons stated in the original panel report.
E. ORAL STATEMENTS OF CANADA
4.199 The following summarizes Canada's arguments in its oral statements
1. Opening Statement of Canada at the Meeting with the Panel
(A) INTRODUCTION
4.200 Based on the totality of the factors consid ered, the Section 129 Determination is not
consistent with Articles 3.7 and 3.5 of the AD Agreement and Articles 15.7 and 15.5 of the SCM
Agreement. It does not bring the United St ates into compliance with the rulings and
recommendations of the DSB. The problem for the Un ited States is not lack of explanation but that
the explanation given is neither reasoned nor adequate and the evidence relied on does not support the
USITC’s conclusions.

(B) THE USITC’S FINDING OF A THREAT OF MATERIAL INJURY
(i) The Inconsistency Between The Negative Inju ry Determination And The Affirmative Threat
Determination
4.201 The USITC’s negative present injury analysis was straightforward. The USITC found that
lumber prices declined from 1999 to 2001 and, as a result, asked whether subject imports were a
material cause of that price decline. Even t hough both the volume and market share of subject
imports were found to be significant, the USITC foun d that subject imports were not a material cause
“particularly in light of relatively stable market share” and because domestic US producers
contributed to the excess supply that drove prices down.
4.202 As this Panel stated, the “change in circumstances” requirement in Articles 3.7 and 15.7 make
it “critical … that it be clear from the determination that the investigating authority has evaluated how
the future will be different from the immediate past , such that the situation of no present material
injury will change in the imminent future to a situation of material injury, in the absence of
measures”. The USITC found that subject imports had not caused adverse price effects during the
POI in light of relatively stable Canadian market share and the US industry’s contributory role.
Therefore, the USITC could not conclude that subject imports would cause adverse price effects in the
imminent future without finding a material change in either one of these factors.
4.203 As the Panel stated, “In the absence of some incr ease in Canadian market share in the future,
it is difficult to see how the [Commission] could come to the conclusion that Canadian imports would
cause injury in the future when th ey had not done so during the period of investigation, despite their
significant and increased volume and market share”. In the Final Determination, the USITC
concluded only that subject imports would increase on an absolute basis during a period of “strong
and improving demand” in the US lumber market. It failed to inquire whether this increase would
lead to a significant increase in Canadian market share, or how the US industry would respond.
4.204 The United States does not dispute that the Fi nal Determination faile d to reconcile the
affirmative threat finding with the negative present injury finding. The United States argues, in effect,
that the USITC eliminated the inconsistency in its Section 129 Determina tion based on four new
findings: (i) that the rate of increase in subject imports during the POI was “significant” even though
it had made no such finding before; (ii) the Softwood Lumber Agreement that the USITC found
“appears to have restrained the volume of subject imports at least to some extent” now had a
“significant” restraining effect; (iii) US dema nd that the USITC characterized as “strong and
improving” now has become “strong and relatively stable”; and (iv) the US industry, but not the
Canadian industry, curbed overproduction at the end of the POI. No objective and unbiased
investigating authority could reach these conclusions based on the record before the USITC.
(ii) Factors Relating To The USITC’s Conclusion That There Would Be A Substantial Increase In
 Imports
4.205 The United States argues that the rate of in crease in absolute volume during the POI was
significant because the absolute base line volume was large. However, market share, not volume was
the key to the USITC’s negative present injury determination, and the USITC found market share
remained “relatively stable” – a finding that is inc onsistent with the new finding that the “rate” of
increase in volume was significant.
4.206 In emphasizing the USITC’s new finding that the 2.8 percent absolute increase in subject
imports over the POI “is a significant rate of increase” in the volume of imports,
 the USITC relied on
essentially the same evidence cited in the Final De termination that this Panel found “at most …
support[s] a conclusion that imports of softwood lumber would continue at historical levels, and might
increase somewhat, in keeping with demand, and consistent with historical patterns”. As the Panel

recognized, the USITC did not find this increase to be “significant,” and the USITC cited no new
evidence nor provided any reasoned or adequate explan ation whatsoever in support of why the rate of
increase had become significant. Moreover, the USIT C’s substantive analysis continues to address
the absolute increase in the volume of subject imports, rather than their rate of increase during that
time. The actual “ rate of increase” in the volume of imports year over year from 1999 to 2001 was
essentially flat at 1.4 percent.
4.207 With respect to the first quarter of 2002, the United States tries to make much of the only new
data regarding volume in the Sec tion 129 proceeding: the “14.6 per cent increase” in absolute volume
of subject imports in the first quarter of 2002 comp ared to the same period in 2001. However, that
increase still left Canadian market share within th e “range” the USITC itself found to be “relatively
stable” in coming to its negative present injury de termination. The 34.7 percent Canadian market
share in 1st quarter of 2002 represented only a 0.4 percentage point increase in Canadian market share
over full year 2001. Furthermore, the data regarding the first quarter of 2002 can only be analyzed in
context. There must be some recognition that the first quarter of 2002 was not a period of normal
commercial conditions. The reason is obvious: the timing effects of the Gap Period – the period from
December 2001 through the first quarter of 2002 – when provisional countervailing duty measures
were withdrawn. As the US industry representa tives acknowledged at the USITC’s hearing, the
temporary absence of these measures resulted in a shift in shipments as Canadian producers
anticipated the imposition of final measures.
4.208 The United States claims that there was no Gap Period because provisional measures in the
anti-dumping proceeding were not removed. But the anti-dumping measures accounted for only one-
third of the total measures imposed. The United St ates is effectively arguing that the completely
anticipated and temporary removal of the 19 percent countervailing duty, two-thirds of the provisional
measures, had no effect on the commercial incentives of Canadian importers. The United States’
argument is simply not credible.
4.209 Taken together, the evidence on volume trends and the USITC's “new” finding of a
“significant rate of increase” in subject imports do not support the conclusion of a substantial increase
in imports in the imminent future, let alone one sufficient to increase Canadian market share beyond
historical levels.
4.210 The United States relies heavily on the expiration of the SLA to support its volume finding.
The USITC’s new finding diverges dramatically from it s findings in the Final Determination. In its
Final Determination, the USITC found that the SLA “appears to have restrained the volume of subject
imports at least to some extent”. In the Sec tion 129 Determination the USITC majority found the
restraining effects of the SLA were “significant”. “Some” does not mean or equate to “significant”.
The USITC itself understood this when it found in its negative present injury determination that the
subject imports had “some” price effect but not a “significant” one. The USITC offers no reasoned or
adequate explanation for contradicting itself.
4.211 The United States claims that Canada unduly fo cused on the USITC’s reliance on one study –
the Stoner study. Canada focused on that stud y because it was the only new evidence concerning the
SLA’s effect in the Section 129 proceeding. The US industry submitted it precisely because all the
studies in the original record suffered from an obvi ous flaw: none of those studies addressed the final
year of the SLA, so none of them addressed the central question of whether the SLA had a restraining
effect at the time of its expiration . However, Stoner chose not to address the last year of the SLA
specifically, and instead discussed only average effe cts over its full five-year period. Moreover, as
the USITC Staff Report made clear, the Stoner study did not even establish the average effects it
claimed. In its Section 129 Determination, the US ITC never addressed this devastating critique by its
own staff. Thus, the Stoner study, like the studies on the original record, simply could not support a
finding of an imminent increase in imports once the SLA expired.

4.212 Canada has addressed each of the other arguments presented by the USITC relating to the
effect of the SLA. In particular, the USITC h as failed to acknowledge the evidence discussed by
Commissioner Pearson that prices increased immediately after the expiration of the SLA and in the
first quarter of 2002, two periods during which th e USITC claimed that subject imports increased
substantially. As Commissioner Pearson explained, the correlation between increasing US prices and
increasing subject imports during these two periods shows that subject imports would not have a price
suppressing or depressing effect in the imminent future.
4.213 The United States continues to claim that alle ged increases in imports during periods of no
import restraints indicated that, with the SLA gone, there would be an imminent substantial increase
in imports. The USITC discussed this issue in the context of three periods – 1994 to 1996, April to
August 2001, and the first quarter of 2002.
4.214 With respect to the 1994-1996 period, the US submissions do not contest that the Section 129
Determination does not address, much less cure, the problem that the Panel identified: the USITC
failed to consider whether market conditions other th an the lack of restraints led to the increase in
imports during those years. With regard to Apr il to August 2001, this Panel has already recognized
the significant impact of “timing” on imports in that period. Nevertheless, the USITC continued to
treat the April-to-August period on an aggregate basis. This aggregate analys is avoids the central
question the Panel raised regarding this issue – whether the increase in imports represented simply a
shift in their timing in response to commercial incen tives. Consider March and April, where market
share declined in the last month of the SLA, and th en temporarily increased in the following month,
just after the SLA expired. These month-to-mont h shifts are entirely consistent with the obvious
explanation that importers adjusted the timing of thei r exports to avoid export restraints. Even the US
industry acknowledged that the increase in imports in April 2001 reflected the incentive of Canadian
producers to delay shipments until the second quarter of 2001 after the SLA expired.
4.215 Canada sees a timing effect again in July and A ugust, as subject imports rose in July, the last
month prior to the imposition of provisional CVD m easures, and then declined in August after those
measures were imposed. Yet the United States claims there is no relationship between these monthly
market share shifts, the expiry of the SLA, and the approach of new trade restrictions in August 2001.
4.216 The United States now argues that the increase from 2000 to 2001 in absolute volume during
April to August was significant because demand was “r elatively flat” over this period. But it cites a
demand number – a 0.4 percent increase – for all
 of 2001 rather than the April to August time period
in question, when demand in fact increased 6.2 per cent year over year. The data show that market
share during these five months was within the historical range.
4.217 The USITC also claimed that the absolute volume increase during the April to August 2001
period cannot reflect “a shift in timing” because subj ect imports continued to increase even after the
CVD bonding requirements were imposed in August 200 1. This claim is wrong. Canadian market
share declined between September and December when provisional measures were in place: 1.4
percentage points from the same period in 2000 an d 0.8 percentage points from the average in 1998
through 2000. Thus the data on shipments in Ap ril to August, when placed in the context of
shipments for the whole year, show that importers acted on the commercial incentive created by the
US government to condense their shipments into this narrow window.
4.218 The USITC also failed to reconcile its conclu sion concerning the April-to-August period with
the USITC’s conclusion that it would not have foun d present injury even if subject imports had not
been subject to provisional measures starting in August 2001. US law allows antidumping and
countervailing duties to be imposed retroactively based on a USITC's threat determination if the
USITC also finds that it would have made an affi rmative current injury determination “but for” the
application of provisional measures. By the USITC’s own reasoning, its negative “but for” finding

means that imports would not have increased to inju rious levels in the twelve months after the SLA
expired even in the complete absence of provisional measures.
4.219 As for the third no restraint period – the first quarter of 2002 – the USITC failed to recognize
that normal commercial conditions did not exist because it was the Gap Period with no countervailing
duties. As Commissioner Pearson concluded, chang es in volume during this period are explained by
the imposition and removal of provisional measures. Even the US industry agreed, as reflected in its
testimony in the Section 129 proceeding.
4.220 The Panel recognized that Canadian capacity was projected to increase by only a small
amount in the imminent future and that increases during the POI had not resulted in a finding of a
significant increase in subject imports. The Unite d States argues that this factor does not matter
because the USITC did not rely on it. Rather, it relied on sufficient disposable capacity and the
assumption that projected increases in Canadian produc tion would flow to the United States in higher
percentages than Canadian producers projected.
4.221 Three comments need to be made here. 1. The evidence regarding excess capacity, a factor
set out in Articles 3.7 and 15.7, does not support an affirmative threat determination. Instead of
addressing this clear Panel finding, the USITC just ignores it. 2. The increase in unused Canadian
capacity at the end of the POI reflects the fact that Canadian producers decreased production, and did
so more than US producers. The USITC contradict s itself by claiming that decreases in Canadian
production were inadequate, but the resultant unused productive capacity was excessive. It can’t have
it both ways. 3. The USITC’s conclusion that Canadian producers would use previously unused
capacity to substantially increase imports to the Unit ed States in the imminent future was predicated
on its decision to discount Canadian producers’ export projections. The USITC’s rationale for
discounting these projections was that they were in consistent with historical export patterns.
However, the Panel already concluded that these expor t projections were “well within the historical
range”. In addition, new evidence collected in the Section 129 proceeding shows that these
projections were completely consistent with the historical average for th e Canadian industry as a
whole, which the USITC admitted in a footnote. Inexplicably, the USITC ignored both the Panel’s
finding and the new data that reconfirm the correctness of that finding.
4.222 A fundamental weakness of the USITC’s threat finding in the Final Determination was that it
was divorced from any consideration of demand. Th is weakness was particularly glaring given the
USITC’s finding that demand would be “strong and improving”. Curiously, the United States implies
that the “strong and improving demand” language is no longer relevant and then goes on to state that
the Section 129 Determination “elaborated on but did not change ” findings regarding forecasts for
demand. To the extent that the United States h as conceded that demand was “strong and improving”,
this case is over. It is over because the record contains no evidence that any increase in subject
imports would outstrip strong and improving US demand. If there is no evidence that this historical
pattern will alter, there is no support for a finding of a substantial increase in imports, much less for
any finding that any increase in imports would cause significant price effects.
4.223 The evidence supports the USIT C’s original conclusion that US demand would be strong and
improving. In its Section 129 Determination, th e USITC was simply wrong in stating that the
evidence “dispelled” any claims that there would be substantial growth in demand in the imminent
future.
 The forecasts in the record for the Section 129 Determination all agreed that demand would
improve in the 18 months after the USITC’s vote in mid-2002.
4.224 RISI forecasted increas es in lumber demand in the third and fourth quarters of 2002 of
2 percent and 6 percent, respectively, followed by an additional increase of 4 percent in 2003. This
represents a cumulative increase over the 2002-2003 pe riod of 5.3 percent. Clear Vision Associates
forecasted increases in the third and fourth quarters of 2002 of 4 percent and 8 percent, respectively,

and a further 4.7 percent increase in 2003. This represents a cumulative increase over the 2002-2003
period of 8.6 percent.
4.225 The only “new” evidence cited in the Section 129 Determination is a less optimistic forecast
from the original record: the November 2001 Bank of America report. Th is report was issued five
months before the RISI and Clear Vision forecasts were issued in March 2002, and thus well before
the US economy began its recovery from the pos t-9/11 downturn, as discussed in more detail in
Canada's First Submission. Consistent with the observation of the USITC staff, the RISI and Clear
Vision forecasts reflect the continuous upward revisions in forecasts in the first quarter of 2002. The
USITC therefore could not have objectively conclude d that the Bank of America forecast undermined
its prior reliance on the RISI and Clear Vision for ecasts in finding that demand would be “strong and
improving” in the imminent future.
4.226 Nothing in the Section 129 Determination satisfi es the conditions identified by this Panel as
necessary in order to have demand forecast s support an affirmative threat finding. The evidence
supports the continuation of the non-injurious status quo.
(iii) Likely Price Effects
4.227 The USITC’s future price effects finding remain s dependent on its finding of a likely future
substantial increase in imports. As Canada has ju st shown, this remains unsupported. In addition, the
record does not support a finding that there would be a significant increase in Ca nadian market share,
which as the Panel has already held, is necessary to support a finding that subject imports would cause
significant price depression or suppression in the future.
4.228 The only new rationale the USITC offered in th e Section 129 Determination for its renewed
price effects finding is its so-called “price trends an alysis”. Four points demonstrate the flaws in this
analysis: (i) there was no evidence of price underselli ng or lost sales or lost revenues due to subject
imports; (ii) the new “price trends analysis” was no different from the Final Determination’s
reference to price trends, which could not support an affirmative finding; (iii) price declines in the last
two quarters of 2001 (although they reflect improvements over the same quarters in 2000) say nothing
about “whether imports are entering at prices that will have a significant depressing or suppressing
effect on domestic prices” or about the cause of the decline in prices; and (iv) prices rose steadily in
the first quarter of 2002 so that by the end of the POI – mid-April 2002 – prices were more than
10 percent above prior year levels , and higher than the fourth quarter 2001 lows by roughly the same
amount.
4.229 In response, the United States claims that Ca nada’s discussion of the pricing data in the
Section 129 Determination focuses on first quarter 2002 da ta and claims that this focus is an example
of Canada’s snapshot approach. As the brief summary of Canada’s submissions shows, the US
characterization of Canada’s arguments here, as elsewhere, is inaccurate.
4.230 The United States engages in an extensive discussion of pricing that highlights the years 1999
and 2000, which at best have a limited relevance to a threat determination being made in May 2002.
The United States does acknowledge that prices rose in the first quarter of 2002, but tries to dismiss
that increase as a temporary trend based on a USITC fi nding, ironically, of an increase in demand. It
also ignores, as Commissioner Pearson recognized, th at this increase in prices occurred while imports
were increasing – a fact inconsistent with the US ITC’s finding that its predicted increase in subject
imports would cause significant adverse price effects. The USITC has identified no evidence that the
trend in prices would reverse, particularly give n the forecasts discussed by Canada that predicted
continued increases in demand in the second half of 2002 and 2003.

(iv) Vulnerability of the Domestic Industry
4.231 The US discussion of vulnerability of the domestic industry is replete with references to data
that show that, to the extent that the US industry suffered deterioration, it did so predominantly in
2000. However, the data for the last 12 months of the POI tell a dramatically different story – a story
of continuous improvement that accelerates in the fi rst quarter of 2002. During the POI, when the
USITC found that the US industry was not injured, the US industry moved from a negative operating
margin in 2000 and the first quarter of 2001 to a pos itive operating margin of 3.7 percent for the last
three quarters of 2001. This improving trend continued in the first quarter of 2002, when its operating
margin rose to 6.2 percent. Thus, the US industr y achieved a positive margin of 4.3 percent for the
last full year of the POI. This is not the picture of an industry on the “brink” of experiencing material
injury.
4.232 The USITC tried to discount this evidence on the b asis that “financial data for a single quarter
… is not necessarily an accurate indicator of the industry’s performance for the entire year”.
However, it is data for the entire final year of the POI that the USITC ignores.
4.233 These financial data from the full 12-month pe riod immediately preceding the USITC’s vote
point away not only from a vulnerability finding but also from a threat finding. Canada has properly
put more emphasis on evidence from the last year of the POI, as opposed to the earlier part of the POI,
because this case involves a threat de termination, not a present injury determination. In contrast, the
USITC relied on data from 1999 to 2000. But this case is about what the evidence in the record
shows about the imminent future and, therefor e, evidence from 2001 and 2002 has to be more
probative than evidence from 1999 and 2000.
4.234 Thus, when considered in the context of the tota lity of factors considered, it is clear that the
USITC’s renewed affirmative finding of threat of material injury based on a likely substantial increase
in subject imports, is not a finding that could have been reached by an objective and unbiased
investigating authority. It should, therefore, be fo und to be inconsistent with Article 3.7 of the AD
Agreement and Article 15.7 of the SCM Agreement.
(C) THE USITC’S CONCLUSION REGARDING CAUSAL RELATIONSHIP
4.235 Without citation, the United States claims th at Canada has failed to appreciate that the
USITC’s causation analysis was integrated into its an alysis of threat factors. However, the USITC
itself never explained its causation analysis in this manner. The USITC did explain its causal analysis
in a one-page section of its Section 129 Determin ation, entitled “Likely Substantial Increases in
Subject Imports at Depressed Prices Threaten to Injure the Domestic Industry in the Imminent
Future”. The causal analysis in the Section 129 Determination, like its predecessor, rests upon the
conclusion that Canadian imports would increase subs tantially. Because this element of the causal
analysis is not supported, the causal analysis itself is not consistent with Articles 3.5 and 15.5.
4.236 The USITC originally found that subject imports were not a material cause of injury because
the US lumber industry contributed to overproducti on. In its Section 129 Determination, the USITC
states that subject imports, but not US lumber, woul d be a material cause of imminent price declines
because “US producers have brought their producti on in line with consumption” but Canadian
producers have not. However, the undisputed eviden ce in the USITC’s own staff report conclusively
proved that Canadian lumber companies had reduced production more – not less – in 2001 than US
companies reduced their production. According to th e data collected in the Section 129 proceeding,
from 2000 to 2001, Canadian production declined 4. 3 percent while US production declined 3.9
percent. Indeed, relative overproduction in the US industry accelerated even more in the first quarter
of 2002: in the months immediately preceding th e USITC’s decision, US production was up nearly 5
percent, while Canadian production was down by over 2 percent. The United States has attempted to
minimize this central fact by calling it a snaps hot. If it were only a snapshot, it would be a very

compelling one, coming at the end of the POI, th e most relevant time period for making a threat
determination. But it was far more than a snapshot because it continued a trend that began in 2001.
4.237 The importance of these data is difficult to ove rstate. By the USITC’s own reasoning, these
data show that the central problem facing the US industry was not Canadian overproduction at the end
of the POI, as the USITC found, but rather US ove rproduction. The record clearly establishes that
Canadian producers curbed production more in 2001 a nd in the first quarter of 2002. As a result, the
US industry faced a threat at the end of the PO I, not from Canadian producers, but from its own
oversupply.
4.238 The USITC’s conclusion in the Section 129 De termination that US producers had curbed
oversupply at the end of the POI was based on the sa me Bank of America report that this Panel has
already indicated was insuffi cient to support that claim. To be sure, the USITC has embellished its
defence of this claim by asserting that it is now based on other factors in addition to the Bank of
America report. However, the only factors the Un ited States mentions are US production declines
from 1999 and the fairly level US production capacity in the POI.
4.239 It is difficult to see how production declin es by US producers between 1999 and 2000 are
relevant to the issue of likely US production after the first quarter of 2002. It is especially hard to see
how US production declines in that earlier period can be more relevant than the comparative
production data in 2001 and early 2002 that the USITC dismissed.
4.240 Nor does the “fairly level” use by the US industry of its production capacity in the POI
provide any basis for the view that domestic oversupply had been curbed. This is especially true since
the USITC recognized, in its negative present injury determination, that US overproduction precluded
any causation finding in spite of this “fairly level” use of production capacity.
4.241 The information in the record on the relative trends in production at the end of the POI
certainly undermines the very basis of the threat determination. It also makes untenable the notion
that the threat of domestic oversupply, a known factor during the POI, had simply disappeared.
(D) THE USITC’S CONCLUSION REGARDING “OTHER FACTORS”
4.242 Article 3.5 of the AD Agreement and Article 15.5 of the SCM Agreement require an
investigating authority to examine any known factors other than the imports under investigation. It
must ensure that any inju ry caused by other known factors is not attributed to the subject imports. In
the context of the AD Agreement, the Appellate Body has said: “Logically, such an assessment must
involve separating and distinguishing the injurious effects of the other factors from the injurious
effects of the dumped imports”.
4.243 In its report, the Panel highlighted “the fundamental significance of the non-attribution
requirement” and expressed “serious concerns” about th e US failure to conduct such an analysis. To
be sure that its meaning was clear, the Panel provi ded examples of other known factors that should be
addressed by the USITC. These included the impact of third country imports, demand forecasts, and
the increasing integration of the North American lumber market. The Panel singled out one key factor
that it called “a glaring omission”. The United States had failed to discuss the threat of domestic
oversupply. This was a glaring omission on the facts of this case because the USITC itself recognized
domestic oversupply as a contributing factor in the pr ice declines and vulnerability of the domestic
industry in 2000 and early 2001. It was also a glaring omission because the USITC itself had
identified future oversupply in the market as likely to cause price effects and thereby injure the
domestic industry in the imminent future.
4.244 How did the USITC respond to the guidance prov ided by the Panel? In its Section 129
Determination, the USITC denied the need to conduct a non-attribution analysis, finding that only

subject imports threatened injury to the US industr y. In its submissions to this Panel, the United
States has again denied any obligation to separate and distinguish the threat it attributed to Canadian
imports from the threat posed by other factors.
4.245 Canada will first respond to two mischaracteriza tions of Canada’s position on non-attribution
by the United States. First, Canada has not argued that a non-attribution analysis is required in all
cases. Canada agrees with the Appellate Body in EC – Pipe Fittings that no non-attribution analysis
is required in the absence of any ev idence of the existence of other cau sal factors. In this instance,
however, ample evidence in the reco rd for the existence of other f actors helps explain the Panel’s
original “serious concern” about non-attribution. Second, Canada does not contend that a particular
methodology must be used in any non-attribution analysis. Canada recognizes – as the Appellate
Body found in EC – Pipe Fittings and US – Hot Rolled Steel – that a non-attribution analysis is highly
fact-specific. US – Hot Rolled Steel states that th e objective of the non-attribution requirement is to
separate and distinguish the threat of injury caused by the imports under investigation from the threat
of injury posed by other known factors. To separate and distinguish is not a methodology. What it
describes is the fundamental non-attribution obligation under the AD and SCM Agreements.
4.246 The Section 129 Determination’s failure is differe nt from that of the Final Determination in
that the Section 129 Determination does acknowledge other factors relevant to causation, including
those identified by the Panel. Th e USITC discussed these factors but on ly to deny their existence as
other factors. The USITC’s conclusion that no othe r factor posed a threat to the US industry is
contradicted by the record and cannot be rec onciled with the USITC’s negative present injury
determination. It is simply not responsive to the Panel’s “serious concerns” about the failure to
conduct a proper non-attribution analysis.
4.247 What were the other factors? Two of them have already been discussed: the interplay
between demand and volume and, the most critical f actor, domestic oversupply. A third is increasing
integration in the North American lumber industry. Here, the United States does not rebut Canada’s
point that the USITC’s own consistent decisions prior to this case recognize that importers who are
also domestic producers and aligned with the domestic industry are not going to sell imports at prices
or in quantities that will materially injure the domest ic industry. Canada agrees that another factor –
timber shortages during the imminent future – is not another known factor for the US industry, which
has ample supply and capacity to keep pace with improving US demand. The US discussion of a fifth
known factor, engineered wood products – or EWPs – ignores the evidence that EWPs have a small
but growing share of the US market and that every $100 in EWP sales causes a loss of $66 in sales of
softwood lumber.
4.248 The balance of this presentation will focus on th ird country imports and their relationship to
other sources of supply. This merits emphasis because this case, as framed by the United States, is all
about the alleged threat of oversupply.
4.249 The USITC’s conclusion that third country imports were not a causal factor does not stand up
to scrutiny. At the very least, the USITC’s reasons for dismissing third country imports are
inconsistent with the reasoning in its threat an alysis for Canadian imports. The United States now
recognizes that the absolute increase in non-subj ect imports was approximately the same as the
increase in Canadian imports over the POI. Howeve r, it considers that this increase in Canadian
imports foreshadows an imminent ma terial threat while this same in crease in third country imports is
immaterial, negligible and non-existent. This is a stunning double standard.
4.250 The United States has offered no rebuttal to Canada’s argument – based on the USITC’s own
staff report – that third country imports increased from 1998 through 2001 at a dramatic 30 percent
annual rate, which doubled their market share. In contrast, the market share of Canadian producers
barely fluctuated. The United States has offered no reason why the dramatic rate of increase in non-
subject imports would level off in the imminent future . This is especially disturbing because the rate

of increase actually climbed to 50 percent in the fi rst quarter of 2002. Third country imports were
becoming more significant, not less so.
4.251 The United States has attempted to excuse its failu re to separate and distinguish the threat of
injury from third country imports by noting the uncont ested fact that third co untry market share is
dwarfed by Canadian market share. The United States also stresses – in its Section 129 Determination
and in its submissions to this panel – the fact that no one country is a dominant source of third country
imports. With respect, these points are completely irre levant. What is relevant is the very substantial
rate of increase in third country imports and their impact on prices and the market share held by the
US industry. From 1996 to 2001, Canadian market share declined by 1.6 percentage points, while
third country market share increased by the exact same amount as reflected on this slide.
4.252 Third country imports must be considered in conjunction with sources of supply other than
Canadian imports. The Appellate Body in EC - Pipe Fittings recognized that factual circumstances
may require cumulation of other known factors in order to comply with the non-attribution
requirement. This is such a case with respect to at least the other sources of supply in the market.
The primary concern of the USITC is volume and over supply. The data are available in the record in
a way that makes it easy to separate and distingui sh between supply from Canada and supply from all
other sources during the POI: third country imports and the domestic industry itself.
4.253 The USITC chose not to undertake such a cu mulative analysis. Where the facts strongly
favour a cumulative assessment of the likely threat posed by other known supply sources, an objective
and unbiased investigating authority should provide a rationale for not doing so.
4.254 The Section 129 Determination is an exercise in avoidance when it comes to non-attribution.
The failure of the United States to conduct a proper non-attribution analysis, on the facts of this case,
is a violation of Articles 3.5 and 15.5.
(E) CONCLUSION
4.255 The USITC was only able to come to an affirm ative threat determination by ignoring critical
facts that undermined its conclusion that subject imports threatened injury to the US industry.
4.256 With respect to the USITC’s conclusion that imports would increase significantly, the record
facts ignored by the USITC include:
Canadian imports did not exhibit a significant rate of increase and in fact remained within historical
patterns throughout the POI; - the SLA did not have a “significant restraining effect”;
increases in Canadian imports after the SLA expired reflected nothing more than a shift in the timing
of shipments and had no material price effect;
factors such as export capacity, production and prod uction projections and th e export orientation of
Canadian producers did not support a finding that Canadian producers would oversupply the US
market;
US demand for softwood lumber would be “strong and improving”.
the USITC’s other findings essential to its threat de termination, as well as its causation conclusions,
failed to consider:
alleged increased imports from Canada would not negatively affect US lumber prices;
in the first quarter of 2002 the US industry was neither injured nor particularly vulnerable;
in the last year of the POI, Canadian producers d ecreased production more than US producers, and, in
fact, in the first quarter of 2002, Canadian producers continued to reduce production while US
production increased;
the USITC never conducted a proper non-attribution analysis and with no credible basis found that the
only problem threatening the US industry was imports from Canada.

4.257 For these reasons, Canada requests that the Panel find the USITC’s Section 129
Determination, and the definitive anti-dumping and countervailing duty orders th at remain in effect,
inconsistent with US obligations under Articles 3.5 and 3.7 of the AD Agreement and Articles 15.5
and 15.7 of the SCM Agreement. As a result, the United States has not brought itself into compliance
with the rulings and recommendations of the DSB. Finally, Canada requests that the Panel
recommend that the United States bring its measures into conformity with its WTO obligations,
including by revoking the final determination of threat of injury, ceasing to impose anti-dumping and
countervailing duties, and returning cash deposits imposed as a result of US actions in this matter.
2. Closing Statement of Canada at the Meeting of the Panel
4.258 In Canada’s Closing Statement, Canada will do three things. First, Canada will respond
briefly to the five general attacks on its position th at the United States made at the beginning of its
Oral Statement. Second, Canada will rebut five sp ecific assertions in the US Oral Statement. And
third, Canada will briefly summarize why the Panel should conclude that the Section 129
Determination is WTO-inconsistent and does not bring the United States into compliance with the
rulings and recommendations of the DSB.
4.259 The first general attack in the US Oral Statem ent is that Canada is wrong to say that the
USITC changed its position on several issues, incl uding US demand projections, the SLA effect, and
the rate of increase in subject imports. If the United States were correct that the USITC did not
change any of its findings (and it is not, for all the reasons explained by Canada), that would only
mean that the USITC simply made the same findi ngs on essentially the same record as in the Section
129 Determination, as it had in its Fi nal Determination. That would ma ke it all the more clear that it
did not cure the problems that this Panel identified in its Report.
4.260 Second, the United States accuses Canada of focusi ng on snapshots. This claim is false. One
clear example involves the US argument that Ca nada focused only on the improvement in the
financial condition of the US industry in the first quarter of 2002, when in fact, Canada has shown
that the US industry’s position had improved substa ntially for the entire 12 months after the SLA
expired.
23 Another example involves relative changes in US and Canadian production: not only did
Canadian mills reduce production in the first quart er of 2002, while US mills increased production,
but Canadian mills reduced production more in 2001 as well.24
4.261 Third, the United States faults Canada for igno ring baselines during the POI and focusing on
incremental changes from those baselines. Cana da focused on changes fro m the baselines because
this is a threat case, and as this Panel stated, the “change in circumstances” requirement in Articles 3.7
and 15.7 means that the investigating authority mu st demonstrate how the future will be different
from the POI when subject imports did not cause material injury. 25 Here, the USITC found that
subject imports did not cause material injury durin g the POI, even though imports were significant by
any measure. As the Panel recognized, if market share would not increase significantly in the
imminent future, subject imports would pose no threat, just as they caused no present injury. 26
Similarly, if the US industry continued to contri bute to excess supply in the United States in the
imminent future, as it did in the POI, subject imports could not threaten material injury.
4.262 The United States’ fourth general point is rela ted to its third one – that Canada compares
percentage increases and decreases even though the baselines are different. The fact that the baselines
are different is precisely why it is appropriate, and indeed necessary, to compare percentage increases
and decreases. Otherwise, comparisons of changes from the baseline are meaningless. For example,

23 See Slide 6 accompanying Canada’s Oral Statement.
24 See Slide 7 accompanying Canada’s Oral Statement.
26 Ibid., at paras. 7.95 and 7.134.

the United States claims that Canada’s analysis of production trends is flawed, because the baseline
production for each country is different. 27 Of course the baselines are different. But that point is
completely irrelevant, because what is at issue in the causal analysis are the relative trend lines in
production – down for the Canadian industry, up for the US industry.
4.263 Fifth, the United States accuses Canada of ignoring the interrelationship between factors
relevant to present injury and those relevant to the threat of injury. Nothing could be further from the
truth. In fact, one cornerstone of Canada’s s ubmissions is that the USITC did not, and could not,
reconcile its affirmative threat finding with its negative present injury finding.
4.264 Canada now turns to its rebuttal of five specific assertions in the US Oral Statement.
4.265 First, the United States asserts that Canadian producers’ e xport projections were unreliable
because the incremental increases in production projected for 2002 and 2003 were not distributed
among domestic and export markets in the same percentages as total production for prior years.28 The
United States made exactly the same argument in the original proceeding before this Panel. 29 T h e
Panel recognized the key point: the projected distribution of total production was completely
consistent with overall historical experience.
30 Evidence in the Section 129 proceeding reconfirmed
the correctness of that finding. 31 In any event, even if the pred icted incremental production increases
would be distributed in the same way as total production in prior years, the USITC did not find that
the predicted increase in total subject imports would outstrip improving US demand and cause
material price effects.
4.266 Second, the United States asserts that there we re “sharp declines in US housing starts in
March 2002”.
32 However, the United States does not ac knowledge that March 2002 housing starts
were among the highest monthly totals for the preceding two years, and that housing starts for the
entire first quarter of 2002 were a bove the first quarters of 2000 and 2001. This is discussed in more
detail in Canada's First Written Submission.33
4.267 Third, the United States asserts that Canada improperly analyzed projected US demand
because it did not consider full-year projections for all of 2002. With respect, this claim is
nonsensical. Only projections for the second half of 2002 are relevant because only the second half
was in the imminent future after the USITC’s vote in May 2002.
4.268 Fourth, the United States asserts that the evid ence collected in the Section 129 proceeding
“was taken into account in the Section 129 Determination”.34 However, the USITC sought to dismiss
virtually all of the new evidence, which contradict ed several key findings supporting its affirmative
threat determination. Ironically, the USITC reop ened the record “primarily to provide a more
complete data series for the period closest to the Commission’s original determination”.35
4.269 Fifth, the United States asserts that a non-attribution analysis considers whether another
known factor “constitutes more than a tangential or minimal cause of injury or threat”. 36 T h e
Appellate Body rejected this argument in US – Steel Safeguards when it stated:

28 Ibid., at para. 35.
30 Ibid., at paras. 7.91 and 7.92.
31 See Slide 4 accompanying Canada’s Oral Statement.
33 See Canada’s First Written Submission, at paras. 92 and 109.
35 Section 129 Determination, at 7.

we did not rule [in EC – Pipe Fittings] that minimal (or not significant) factors need not be considered
by the competent authorities in conducting non-a ttribution analyses. Rather, we ruled that only
factors that have been found to exist need be taken into account in the non-attribution analysis.
37
4.270 Further, it is simply not credible to assert th at other sources of supply – in a case focusing on
oversupply – are of “tangential” concern. The USIT C’s non-attribution analysis still fails to separate
and distinguish the impact of other known factors from the effect of subject imports.
4.271 Finally, Canada would like to summarize wh y the Section 129 Determination is not WTO-
consistent and does not bring the United States into compliance with the rulings and recommendations
of the DSB.
4.272 Canada is in complete agreement with the Unite d States on one important point: in this case,
as it did in the original case, the Panel shoul d assess whether the USITC’s determination was
supported by the “totality of the factors considered”.38 As the Panel stated in its original report:
our determination is based on our assessment of the USITC’s determination as a whole, taking into
account the evidence that was before it and the analysis in the determination itself. This is, in our
view, in line with the injunction in the text that no one factor can necessarily give decisive guidance,
but the totality of the factors considered must l ead to the conclusion regarding threat of material
injury.39
4.273 As Canada has demonstrated, the totality of the factors in this case do not demonstrate a threat
of material injury. The USITC found that as of May 2002, the US industry was not suffering material
injury by reason of subject imports. Thus, the pe rtinent question is whether trends at that time
indicated a change from the status quo such that subject imports would cause material injury to the US
industry in the imminent future. The answer is no. Demand was rising. Prices were rising. Every
indicia of domestic industry performance, including profitability, was improving. Canadian producers
had curbed their production more than the US indus try. All the evidence suggested that Canadian
share of the US market would remain relatively stable and well within its historical range.
4.274 In sum, the Section 129 Determination fails to comply with the rulings and recommendations
of the DSB, and to satisfy the requirements of Articles 3.7 and 3.5 of the AD Agreement and
Articles 15.7 and 15.5 of the SCM Agreement. Canada respectfully requests that the Panel so find.
F. ORAL STATEMENTS OF THE UNITED STATES
4.275 The following summarizes the United States' arguments in its oral statements
1. Opening Statement of the United States at the Meeting of the Panel
4.276 In this Article 21.5 proceeding, the measure at issue is the measure taken by the USITC to
comply with the recommendations and rulings of the Dispute Settlement Body in the underlying
dispute. Following the adoption of those recomme ndations and rulings, the USITC undertook a four-
month-long process that involved reopening its evidentia ry record and revising its analysis to develop
a determination consistent with US obligations under the AD and SCM Agreements. Its new
determination (referred to here as the “Section 129 De termination”) concluded that an industry in the
United States is threatened with material injury by reason of softwood lumber imports from Canada
found to be subsidized and sold in the United Stat es at less than fair value. In reaching that

37 United States - Definitive Safeguard Measures on Imports of Certain Steel Products , Report of the
Appellate Body, WT/DS248/AB/R, WT/DS249 /AB/R, WT/DS251/AB/ R, WT/DS252/AB/R,
WT/DS253/AB/R, WT/DS254/AB/R, WT/DS258/AB/R, WT/DS259/AB/R, adopted 10December 2003, at para.
491.
39 Panel Report, at para. 7.69.

conclusion, the USITC took careful account of the findi ngs of the Panel in the underlying dispute. In
particular, the USITC recognized that central to those findings was a concern about the explanation
provided by the USITC of the evidence it relied upon and its analysis in the original determination. In
its Section 129 Determination, the USITC relie d on additional evidence from the period of
investigation, engaged in analysis of the add itional evidence as well as further analysis of the
evidence from the original proceeding, and elaborated on and clarified its reasoning.
4.277 The question now is whether the Section 129 Dete rmination is consistent with the obligations
of the United States under Articles 3.5 and 3.7 of the AD Agreement and Articles 15.5 and 15.7 of the
SCM Agreement . The answer, as demonstrated in the United States' written submissions and will
reinforce at the meeting with the Panel, is “yes.”
4.278 In examining the question at hand, the Panel is not being asked what conclusions it would
have reached had it been the investigating authority. As in the underlying proceeding, the Panel is
being asked “whether an unbiased and objective deci sion maker, taking into account the facts that
were before the investigating authority, and in light of the explanations give n, could have reached the
conclusions that were reached.” There does not a ppear to be any disagreement that this is the
appropriate standard of review. Nor does there appe ar to be any disagreement that it is Canada that
bears the burden of proving that the conclusions re ached by the USITC could not have been reached
by an unbiased and objective decision maker.
4.279 Canada has not met that burden and, indeed, cannot do so. In the United States' written
submissions, the United States demonstrated in detail that the Section 129 Determination is consistent
with US obligations under the AD and SCM Agreements. The United States' presentation at the
meeting with the Panel will focus on two things. Fi rst, the United States will highlight certain errors
underlying Canada’s challenge to the Section 129 Determination. Second, the United States will
highlight how the USITC addressed each of the origin al panel’s concerns – contrary to what Canada
asserts at paragraph 7 of its first submission and paragraph 17 of its second submission – and, in doing
so, issued a determination that is consistent with US obligations under the covered agreements.
4.280 In reviewing the Section 129 Determination, it is important to bear in mind that the original
panel did not compel the USITC to make a negative threat of injury determination. Appropriately, it
did not take a position on what the USITC should or should not determine. Rather, it made a finding
about the relationship between the combination of the evidence and reasoning relied upon by the
USITC – as explained in the USITC’s original determination – on the one hand, and the conclusion
the USITC reached, on the other. In fact, the origin al panel expressly declined Canada’s request that
it go further and suggest a particular form of implem entation. Yet, Canada persists in maintaining
that “only a negative determinati on would be consistent with the Panel’s findings and logic and the
underlying evidence.”
4.281 In view of the original panel’s findings, the USITC reconsidered its analysis and articulated
more reasoned and detailed explanations for issues material to its determination, thus making its
decisional path reasonably discernable. Moreover, in order to better address issues raised by the
original panel report regarding the imminent fu ture, the USITC reopened the record to gather
additional information (from public data sources and from questionnaires sent to domestic producers
and Canadian producers). The new information was used to supplement the information gathered in
the original investigations.
4.282 Paradoxically, Canada questions the USITC’s coll ection of additional in formation even as it
insists that the original USITC determination suffe red from a lack of evidentiary support. Equally
paradoxically, the majority of Canadian producers ei ther expressly refused to answer, or simply did
not respond to, requests in the Section 129 proceeding for additional data. It is difficult for the United
States to see how a party can complain that a determ ination lacks evidentiary support at the same time
that its own constituents have ope nly obstructed efforts to more fu lly develop the record. In any

event, notwithstanding this obstruction, the USIT C’s reopening of the record did yield additional
evidence which was taken into account in the Section 129 Determinati on. The USITC also gathered
information at a public hearing and from the written comments submitted by parties to the proceeding.
4.283 The additional information that the USITC coll ected in its Section 129 proceeding, coupled
with the additional analysis it undertook and the fu rther explanation it articulated, resulted in a new
determination, which is consiste nt with US obligations under th e covered agreements. Before
examining the highlights of that new determinati on, the United States briefly addresses a number of
overarching themes in Canada’s portrayal of th e new determination as inconsistent with US
obligations.
4.284 First, in both of its written submissions, Canada makes a point of cataloguing what it calls
“unacknowledged or unexplained shifts” in the USIT C’s conclusions from the original determination
to the Section 129 Determination. In fact, examples that Canada highlights do not amount to shifts in
conclusions at all. What Canada has done is misc haracterize the USITC's analysis in the original
determination, the Section 129 Determination, or both and then assert the existence of a “shift.” A
good illustration of this is Canada’s assertion with respect to the USITC’s findings on demand
forecasts in the US market. Canada states that there was a shift from a finding that demand would be
“strong and improving” to a finding that demand would be essentially unchanged. In fact, the
USITC’s findings on demand forecasts did not change at all from the original determination to the
Section 129 Determination. In both determinations, the USITC found that demand for softwood
lumber is forecast to remain relatively unchanged or increase slightly in 2002, followed by increases
in 2003 as the US economy rebounds from recession.
4.285 Second, Canada’s arguments genera lly avoid discussion of specific data. Typically, in
discussing a particular quantitative indicator, Canada provides a snapshot focus on an incremental
increase or decrease in that indicator that it views as favorable to its assertions, often disregarding the
totality of the evidence in the record on a particul ar issue, let alone the record as a whole. A good
example of this appears at paragraph 116 of Ca nada’s first submission, where Canada focuses
narrowly on the incremental change in Canadian and US production in the first quarter of 2002
compared with first quarter 2001. Canada’s discussi on of this comparison fails to take account of
relevant context, such as prior increases and decreases in each country’s production levels. It also
ignores the 14.6 percent increase in subject imports in the first quarter of 2002.
4.286 Third, Canada ignores the significance of the abso lute size of baseline volume, whether of
imports or production. Instead, Canada repeated ly focuses on incremental percentage increases or
decreases in volume. In doing so, Canada overl ooks the crucial starting point – the volume that
existed prior to those incrementa l increases or decreases. It is logically impossible to draw a
meaningful conclusion from a given percentage in crease or decrease in volume without taking into
account the starting point.
4.287 Fourth, Canada frequently compares a percentage increase or decrease in one number – say,
US production – with a percentage increase or decrease in another number – say, Canadian production
– even though the two numbers may not be compar able, because each may be associated with a
different baseline. Moreover, a comparison that involves only a snapshot focus on one incremental
change can be misleading if not placed in the pe rspective of the entirety of the evidence. More
meaningful are comparisons between percentage changes where the changes are occurring over a
common baseline – such as a comparison of the share that producers in each of two countries have in
the market of an importing country, where the b aseline for each is the market of the importing
country. For example, a comparison of US market share shows subject imports with a 34.7 percent
share of this market, with non-subject imports never exceeding 3 percent of apparent US
consumption.

4.288 Finally, Canada ignores the interrelationship between factors relevant to the present injury
analysis and those relevant to the threat of inju ry. An important distinction between the original
determination and the Section 129 Determination is the absence of discrete “present injury” and
“threat of injury” sections in the latter. Rath er, in the Section 129 Determination, the USITC
discussed the evidence in a holistic way, deliberately avoiding any suggestion that some evidence was
only relevant to present injury and other evidence only relevant to threat. Canada completely ignores
this difference between the original determination and the Section 129 Determination.
4.289 Moreover, this is not the only instance of Ca nada urging a piece-meal assessment of the
evidence, disregarding the way different evidence fits together. For example, Canada suggests
considering the volume of subject imports in the abstr act rather than more meaningfully in the context
of the expiration of the Softwood Lumber Agre ement (“SLA”) and the increase in imports during
periods of no trade restraints. In rejecting this approach to analyzing the evidence in the underlying
dispute, the original panel recognized that the th reat factors “are thoroughly intertwined with” the
present injury factors and that the determination of th reat must be based on the “totality of the factors
considered.” The same principle applies to the present review.
4.290 Likelihood of Substantially Increased Imports. The Panel Report recognized that subject
imports already were at significant levels in terms of absolute volume and in terms of market share,
but questioned whether the USITC relied on a signi ficant rate of increase during the period of
investigation as support for its conclusion that subj ect imports would increase substantially in the
future. The Panel Report also found that the US ITC did not address why the expiration of the SLA
would result in a further substantial increase in im ports, rather than a reallocation of imports from
non-covered to previously covered provinces or mere ly a shift in timing of imports to avoid duties
associated with new antidumping and countervailing duty petitions.
4.291 In the Section 129 Determination, the USITC evaluated the significance of the volume of
subject imports and increases in imports in context, which included taking into account the significant
restraining effect of the SLA and the impact that the expiration of that agreement would have on the
market for softwood lumber, and analyzing im port trends before and during the period of
investigation, specifically in the context of the prevailing market conditions.
4.292 Volume of Imports Already Significant and Likel y to Increase Substantially in the Imminent
Future. The USITC’s analysis began with the simple fact that subject import volumes already were at
significant levels during the investigative period – accounting for between 33.2 percent and
34.7 percent of the US market. In the Section 129 Determination, the USITC also found that the
2.8 percent rate of increase from 1999 to 2001 “is a significant rate of increase when the baseline
volume is already so significant.” Moreover, the USITC recognized that this 2.8 percent increase
occurred even with the restraining effect of the SLA in place and even though apparent US
consumption had declined slightly, by 0.4 percent. Canada focuses on the percentage without regard
to the enormous size of the baseline, the SLA’s rest raining effects, and the relatively flat demand for
softwood lumber.
4.293 Even more telling, there was an even greater increase in subject imports at the end of the
period of investigation, when such imports were no longer subject to the SLA, including when they
were not yet subject to preliminary antidumping or countervailing duties. There is a pattern of
substantially increasing subject imports at the en d of the period of investigation, increases of
2.4 percent from 2000 to 2001, 4.9 percent from Apr il to December 2001, and 14.6 percent when the
first quarter of 2002 is compared to the first quarter of 2001.
4.294 The 14.6 percent increase in the first quarter of 2002 compared to the first quarter of 2001
occurred while apparent US consumption increased by only 9.7 percent. Accordingly, market share
was higher at 34.7 percent in the first quarter of 2002 compared with 33.2 percent in the first quarter
of 2001. Canada’s theory that “opposite commercial incentives” existed in these two quarters misses

the point that subject imports still were 6.2 percen t higher in the first quarter of 2002 compared with
the first quarter of 2000, while apparent US consum ption declined between those two quarters by 2.3
percent.
4.295 The SLA had a Restraining Effect on Subject Imports. To place subject imports in the
appropriate context, the USITC considered the rest raining effects of the SLA on subject imports. In
particular, in the Section 129 Determination, the USITC considered evidence demonstrating that the
constraints on the volume of subject imports result ed in higher prices for such imports and higher
costs for construction than in the absence of th e SLA. For example, respondents estimated that
increases in prices caused by the SLA added about $50 per mbf to the average price of framing
lumber, which translated into increasing the cost of a typical new home by $1,000. In addition, the
USITC compared prices in Toronto, Canada to those in the US Great Lakes region and found that “the
SLA restrained Canada’s exports to the United Stat es, increasing supply in Ca nada and resulting in a
widening gap between US and Canadian prices.”
4.296 Canada misleadingly implies that, since a porti on of one of the quotas provided for under the
SLA went unused in the final year of the SLA, this means that subject imports declined in the last
year of the SLA. They did not. Moreover, in each year during the pendency of the SLA, including
2000-2001, Canadian producers exported significant quantities of softwood lumber under the $100 fee
quota and significant quantities of “bonus” exports.
4.297 The redistribution theory – that is, the theory that termination of the SLA simply would cause
Canadian exports to shift from pr ovinces not covered by the SLA to provinces that were covered –
also is not supported by the facts. When the e xpiration of the SLA left no restraint on imports from
any of the Canadian provinces, imports from the formerly covered provinces increased, but imports
continued at near SLA levels from the non-covered provinces as well, resulting in an overall increase
in subject imports.
4.298 During Periods of No Import Restraints , There Were Substantial Increases in Subject
Imports. To place subject imports in context in its S ection 129 Determination, the USITC considered
the import trends during periods when such imports were not subject to some type of restraint.
During the period following expiration of the SLA (April 2001) and before suspension of liquidation
of softwood lumber entries due to the inves tigation (August 2001), subj ect import volume was
substantially higher as compared with import volumes over the same period in each year from 1998 to
2000. The subject import volume in the April to August 2001 period was higher by a factor ranging
from 9.2 percent to 12.3 percent. While the rate of increase in imports slowed when bonding
requirements associated with the preliminary coun tervailing duties were imposed in August 2001,
subject imports still entered the US market in the April-December 2001 period at a rate 4.9 percent
higher than in the comparable 2000 period. In cont rast, subject imports increased by 2.8 percent from
1999 to 2001. The evidence in the Section 129 pr oceeding demonstrated an even more significant
increase of 14.6 percent for the first quarter of 2002 compared with the first quarter of 2001, and a
significant increase of 6.2 percent compared with the first quarter of 2000.
4.299 Canada’s arguments rest on an alleged “four-m onth ‘gap’ in the application of provisional
measures.” But that alleged gap did not exist. Bonding requirements associated with preliminary
antidumping duty findings did not expire until Apr il 2002. Nor does the supposed existence of
“opposite commercial incentives” in the first quart ers of 2002 and 2001, respectively, explain away
the increase in imports during the first quarter of 2002, since there also w as a significant increase of
6.2 percent in subject imports in the first quarter of 2002 compared with the first quarter of 2000.
Market conditions (other than the presence or absence of the SLA), such as differences in
consumption, did not explain the significant increases in subject imports.
4.300 Another concern of the original panel was that the USITC had not addressed claims that the
substantial increase in imports during the April to August 2001 period only reflects “a shift in the

timing of imports.” In its Section 129 Determination, the USITC found that subject imports increased
both during the April to August 2001 period and afterward, a fact that indicates a change in import
behaviour and is inconsistent with the suggestion that import volumes during the period could be
explained as a simple timing shift.
4.301 Canada’s focus on monthly subject import da ta for the April to August 2001 period does
nothing to undermine this finding. First, the USITC found that “monthly subject import volumes
were higher in each month between April and Augus t 2001 than the comparable month in 2000, with
the exception of June, by a range of 7.5 percent to 25.6 percent.” Similarly, monthly import volumes
were higher in each month between October 2001 and March 2002 than the corresponding month in
the preceding year, with the exception of Novemb er. These increases in the already significant
volume were not the result of increases in demand, which was relatively flat – at 0.2 percent – in 2000
and 2001. Second, Canada contends that “[i]f the USITC were correct, one would expect to see a
steady increase in imports.” But, that is exactly what the evidence demons trates. The USITC found
“these import trends during the most recent period in which there were no trade restraints to be highly
indicative of whether imports are likely to substantially increase in the imminent future.”
4.302 Demand relative to importation . The Panel Report found that the USITC did not make any
findings in its original determination that impor ts from Canada would increase more than demand,
thereby garnering an increased share of the US ma rket, and that the USITC did not discuss market
share at all in the context of its original threat of material injury determination. In its Section 129
Determination, the USITC found that there was no basi s in the record evidence to conclude that likely
substantial increases in subject imports would be outpaced by increases in demand.
4.303 First, the USITC found that the 2.8 per cent increase in subject imports significantly
outstripped the 0.4 percent decline in demand from 1999 to 2001. Second, the evidence in the Section
129 proceeding demonstrates that while apparent US consumption for the first quarter of 2002
increased compared with the first quarter of 2001, it was at a substantially lower rate – 9.7 percent –
than the 14.6 percent increase in subject imports. Thus, the actual increases in subject imports during
the period of investigation substan tially outstripped demand. Similarly, actual data show that subject
imports after expiration of the SLA have increased at a significantly higher rate than any forecasts for
increases in demand for softwood lumber for 2002 and 2003. The United States requests the Panel to
look at the annual data rather than the quarterly forecasts that Canada provides so as to imply larger
increases than the annual forecasts show. The annual forecasts are the more appropriate forecasts to
consider. Based on its analysis of the totality of the facts, the USITC found that subject imports
would increase their market share in the imminent future.
4.304 Available Excess Canadian Capacity . The Panel Report found that the USITC’s discussion
regarding the Canadian industry’s export orient ation did not support the conclusion that excess
capacity would be exported to the United States be yond the “historical” level. In its Section 129
Determination, the USITC analyzed capacity and found that Canadian producers had sufficient excess
capacity, and projected increases in production and capacity in 2002 and 2003, to substantially
increase exports to the United States.
4.305 Canada has substantial capacity to produce soft wood lumber, equal to about 60 percent of US
consumption. Excess Canadian capacity in 2001 had increased to 5,343 mmbf, which was equivalent
to 10 percent of US apparent consumption, as capacity utilization declined to 84 percent from
90 percent in 1999. Even more telling was the fact that Canadian producers expected to further
increase their ability to supply the US softwood lumb er market, projecting increases in production of
8.9 percent from 2001 to 2003 and increases in their capacity utilization to 90 percent in 2003 (from
84 percent in 2001). These increases were projected at the same time that demand in the US market
was forecast to remain relatively unchanged or incr ease only slightly. Canada’s discussion of this
evidence is a good example of Canada focusing in appropriately on the incremental increase in
production capacity without regard to the starting point over which that increase is occurring.

4.306 Canadian production is tied to the US market, which continues to be the most important
market for Canadian producers. The US market accounts for 60 to 65 percent of Canadian production
and shipments, whereas in 2001, other export mark ets accounted for only 8 percent of Canadian
production, and the Canadian home market accounted for only about 24 percent of production.
4.307 The record in the Section 129 proceeding provid ed further support for the USITC’s finding:
In the first quarter of 2002, as apparent Canadian consumption declined by 23 percent compared with
the first quarter of 2001, Canadian producers shifted sales from the home market to the US market. In
the first quarter of 2002, Canadian exports to the US market accounted for 63.8 percent of Canadian
production compared with 54.2 percent for the firs t quarter of 2001 and 55.8 percent for the first
quarter of 2000. Given the positive record eviden ce on the export orientation of Canadian lumber
producers, the USITC discounted Canadian producer s’ self-interested projections that additional
production would be exported to the United States at 20 percent of production – well below historical
levels of about 60 percent.
4.308 The USITC discounted projections that showed that only 20 percent of the projected
additional production would be exported to the US ma rket. Canada’s argument on this point involves
only whether the accurate historical level of expor ts as a share of production is 65 percent (under the
original data) or 60 percent (under the revised data). Either of these numbers is far greater than the
20 percent projected by Canadian producers. In sum, the USITC found that the evidence
demonstrated that subject imports were entering the US market at a significant and increasing volume
level, and that they were projected to increase substantially beyond this level.
4.309 Causal Relationship and Analysis of Other “Known” Factors . Finally, the Panel Report
expressed concern with the discussion, or more prec isely what it saw as an inadequate treatment, of
other factors potentially causing injury in the context of the USITC’s th reat analysis in the original
determination.
4.310 In the Section 129 Determination, the USITC properly examined “any known factors” other
than the dumped and subsidized imports that might be injuring the domestic industry to ensure that it
did not improperly attribute injury from other causal factors to the subject imports. In particular, the
USITC’s methodology for evaluating causation first asks whether an alleged other factor is an “other
known factor” – that is, whether it constitutes more th an a tangential or minimal cause of injury or
threat. Only if the first question is answered affirmatively would the USITC undertake a further
analysis to ensure that any injury from an other known factor is not attributed to subject imports. This
approach to causation analysis is entirely co nsistent with Articles 3.5 and 15.5, of the AD and SCM
Agreements, respectively, as the Appellate Body discussed in its EC – Pipe report.
4.311 In its Section 129 Determination, the USITC provided a detailed and reasoned analysis of six
other factors alleged to be causing injury to the domestic industry. The USITC found that the evidence
did not demonstrate that any these factors was an other known factor.
4.312 In challenging the USITC’s causation analysis, Canada focuses on three of the factors alleged
to have been other known factors. One of these is non-subject imports. Non-subject imports never
accounted for more than 3.0 percent of apparent c onsumption; in contrast, subject imports accounted
for at least 34 percent of the US market. More over, individual country n on-subject imports would
have been deemed negligible, with no individual country accounting for more than 1.3 percent of
imports, while Canadian imports accounted for about 93 percent of all imports.
4.313 Its discussion of non-subject imports is another instance in which Canada ignores the
significance of the baseline and focuses instead on incr emental increases in import volume. Canada’s
assertions regarding “projected rates of continue d increases in third-country imports” are based
entirely on its contention that what is relevant is the rate of increase, even when comparing small
baselines to large baselines, and not the absolute volumes. However, placed in perspective, subject

imports are responsible for an enormous volume of imports (18,483 mmbf in 2001) and account for
about 34 percent of US apparent consumption in the 1999-2001 period, compared with higher valued
non-subject imports, which never exceeded 1,378 mmbf or 2.6 percent of apparent domestic
consumption. Moreover, imports from Canada were subject to import restraints for most of the period
of investigation; non-subject imports were not restrained.
4.314 In light of the evidence regarding non-subject imports, the USITC found them not likely to be
an other factor potentially causing injury to the dom estic industry in the imminent future. Thus, the
USITC found no basis to examine whether any injury could be attributed to non-subject imports in the
imminent future.
4.315 One additional factor alleged to be an “o ther known factor”– excess supply – warrants
mention here. The evidence before the USITC showed that both Canadian and US production
declined by similar quantities for the 2000-2001 period. Yet, with demand relatively flat, Canadian
exports to the US market increased for this period. Moreover, Canadian producers projected increases
in production of 8.9 percent from 2001 to 2003. Fina lly, Canadian producers shifted sales to the US
market when Canadian consumption declined by 23 percent, but US imports increased by 14.6
percent, in the first quarter of 2002 compared with the first quarter of 2001. One additional issue
raised is the integration of the North American market. Canada argues that the exporters and
subsidiaries are aligned. However, the USITC did not find any firms to be aligned, such that they
could be excluded as related parties. No parties in the underlying proceeding disputed or requested
related-party exclusions and, thus, there were no co ntentions or findings that firms were aligned and
shielded from harm.
4.316 Likely Price Effects . With respect to price effects, Canada puts a great deal of emphasis on
data from the first quarter of 2002. Canada suggests that a brief improvement in price trends in that
quarter is inconsistent with the co nclusion that the US industry faced a threat of material injury.
There are at least two basic flaws in this logic. First, it suggests that an up-turn in prices, no matter
how brief, and regardless of anything that came be fore it, will necessarily preclude a finding that an
industry faces a threat of material injury. By that bizarre logic, even a month’s worth of improved
prices at the end of a period of investigation w ould compel a negative finding. Second, Canada’s
logic ignores the fact that prices in the first quarter of 2002 were still low by historical standards, even
if they happened to have turned upward for a brief period.
4.317 The substantial price declines in 2000 led to the deterioration in the condition of the domestic
industry. Prices again were weak toward the end of the period of investigation, with prices in the
third and fourth quarters of 2001 and the first quarter of 2002 at levels as low as they had been in
2000.
4.318 Canada’s discussion of pricing data in the Sec tion 129 Determination focuses, in a snapshot
approach, on the first quarter of 2002 compared with the first quarter of 2001. While prices increased
in the first quarter of 2002, as consumption temporarily increased, they were still at levels as low as
those reported in the second half of 2000, when subject imports were impacting financial performance
of the domestic industry. Specifically, while the composite price for the first quarter of 2002 – at
$318 – was higher than for the first quarter of 2001 – at $284 – it was substantially lower than $384,
which was the composite price in the first quarter s of both 1999 and 2000. Canada’s focus on a
comparison only of the first quarter of 2002 to 2001 ignores the evidence that the composite price for
the first quarter of 2001 had not yet recovered from th e low levels of the third and fourth quarters of
2000 ($294 and $277, respectively) and were subject to considerable uncertainty in the market due to
the pending expiration of the SLA.
4.319 Likely Impact of Subject Imports . Canada’s over-emphasis on price trends in the first quarter
of 2002 also skews its outlook on the domestic industr y’s financial performance in that quarter. The
condition of the domestic industry, in particular its financial performance, deteriorated and remained

weak over the period of investigation, as a result of the substantial declines in prices. Subject imports
were increasing substantially after the expiration of the SLA and at the end of the period examined
and were entering at prices at their lowest levels.
4.320 In discussing the question of the industry’s vulnerability, Canada, again in a snapshot
approach, focuses only on the new data collected in the Section 129 proceeding for the first quarter of
2002, and only in comparison with the first quarter of 2001. This data when placed in perspective do
not undermine the USITC’s finding that the domestic industry was vulnerable to the likely substantial
increases in subject imports at low prices. The simple fact is that financial data for a single quarter
are not necessarily an accurate indicator of th e industry’s performance for the entire year. For
example, for the first quarter of 2000, the domestic industry reported an operating income margin of
9.2 percent, which translated into an operating in come margin of only 1.8 percent for the year 2000
taken as a whole. Moreover, the improvement in the domestic industry’s financial performance in the
first quarter of 2002 resulted from increases in prices, as consumption temporarily increased. The
evidence of sharp declines in US housing starts in March 2002 demonstrated that this increase in
consumption was not likely to be sustained.
4.321 In conclusion, Canada has not – and indeed cannot – demonstrate that the USITC’s Section
129 Determination is inc onsistent with US obligations under the covered agreements. Nor has
Canada shown that the Section 129 Determinati on did not respond to each and every one of the
original panel’s concerns. The United States therefor e requests that the Panel reject Canada’s claims
in their entirety.
2. Closing Statement of the United States at the Meeting of the Panel
4.322 In Canada’s oral statement, two themes were featured prominently. First, Canada selectively
stresses the importance of certain evidence from the e nd of the period of investigation to the virtual
exclusion of evidence from earlier parts of that period. Second, Canada asserts that a threat analysis
must take account of, and be consistent with, the USITC’s finding of a non-injurious status quo. In its
closing remarks, the United States will address these two themes. The United States then will respond
to certain of Canada’s particular arguments from its oral statement.
4.323 In analyzing whether an industry is threaten ed with injury, an investigating authority
necessarily is making a projection about future events based on data it has about the past. Canada’s
arguments prompt the question of how far into th e past the investigating authority should look to
make a determination as to whether an industry faces a threat. Should the investigating authority look
back only one month, discounting any earlier events? Should it look back one quarter? Or, should
the authority’s analysis establish a background, consisting of all of the record evidence, against which
it may determine whether material injury will occur in the absence of protective action?
4.324 Canada’s answer, apparently, is that, at least w ith respect to some aspects of its analysis, the
investigating authority should look primarily to the very recent past – perhaps only to the most recent
quarter – in evaluating whether the industry faces a threat of injury. Canada would heavily discount
earlier events. To make a projection about whether injury will occur in the future, the investigating
authority need only to identify what is happening to day, according to Canada, without regard to how
that evidence fits within the context of what happened yesterday.
4.325 The United States does not disagree that, as a ge neral proposition, recent events are relevant
to the determination of threat. However, the Un ited States does differ with Canada in two critical
respects. First, in the US view, the focus on data from the end of the period of investigation must be
comprehensive, rather than selective. That is , in taking account of evidence from the end of the
period of investigation, the investigating authorit y should take account of evidence on all relevant
factors, not just isolated factors. Second, in the US view, evidence from the end of the period of
investigation must be examined in context. It w ould not be appropriate for an investigating authority

to examine evidence from the latter part of the period of investigation without regard to evidence from
the earlier part of the period. In both of these respects, Canada’s argument is seriously flawed.
4.326 The United States wants to call attention to this issue of the selectivity of Canada’s focus,
because it came up in a number of points that Canada rai sed in its oral statement. For example, with
respect to price effects, Canada argued that prices in 1999 and 2000 had “at best . . . limited relevance
to a threat determination being made in May 2002 .” (Oral Statement, para. 43.) Similarly, in
discussing the vulnerability of the domestic industr y, Canada stated th at “evidence from 2001 and
2002 has to be more probative than evidence from 1999 and 2000.” (Oral Statement, para. 46.)
Again, when it comes to rates of change in re lative production by US and Canadian producers,
Canada dismisses the evidence of absolute volumes fr om earlier in the period of investigation, as well
as market conditions. Instead, Canada emphasizes a snap shot of the rates of change at the very end of
the period examined. (Oral Statement, para. 53). What is striking about these statements is the
selectivity of Canada’s focus on only certain ev idence from the latter part of the period of
investigation. Canada is content to focus on the more recent months when it comes to price effects,
vulnerability, and rates of change in production, presumably because evaluating the data in these
periods in the abstract favours a negative threat finding. However, when it comes to import volumes
and market share, Canada takes quite a different view.
4.327 When it comes to import volumes and market share, Canada actually would discount the latter
part of the period of investigation. First, it w ould dismiss import trends in the period from April to
August 2001 as aberrational. In Canada’s view, imports during that period simply represent exporters
timing their exports to occur after the expiration of one restraint and prior to the anticipated
imposition of a new restraint. Canada also di scounts these increases in imports on the basis that
demand for the April to August 2001 period was 6.2 pe rcent higher than the same period in the prior
year, neglecting the fact that subject imports were actually 11.3 percent higher. When it is pointed out
that the trend in increased imports is eviden t even when the period examined extends beyond
imposition of the new restraint in August 2001– that is, through the end of 2001 – Canada responds
that market share was lower for that period in 2001 than for the corresponding period in 2000.
However, Canada does not place the comparison in cont ext. That is, it fails to note that the second
half of 2000 was when the US market was oversupp lied by subject imports, which resulted in price
declines and serious deterioration in the condition of the domestic industry. Taking account of that
context would explain why the market share was hi gher in 2000 and would weaken the relevance of
that comparison. When the period examined is broa dened to include the first quarter of 2002, Canada
objects on the grounds that the first quarter 2002 amounts to an aberrational “gap period,” given the
expiration of provisional countervailing duties.
4.328 In point of fact, when one looks at Canada’s own summary of the evidence – in Slide 2 of its
oral presentation – one sees precisely why a focus on the end of the period of investigation must take
account of volume and market share as well as the ot her factors to which Canada alluded. As that
slide shows, the market share of subject imports rose steadily from December 2001 to the end of the
period of investigation, reaching a level of 37 pe rcent in March 2002 – substantially higher than the
33 to 34 percent market share held by subject imports during the earlier part of the period of
investigation. The United States fails to see why Canada would have an investigating authority ignore
this end-of-period evidence while emphasizing other end-of-period evidence.
4.329 In short, in Canada’s view, an objective and unbiased investigating authority would have
focused its threat analysis on the end of the peri od of investigation when it comes to price trends,
industry vulnerability, and changes in rate of produc tion, but would discount information from this
period when it comes to import volumes and market share. Canada tries to explain away that latter
category of information – an entire year’s wort h of data – as not indi cative of exporter conduct
relevant to a threat analysis. The United States fails to see how it is objective and unbiased for an
investigating authority to arbitrarily focus on one part of the period of investigation for some purposes
but then to disregard that part of the period of investigation for other purposes.

4.330 Moreover, the United States disagrees with the suggestion that data from the earlier part of
the period of investigation should be discounted for purposes of a threat analysis. In assessing
industry vulnerability, for example, events thro ughout the period of investigation may have
cumulatively deteriorated the condition of the domestic industry. A focus on improvements at the end
of the period simply disregards that an industry th at remains in a weakened state is vulnerable to the
injurious effects of likely substantial increases in s ubject imports at low prices. Data from throughout
the period will be relevant to assessing the state of the industry and its vulnerability to injury from
dumped and subsidized imports in the future.
4.331 It is also important to recognize that the data proffered by Canada for operating incomes in
Slide 6 of its oral presentation are based on a subset of the industry – indeed, a subset that is
substantially more profitable than the industry as a whole, as indicated in data submitted in the
original investigation. For example, the opera ting income margin reported in the original
investigation for the 73 reporting firms was 1.3 pe rcent in 2001. The operating income margin
reported in the Section 129 proceeding for the subset of 54 reporting firms was 2.2 percent in 2001.
Thus, those firms that did not report in the Section 129 proceeding accounted for a total of more than
a $50 million loss in 2001.
4.332 The United States would like to turn now to the second prominent theme in Canada’s
presentation – the consistency between the USITC’s present injury findings and its threat findings.
The United States emphasized that in evaluating the qu estion of threat to the domestic industry it is
crucial to focus on the starting point – what the Un ited States refers to as the baseline. The United
States pointed to the fact that Canada’s challenge addresses incremental changes in particular factors
usually without regard to the base over which thos e changes are occurring. Canada states that it
focuses on incremental changes because the starting point is a status quo found to be non-injurious.
4.333 But, this is a gross over-simplification of the US ITC’s findings with respect to the status quo.
Yes, the USITC found an absence of present injury to the domestic industry. But, it is important to
examine the main reason for that finding. The USITC did not find that import volumes during the
period of investigation were inherently non-injuriou s. In fact, the USITC explicitly stated that it
would find these “significant increases and consistently large levels of subject imports to be injurious
for purposes of a present material injury determinati on.” Nor did it find that “market share . . . was
the key to the Commission’s negative present injury determination,” as Canada alleges. Rather, it
found that a separate factor – oversupply by the domes tic industry in addition to subject imports and
the resultant effects on prices and impact – precluded reaching a present material injury finding. That
conclusion does not diminish the significance of subject import volumes or market share during the
period of investigation. It does not mean that subject import volumes or market share were
themselves non-injurious. It simply means that the injurious effects of subject import volumes could
not be disaggregated from the injurious effects of US oversupply.
4.334 This goes to the question of the relevance of baselines. Starting from the erroneous
assumption that the volume of subject imports during th e period of investigation is irrelevant because
that volume was found to be non-injurious, Canada c ontends that it would have been appropriate for
the USITC to make an affirmative threat finding on ly if the evidence showed that subject imports
would increase in the future at a rate greater than their rate during the period of investigation.
According to this logic, if the rate of increase is expected to be equal to or less than the rate of
increase during the period of investigation, then ther e is no threat to the domestic industry. However,
because the premise is incorrect, the rest of this line of reasoning necessarily falls apart. Not to
mention, that this logic is refuted by the facts. Subject imports after expiration of the SLA increased
at rates higher than when subject imports were subject to the restraints of the SLA – increases of
2.4 percent from 2000 to 2001 (as contrasted to 0.4 percent for 1999-2000), 4.9 percent from April to

December 2001, and 14.6 percent when the first quart er of 2002 is compared to the first quarter of
2001.
4.335 The volume and market share of subject impor ts during the period of investigation were
sufficiently high as to be injurious. Therefore, Canada is incorrect to argue that a threat finding would
have been permissible only if there had been a rate of increase sufficient to overcome a non-injurious
status quo. It also is incorrect to argue that th e USITC’s affirmative threat determination cannot be
reconciled with its negative present injury determin ation. The two are compatible precisely because
the negative present injury determination subsumes a finding that the volume of subject imports
during the period of investigation would have been found to be injurious but for the existence of
another factor. The threat analysis cannot simply ignore the already existing volume and market share
of subject imports. In short, the baseline of s ubject import volume is relevant, even though other
factors were found to have contributed in a material manner to injury.
4.336 The United States turns now to some of the more troubling particular assertions that Canada
made in its oral presentation. Canada makes the point that in the first quarter of 2002, Canadian
production was actually decreasing while US production w as increasing. But Canada fails to put this
observation in context. The changes in production levels occurred while demand in Canada declined
by 23 percent and demand in the United States incre ased by 9.7 percent. Indeed, even as Canadian
producers made some adjustments to production duri ng this period, Canada’s exports to the United
States increased by 14.6 percent. Thus, the change s in production on which Canada relies were not
necessarily probative of import behaviour.
4.337 Canada argues that the USITC provided no new ev idence or explanation to support its finding
that the 2.8 percent increase in subject import volum e over the period of investigation was significant.
That argument misses the point that the USITC made its finding regarding the rate of increase to
address a concern raised in the original Panel Repor t. The original panel noted that the USITC had
not addressed rate of increase in its original determination. The USITC responded by addressing it in
its Section 129 Determination.
4.338 Canada argues that the first quarter of 2002 must be viewed as a “gap period” for purposes of
considering import data, because provisional c ountervailing duties had expired at the end of
December 2001. It dismisses the significance of the continuation of preliminary antidumping
 duties
after December 2001, which generally account for a bout a third of all duties imposed. Its argument
that the first quarter of 2002 should be considered a “gap period” notwithstanding the continuation of
provisional antidumping duties should be rejected, b ecause of its selective disregard of inconvenient
evidence. There is a pattern of increasing imports for a whole year after the expiration of the SLA.
Canada tries to dismiss evidence of increases during particular intervals as timing shifts. But, it
stretches logic to dismiss a consistent pattern over an entire year as something other than a change in
import behaviour, demonstrating an ability of the Cana dian industry to supply the US market with
increasing volumes.
4.339 Canada asserts that the co-existence of increasing imports and rising prices immediately after
the SLA expired and in the first quarter of 2002 undermines the USITC’s conclusion that subject
imports would have a price suppressing or depressing effect. That assertion is incorrect. The co-
existence of these facts is a result of US apparent consumption increasing. In fact, prices remained at
low levels. Moreover, historically, prices in the firs t quarter are higher than in the fourth quarter, and
in this case the composite price in the first quart er of 2002 at $318 was also lower than the third
quarter of 2001 at $322 and the second quarter of 2001 at $364.
4.340 Canada argues that the USITC’s negative “but for” finding means that imports would not
have increased to injurious levels in the 12 mont hs after the SLA expired even absent preliminary
antidumping and countervailing duties. That is not a correct inference to draw from the negative “but
for” finding. That finding does not
 mean that subject import volumes were at non-injurious levels.

Rather, it means that other factors – in particular, oversupply by the US industry – precluded a finding
of present injury.
4.341 With respect to demand forecasts, Canada faults the USITC for relying on one analysis – the
Bank of America report – over others – RISI and Clear Vision. That assertion has no basis. It is
evident on pages 77 to 80 of the Section 129 Determin ation that the USITC did not disregard the RISI
and Clear Vision demand forecasts in lieu of the Bank of America forecast. Nor did the USITC
ignore questionnaire responses. The USITC consider ed the demand forecasts in conjunction with the
forecasts for the primary end-use of softwood lumb er, US housing starts. The evidence showed a
correlation between the actual data for lumber demand and housing starts during the period of
investigation. But, the forecasts, particularly the more optimistic ones, did not have a similar
correlation between demand for softwood lumber and US housing starts.
4.342 Canada accuses the United States of applying a d ouble standard by virtue of the fact that the
USITC found non-subject imports not to be an “other known factor” causing injury to the US
industry, while it found the same absolute increase in Canadian imports to support a finding of threat
to the US industry. This accusation is misleading, inasmuch as it fails to acknowledge differences in
size between the already injurious large volume of Canadian imports and the extremely small volume
of fairly traded non-subject imports. Further, Canada’s discussion of the rate of increase in non-
subject imports is misleading. Ca nada attempts to dramatize the re levance of non-subject imports by
observing that “the rate of increase actually clim bed to 50 percent in the first quarter of 2002.”
(Opening Statement, para. 66). However, the increase referred to occurred over a very small baseline,
such that the conclusion Canada as serts to be inescapable – that is, that third country imports were a
causation factor relevant to future oversupply – is not well founded at all.
4.343 The USITC found that the simple increase in the still extremely small volume of non-subject
imports, which never exceeded 3 percent of the mark et and were not restrained, was not a basis for
finding that such fairly traded imports were causi ng injury to the domestic industry. In its analysis,
the USITC pointed out that non-subject imports were higher-valued and from a wide variety of other
countries, and as such did not act as a collective entity . Moreover, contrary to Canada’s assertion in
its oral statement, the Appellate Body report in EC-Pipe did not indicate that a collective analysis was
required or even the norm.
4.344 Canada argues that an objective and unbiased i nvestigating authority would have undertaken
a cumulative analysis of third country imports a nd domestic supply as a potential other known factor
threatening injury to the US industry. The Pane l should reject that argument because it is based on
Canada’s assumption that these factors are causi ng injury. The evidence does not warrant such a
finding. The USITC considered factors alleged to be other known factors. If these factors are found
not to be causing injury to more than a minimal or tangential degree, there is nothing further to
consider and thus no basis to conduct a further anal ysis in order to attribute no injury from these
factors to subject imports.
4.345 For all of the reasons set forth in the United States written submissions and at this Panel
meeting, the Panel should reject Canada’s challenge and find the Section 129 Determination to be
consistent with the covered agreements. The Unite d States notes that Canada urges not only that the
Panel reach the opposite result, but that it go fu rther and recommend particular actions by way of
implementation. For reasons the Panel discussed in the original report, such a recommendation – or
“suggestion” – would be inappropriate. The radical suggestions that Canada proposes, including a
retroactive remedy in the form of returni ng cash deposits imposed under the antidumping and
countervailing duty orders supported by the Secti on 129 Determination, have no basis in the WTO
Agreement and, therefore, should be rejected. In any event, the United States expects that there will
be no need even to reach that issue, in light of the fact that the Section 129 Determination is consistent
with US obligations under the covered agreements.

V. ARGUMENTS OF THE THIRD PARTIES
5.1 China and the European Communities have reserved their rights to participate in the Panel's
proceedings as third parties. The arguments of China are set out in its written submission and oral
statement to the Panel. The European Communities provided neither a written submission nor an oral
statement to the Panel. China's arguments as presented in its written submission and oral statement are
summarized in this section.
A.
THIRD PARTY WRITTEN SUBMISSION OF CHINA
5.2 The following summarizes China's arguments in its third party written submission
1. INTRODUCTION
5.3 China’s third party submission addresses the following two issues: Significant Rate of
Increase of Dumped and Subsidized Imports, a nd USITC 129 Consideration of “Non-Attribution”
Factors
1. CHINA'S ARGUMENTS
(a) Significant Rate Of Increase Of Dumped And Subsidized Imports
5.4 The original Panel finds that USITC did not rely on a significant rate of increase during POI
in support of its conclusion that subject imports would increase substantially in the future.40
5.5 However, it seems that in 129 Determination, USIT C found 2.8 percent is a significant rate of
increase when the baseline volume is already so significant. 41 Such significant rate of increase during
the POI conclusion also constituted an important fact or for USITC to determine that the volume of
imports is likely to increase substantially in the imminent future.
5.6 China understands that rate of increase and the volume of import are two related but different
factors. A modest rate of increase based on signi ficant import volume or a baseline volume may lead
to relatively great increased quantities. The rate of increase is usually a factor to be considered in a
determination of threat of material injury, since this factor is more indicative of any change in
circumstances.
5.7 Furthermore, in 129 Determination, the USIT C attempted to provide more evidence, which
was the comparison between the import volume during the first quarter of 2002 and the first quarter of
2001, to support its conclusion of there would be a substantial increase in imports immediately.
5.8 This most recent data may be more telling. However, according to Canada’s assertion, the
first quarter of 2002 was a special period which w as between the end of provisional countervailing
duty measures and the imposition of final measures.
42 It is referred to as the “gap period”.
5.9 China notes that when consider ing the imports from April to August 2001the period between
expiration of the SLA and provis ional measures, the original panel found it necessary to discuss
whether the increase in imports during that period of represented an accurate gauge of what would
happen in the future. 43 China thinks that the same logic should apply to the analysis of import trends
with respect to the first quarter of 2002.

40 Original Panel Report 7.90
41 129 Determination, page 21
43 Original Panel Report 7.94.

(b) USITC 129 Consideration Of “Non-Attribution” Factors
5.10 “Non-Attribution rule” of Article 3.5 of th e AD Agreement and Article 15.5 of the SCM
Agreement requires the authority to examine “any know factors” in order to ensure that injuries which
are caused to the domestic industry by known factors, other than dumped imports, are not “attributed
to the dumped imports. ”
5.11 In the original Panel report, the Panel stat ed although it is meaningless to evaluate the
question of violation of the non-attribution, since the Panel concluded that the USITC’s affirmative
injury threaten determination was not consiste nt with Article 3.5 of the AD Agreement and
Article 15.5 of the SCM Agreement, the Panel still stated that the USITC did not exam any factor
under this “Non-Attribution” test.
5.12 Regarding “known” factors, China agrees with the Panel Report in Thailand H-Beams case, in
which the Panel stated that other “known” factors would include those causal factors that are clearly
raised before the investigating authorities by interest ed parties in the course of an AD investigation.
And the authorities shall seek out and examine in each case on their own initiative the effects of all
possible factors other than imports that may be causing injury to the domestic industry under
investigation.
44
5.13 In USITC’s 129 Determination, the USITC considered the “other known factors” under
“Non-attribution” test before it made the affirmative injury threaten decision. The “other known
factors” the USITC considered included “Excess supply from the domestic industry”, “Third-country
or non-subject imports”, “Importation relative to Demand”, “Integration of North American Softwood
Lumber Industry”, “Engineered Wood Products and other substitute pr oducts” and “Alleged
constraints on domestic production or insufficien t timber supplies”, among which both original
Panel’s recommendations were covered.
B.
THIRD PARTY ORAL STATEMENT OF CHINA
5.14 The following summarizes China's arguments in its third party oral statement.
5.15 In this statement, China summarizes major view of points in its written submission.
(a) The First Issue Is About “Significant Ra te Of Increase Of Dumped And Subsidized
Imports”
5.16 The original Panel began its analysis by addr essing the interpretation of the term “consider”
in Article 3.7 of the AD Agreement and Article 15.7 of the SCM Agreement. According to the
original Panel’s rules, China understands that this “consideration” shall go beyond a mere recitation of
the facts, and a rational explanation based on evidence is necessary.
5.17 The original Panel focused on the explanation provided by the USITC in support of its
determinations. The original Panel made clear th at it based its findings on what it saw as “no rational
explanation in the USITC determ ination”. China therefore understa nds that to comply with the
covered agreements and the recommendations and ru lings of the DSB, USITC should reconsider its
analysis with a view to provide detailed and thorough explanations supporting its determinations.
5.18 In the original Panel report, the Panel examined all the factors the USITC considered in its
original determination. China notes that in 129 De termination, the USITC provided more explanation
than it did in its original determination in order to support its affirmative injury threaten finding. As a
third party, China is neither in a position, nor intends to comment on the facts, but based on the

44 Thailand-H-Beams, Panel Report, para, 7.273

arguments of the parties to the dispute, Chin a finds “significant rate of increase of dumped and
subsidized imports” worthy consideration.
5.19 The original Panel finds that USITC did not rely on a significant rate of increase during POI
in support of its conclusion that subject imports would increase substantially in the future, but it seems
that in 129 Determination, USITC found 2.8 percent is a significant rate of increase when the baseline
volume is already so significant. Such significan t rate of increase during the POI conclusion also
constituted an important factor for USITC to determine that the volume of imports is likely to increase
substantially in the imminent future.
5.20 China understands that “rate of increase” and the “volume of import” are two related but
different factors. A modest rate of increase based on significant import volume or a baseline volume
may lead to relatively great increased quantities. The rate of increase is usually a factor to be
considered in a determination of threat of material injury, since this factor is more indicative of any
change in circumstances.
5.21 Furthermore, in 129 Determination, in order to support its conclusion of there would be a
substantial increase in imports immediately, the USITC attempted to provide more evidence, which
was the comparison between the import volume during the first quarter of 2002 and 2001.
5.22 This most recent data may be more telling. However, according to Canada’s assertion, the
first quarter of 2002 was a special period which w as between the end of provisional countervailing
duty measures and the imposition of final measures. It is referred to as the “gap period”.
5.23 China notes that when consider ing the imports from April to August 2001the period between
expiration of the SLA and provis ional measures, the original panel found it necessary to discuss
whether the increase in imports during that period of represented an accurate gauge of what would
happen in the future. China thinks that the same logic should apply to the analysis of import trends
with respect to the first quarter of 2002.
(b) The second issue is about “USITC 129 Consideration of “Non-Attribution” Factors”
5.24 When China reads Article 21.5 of the DSU, Chin a finds that there may be two disputes that
could be brought to a compliance panel: 1. where there is disagreement as to the existence of
measures taken to comply with the recommendations a nd rulings; 2. where there is disagreement as to
the consistency with a covered agreement of measu res taken to comply with the recommendation and
rulings. In short, there are two stages of the exam ination of the compliance, first is the “existence”
stage and the second is the “consistency of the existing measures” stage.
5.25 “Non-Attribution rule” of Article 3.5 of th e AD Agreement and Article 15.5 of the SCM
Agreement requires the authority to examine “any know factors” in order to ensure that injuries which
are caused to the domestic industry by known factors, other than dumped imports, are not “attributed
to the dumped imports. ”
5.26 In the original Panel report, the Panel stat ed although it is meaningless to evaluate the
question of violation of the non-attribution, since the Panel concluded that the USITC’s affirmative
injury threaten determination was not consiste nt with Article 3.5 of the AD Agreement and
Article 15.5 of the SCM Agreement, the Panel still stated that the USITC did not exam any factor
under this “Non-Attribution” test.
5.27 Regarding “known” factors, China agrees with the Panel Report in Thailand H-Beams case, in
which the Panel stated that other “known” factors would include those causal factors that are clearly
raised before the investigating authorities by interest ed parties in the course of an AD investigation.
And the authorities shall seek out and examine in each case on their own initiative the effects of all

possible factors other than imports that may be causing injury to the domestic industry under
investigation.
5.28 In USITC’s 129 Determination, the USITC considered the “other known factors” under
“Non-attribution” test before it made the affirmative injury threaten decision. The “other known
factors” the USITC considered included “Excess supply from the domestic industry”, “Third-country
or non-subject imports”, “Importation relative to Demand”, “Integration of North American Softwood
Lumber Industry”, “Engineered Wood Products and other substitute pr oducts” and “Alleged
constraints on domestic production or insufficien t timber supplies”, among which both original
Panel’s recommendations were covered.
5.29 Thus, with respect to the first stage, ie. “exis tence” stage, China understands that the USITC
complied with its obligation under “Non-Attribution” test by analyzing the “other known factors”
before it made the injury threaten determination.
5.30 However, with respect to the second stage, Chin a also agrees that mere mention of the other
factors is not enough under the agreements, and th e USITC shall give some rational explanation on
each factor before they decided whether or not th e factor was qualified as another known factor in the
imminent future. Since this expl anation is about the facts, as a third party, China takes no view on
facts without the panel’s comments (the reason Chin a analyzed facts in the above content is the
original panel had clear comments on these facts, and then China can make the decision based on
these comments).
VI. INTERIM REVIEW
6.1 In accordance with the timetab le for these proceedings, both parties were given the
opportunity to submit comments on the interim report, requesting review of precise aspects of the
interim report, no later than 5 September 2005. On that date, the United States submitted a request for
the Panel to review precise aspects of the interim report, but not requesting a meeting with the Panel
on the interim report. In addition, the United States pointed out certain typographical and
grammatical errors in the report. On that same date, Canada submitted a letter indicating that it had
no comments on the interim report. On 12 Sept ember 2005, Canada submitted comments on the
United States' request for interim review. We ha ve made typographical and grammatical corrections
to the report, including as suggested by the United States at paragraphs 7.12, 7.27, 7.29, 7.33, 7.35,
7.43, 7.61, 7.62, and 7.65. We address below the substantive comments of the parties.
6.2 The United States comments, with respect to the fourth sentence of paragraph 7.18, that the
list of factors, based on which the USITC concluded there would be a substantial increase in imports,
should be modified to also refer to projected incr eases in capacity utilization and production. Canada
did not comment on this suggestion.
6.3 We have reviewed the determin ation of the USITC, and in light of the discussion therein
45,
and the lack of objection from Canada, we have made the requested change.
6.4 The United States comments, with respect to th e first sentence of paragraph 7.27, that it
should be amended to reflect the fact that the US ITC’s conclusion was based not only on the overall
rate of increase over the period of investigation but also on the rate of increase at particular moments
during the period of investigation, in view of ev ents occurring at those moments. Canada comments
that the USITC never explained its conclusion in th ese terms, and therefore requests that the Panel not
accept the United States' proposed amendment.

45 Views of the Commission, Exhibit CDA-1, at page 40.

6.5 We have reviewed the determin ation of the USITC, and we recognize that, as suggested by
the United States, the USITC did find that the rate of increase in the volume of imports at certain
times during the period of investigation was significant. 46 However, the first sentence of paragraph
7.27 refers only to the USITC's finding that the 2.8 percent increase over the period of investigation
(1999-2001) was significant, and thus the additiona l point suggested by the United States is not
pertinent to the discussion therein. We have, however, amended the last sentence of paragraph 7.27 to
more clearly reflect the fact that the USITC specifi cally found the rate of increase in the volume of
imports after the expiration of the SLA to be significant.
VII. FINDINGS
7.1 This dispute concerns the parties' disag reement as to the consistency with the Agreement on
Implementation of Article VI of GATT 1994 (hereinafter "AD Agreement") and the Agreement on
Subsidies and Countervailing Measures (hereinafter "SCM Agreement") of the measure taken by the
United States to comply with the recommendation of the DSB arising out of the Panel's report .47
7.2 The original dispute concerned the investigation and determination of threat of material injury
of the United States International Trade Commission (hereinafter "USITC") in Softwood Lumber from
Canada and the final definitive anti-dumping and c ountervailing duties applied following the final
determination. In that determination, the USITC had unanimously determined that an industry in the
United States was threatened with material injury by reason of imports of softwood lumber from
Canada found to be subsidized and sold in the Un ited States at dumped prices, and antidumping and
countervailing duty orders on imports of softwood lumber from Canada were subsequently issued.
7.3 In its final determination, the USITC had de termined that the domestic softwood lumber
industry was not materially injured by reason of subject imports from Canada found to be dumped and
subsidized, but found that there was a threat of mate rial injury by reason of such imports. In making
that determination, the USITC found that the domestic industry producin g softwood lumber was
vulnerable to injury in light of declines in its performance over the period of investigation,
particularly its financial performance. The USITC noted that the United States Department of
Commerce (hereinafter "USDOC") had determined that there were 11 programs that conferred
countervailable subsidies to Canadian producers and exporters of softwood lumber. The USITC found
that Canadian dumped and subsidi zed imports (subject imports) were likely to increase substantially
based on a series of factors. The USITC found that there was a moderate degree of substitutability
between subject imports and the domestic like product, and that prices of different species affected the
prices of other species.
 Given its finding of likely significant increases in subject import volumes, and
its finding of at least moderate substitutability between subject imports and domestic product, the
USITC concluded that subject imports were likely to have a significant price depressing effect in the
immediate future. The USITC recognized that while i nventories generally were not substantial in the
softwood lumber industry, Canadian producers’ in ventories as a share of production had increased
and were consistently higher than those reported by US producers during the period of investigation.
Finally, the USITC noted that a number of domestic producers had repor ted actual and potential
adverse effects on their developmen t and production efforts, growth, investment, and ability to raise
capital due to subject imports fro m Canada. Thus, the USITC determined that further significant
increases in dumped and subsidized imports were imminent, that these imports were likely to
exacerbate price pressure on domestic producers, and that material injury to the domestic industry
would occur.
7.4 Before the Panel, Canada had alleged viol ations of various provisions of the AD and
SCM Agreements in the USITC's determination of injury. In particular, Canada alleged specific

46 Ibid. at page 21.
47 Panel Report, US – Softwood Lumber VI, supra note 1.

violations of Article 3.7 of the AD Agreement a nd Article 15.7 of the SCM Agreement, arguing that
the USITC failed to properly consider the particular factors relevant in threat of injury determinations,
and violations of Article 3.5 of the AD Agreemen t and Article 15.5 of the SCM Agreement, arguing
that the USITC failed to properly analyze causation and failed to properly apply the "non-attribution"
requirement, which specifies that in jury caused by other factors must not be attributed to dumped
and/or subsidized imports.
 These claims required the Panel to consider the substance of the USITC's
final determination of threat of material injury to determine whether it was consistent with US
obligations under the AD and SCM Agreements.
7.5 The Panel found, inter alia:
(a) that the USITC determination was not consistent with Article 3.7 the AD Agreement
and Article 15.7 of the SCM Agreement in that the finding of a likely imminent
substantial increase in imports was not one which could have been reached by an
objective and unbiased investigating authority in light of the totality of the factors
considered and the reasoning in the USITC determination.
(b) With respect to the allegations of violati ons of Article 3.7 of the AD Agreement and
Article 15.7 of the AD Agreement in respect of other aspects of the USITC
determination, the Panel concluded that the USITC determination was not
inconsistent with the asserted provisions.
48
7.6 In light of these findings, the Panel concluded
(a) that the USITC determination was not consistent with Article 3.5 of the
AD Agreement and Article 15.5 of the SCM Agreement in that the causal analysis
was based on a finding which was, itself, not consistent with Article 3.7 the
AD Agreement and Article 15.7 of the SCM Agreement.
(b) With respect to the allegations of violati ons of Article 3.5 of the AD Agreement and
Article 15.5 of the AD Agreement in respect of other aspects of the USITC
determination, the Panel concluded that it was neither necessary nor appropriate to
make findings with respect to these claims.
49
7.7 Accordingly, the Panel concluded that to the ex tent the United States had acted inconsistently
with the provisions of the AD and SCM Agreements, it had nullified or impaired benefits accruing to
Canada under those Agreements, and therefore recommended that the Dispute Settlement Body
request the United States to bring its measures into conformity with its obligations under the AD and
SCM Agreements.50
7.8 Under US law (commonly referred to as "secti on 129"), if a WTO Panel or Appellate Body
report finds that a determination by the USITC is not consistent with US obligations, then, upon
request by the USTR, the USITC "shall issue a dete rmination in connection with the particular
proceeding that would render the Commission's acti on...not inconsistent w ith the findings of the
panel".51 In this case, the USTR made such a requ est to the USITC on 27 July 2004. The USITC
issued its "section 129" determination within the statutory deadline set out in US law, on
24 November 2004. In that determination, the USITC again concluded that there would be a
substantial increase in imports, at prices which would adversely affect the vulnerable domestic

48 Panel Report, US – Softwood Lumber VI, supra note 1, at para. 8.1.
49 Panel Report, US – Softwood Lumber VI, supra note 1, at para. 8.2.
50 Panel Report, US – Softwood Lumber VI, supra note 1, at para. 8.3.
51 19 USC. §3538(a)(4).

industry, threatening material injury, and that there were no other known factors which threatened
material injury to the domestic industry.
7.9 In the course of the section 129 proceeding, th e USITC reopened the record of the original
investigation to gather additional information from public data sources and from questionnaires sent
to US and Canadian producers, held a public hear ing, and gave parties opportunities to submit written
comments. The USITC stated that its task was to "mak[e] a determination that would render its
original action not inconsistent with the findings of" the Panel.
52 Therefore, the USITC addressed in
its determination only the issues related to the Panel's findings set forth in the request from the USTR,
and did not address issues that were not in disput e in the original Panel proceeding which the Panel
had found not inconsistent with the United States' obligations under the WTO Agreements, or which it
did not otherwise consider necessary to address.53
7.10 In its section 129 determination, the USITC found, based on a significant rate of increase in
imports from a significant baseline volume level, and taking into account increases in imports during
periods of no import restraints, that there was a likelihood of substantially increased imports, and
concluded that dumped and subsidized imports would increase in the imminent future. Looking at
current import trends, the restraining effects of the US-Canada Softwood Lumber Agreement (SLA),
excess Canadian capacity and projected increases in capacity, capacity utilization and production, and
demand projections, the USITC concluded that imports would increase at a substantial rate in the
imminent future beyond historical levels. The USITC concluded that imports were entering the United
States at prices that were likely to have a significant depressing or suppressing effect on domestic
prices and likely to increase demand for further impor ts, and that imports were therefore likely to
adversely impact the US lumber industry in the i mminent future. Looking at the question of other
factors potentially threatening injury, the USITC concluded that excess supply from the domestic
industry, third country imports, importation relative to demand, the integration of the North American
softwood lumber industry, substitu te products, and domestic production constraints, were not other
factors potentially causing injury to the domestic indus try, and therefore considered that there was no
basis to examine whether any injury could be attributed to them.
54
7.11 The claims put forward by Canada in this case challenge the USITC's section 129
determination, and specifically its consideration of the evidence underlying its determination of threat
of material injury, its determination of causal link, and its analysis of "other causes" of threat of
injury. Canada has not challenged any of the procedural aspects of the section 129 process, including
the reopening of the record and the receipt of additional evidence, although it does dispute the
significance of that evidence. In addition, Cana da has not challenged the principle underlying the
USITC's section 129 determination, that in order to "bring its measure into conformity" with the
United States' obligations, it suffices for the USITC to "fill the gaps" identified by the Panel in its
original decision, and provide additional explanati on and evidence in support of its conclusions, so as
to render its determination not in consistent with the United States ' obligations under the relevant
Agreements.55 Of course, whether the United States has ad equately done so in this case is the matter
in dispute before us.

52 Views of the Commission, Exhibit CDA-1, at 4.
53 Ibid.
54 One Commissioner of the USITC dissented, finding that the domestic industry producing softwood
lumber was not threatened with material injury. Views of the Commission, Exhibit CDA-1 at 89.
 55 Canada does assert that this is not a case in which such "gap filling" can suffice to yield a
determination consistent with the United States' obliga tions. Canada's answer to the Panel's question 1 at
para. 1. Canada argues that the Panel originally found a lack of eviden ce supporting the USITC's
determination, and inconsistencies between the determina tion with respect to material injury and threat of
material injury. However, our original conclusions concerning lack of evidence did not refer to whether
evidence existed on a particular point, but rather whether the USITC's determination relied upon and explained
relevant evidence in such a way as to lend reasoned supp ort to the determination. Indeed, under the applicable

7.12 The role of a Panel in an Article 21.5 proceed ing is to evaluate the challenged measure to
determine its consistency with the defending Member's obliga tions under the relevant WTO
Agreements. Thus, the Panel is not limited by its original analysis and decision – rather, it is to
consider, with a fresh eye, the new determination befo re it, and evaluate it in light of the claims and
arguments of the parties in the Article 21.5 proceed ing. While it is true that “a panel acting pursuant
to Article 21.5 of the DSU would be expected to re fer to the initial panel report, particularly in cases
where the implementing measure is closely related to the original measure, and where the claims
made in the proceeding under Article 21.5 closely resemble the claims made in the initial panel
proceedings”,
56 in a case involving a new determination in th e same case, it is clear that the facts are
likely to be very similar to the original. Thus, what is most important for our analysis is the reasoning
and explanation of the USITC in its section 129 determination. Consequently, our findings
concerning the original determination have little if any persuasive effect in our review of the
determination now before us. In this regard we note that Canada argues in a number of instances that
the USITC's section 129 determination fails to address certain questions raised by the Panel in its
original determination.57 While we cannot preclude the possibility that a Member might implement a
DSB recommendation by specifically answering points raised by a panel (or the Appellate Body) in
the relevant decisions, this is by no means require d by the DSU. Nor is it the only means by which
implementation may be achieved. In this case, th e USITC has provided a determination in the section
129 proceeding which purports to re-examine the evidence, and additional evidence, and address
those aspects of its original decision we found to be insufficient in light of the obligations of the AD
and SCM Agreements. We must review that dete rmination on its own merits, as a whole. Whether
the USITC addressed particular questions we raised may be relevant in our review, but is not
necessarily determinative.
7.13 We must also keep in mind the nature of th e determination we are reviewing. The USITC's
determination in the section 129 proceeding was th at dumped and subsidized imports of softwood
lumber from Canada threatened material injury to the US industry. In this regard, we note the
comments of the Appellate Body on the nature of the determination to be made by an investigating
authority in a case involving threat of material injury:
"In our view, the "establishment" of fact s by investigating authorities includes both
affirmative findings of events that took place during the period of investigation as
well as assumptions relating to such events ma de by those authorities in the course of
their analyses. In determining the existence of a threat of material injury, the
investigating authorities will necessarily have to make assumptions relating to "the
"occurrence of future events" since such future events "can never be definitively
proven by facts".63 Notwithstanding this intrinsic uncertainty, a "proper establishment"
of facts in a determination of threat of ma terial injury must be based on events that,
although they have not yet occurred, must be "clearly foreseen and imminent", in
accordance with Article 3.7 of the Anti-Dumping Agreement.64
WT/DS178/AB/R, adopted 16 May 2001, para 136.

standard of review, we can imagine finding a lack of evidence to support a determination, in an absolute sense,
only in the most extreme cases, such as where the record contains gaps in evidence, or the evidence contradicts
the conclusions drawn, with no reasonable explanation.
56 Appellate Body Report, Mexico – Anti-Dumping Investigation of High Fructose Corn Syrup (HFCS)
from the United States, Recourse to Article 21.5 of the DSU by the United States ("Mexico – Corn Syrup
(Article 21.5 – US)"), WT/DS132/AB/RW, adopted 21 November 2001, DSR 2001:XIII, 6675, at para. 109.
57 E.g., Canada's answers to the Panel's question 1 at para. 3, Canada's first written submission at paras.
70 and 93.

64 As we noted in United States – Hot-Rolled Steel:
Article 17.6(i) … defines when investigating authorities can be considered
to have acted inconsistently with the Anti-Dumping Agreement in the course
of their "establishment" and "evaluation" of the relevant facts. In other
words, Article 17.6(i) sets forth the appropriate standard to be applied by
 panels in examining the WTO-consistency of the investigating authorities'
establishment and evaluation of the f acts under other provisions of the Anti-
Dumping Agreement. (original emphasis)
Appellate Body Report, supra, footnote
 59, para. 56."58
The possible range of reasonable predictions of th e future that may be drawn based on the observed
events of the period of investigation may be br oader than the range of reasonable conclusions
concerning the present that might be drawn based on those same facts. That is to say, while a
determination of threat of material injury must be based on the facts, and not merely on allegation,
conjecture, or remote possibility, predictions based on the observed facts may be less susceptible to
being found, on review by a panel, to be outside the range of conclusions that might be reached by an
unbiased and objective decision maker on the basis of the facts and in light of the explanations given.
7.14 In this case, there is no dispute as to the measure at issue, or as to the propriety of the claims
raised by Canada. In addition, there are no new issues of legal interpretation raised. Thus, the
principal task for us is to evaluate the USITC dete rmination, applying the familiar concepts regarding
standard of review and burden of proof, and reach a conclusion as to the consistency of the
section 129 determination with US obligations under the asserted provisions of Articles 3.5 and 3.7
of the AD Agreement and Articles 15.5 and 15.7 of the SCM Agreement.
7.15 The concepts of standard of review and burden of proof applicable in this dispute are the
same as those applied in our original report. In th at report, we concluded as follows with respect to
the standard of review:
"7.12 Article 11 of the DSU sets forth the ap propriate standard of review for panels
for all covered agreements, including the SCM Agreement. Article 11 imposes upon
panels a comprehensive obligation to make an "objective assessment of the matter",
an obligation which embraces all aspects of a panel's examination of the "matter",
both factual and legal. Article 17.6 of the AD Agreement sets forth a special standard
of review applicable to anti-dumping disputes. It provides, with respect to the
evaluation of factual issues:
 “(i) in its assessment of the facts of the matter, the panel
shall determine whether the authorities’ establishment of the facts
was proper and whether their evaluation of those facts was unbiased
and objective. If the establishmen t of the facts was proper and the
evaluation was unbiased and objective, even though the panel might
have reached a different conclusi on, the evaluation shall not be
overturned;”
With respect to questions of legal interpretation, Article 17.6 provides:
 “(ii) the panel shall interpret the relevant provisions of the
Agreement in accordance with cust omary rules of interpretation of
public international law. Where the panel finds that a relevant

58 Appellate Body Report, Mexico – Corn Syrup (Article 21.5 – US), supra note 56 , at para. 85.

provision of the Agreement admits of more than one permissible
interpretation, the panel shall find the authorities’ measure to be in
conformity with the Agreement if it rests upon one of those
permissible interpretations".
Thus, together, Article 11 of the DSU and Article 17.6 of the AD Agreement set out
the standard of review the Panel is to appl y with respect to both the factual and legal
aspects of its examination of the claims and arguments raised by the parties in a case
under the AD Agreement.
76 . . .
7.15 Under the Article 17.6 standard, with respect to claims involving questions of
fact, Panels have concluded that whether the measures at issue are consistent with
relevant provisions of the AD Agreemen t depends on whether the investigating
authority properly established the facts, and evaluated the facts in an unbiased and
objective manner. This latter has been defined as assessing whether an unbiased and
objective decision maker, taking into account the facts that were before the
investigating authority, and in light of the explanations given, could have reached the
conclusions that were reached. A panel's task is not to carry out a de novo review of
the information and evidence on the record of the underlying investigation. Nor may
a panel substitute its judgment for that of the investigating authorities, even though
the Panel might have arrived at a differe nt determination were it considering the
record evidence for itself.
7.16 Similarly, the Appellate Body h as explained that, under Article 11 of the
DSU, a panel’s role is not to substitute its analysis for that of the investigating
authority.
78 The Appellate Body has stated:
"We wish to emphasize that, although panels are not entitled to
conduct a de novo review of the evidence, nor to substitute their own
conclusions for those of the competent authorities, this does not mean
that panels must simply accept the conclusions of the competent
authorities". 79
Steel Products from Japan ("US – Hot-Rolled Steel "), WT/DS184/AB/R, adopted 23 August
2001, paras. 54-62.
78 Appellate Body Report, United States – Transitional Safeguard Measure on Combed Cotton
Yarn from Pakistan (" US – Cotton Yarn "), WT/DS192/AB/R, adopted 5 November 2001,
para. 74; Appellate Body Report, United States – Safeguard Measures on Imports of Fresh,
Chilled or Frozen Lamb Meat from New Zealand and Australia (" US – Lamb "),
WT/DS177/AB/R, WT/DS178/AB/R, adopted 16 May 2001, para. 106.
79 Appellate Body Report, US - Cotton Yarn, para. 69, n.42, citing Appellate Body Report, US
- Lamb, para. 106."59
The parties have no disagreement regarding the applicability of this standard of review in this dispute,
although of course, they do contest the outcome.

7.16 With respect to the burden of proof, we noted in our original report that:

59 Panel Report, US – Softwood Lumber VI, supra note 1, at paras 7.12, 7.15-7.16.

"7.23 While the parties have not raised burden of proof as an issue, we have kept in
mind the general principles applicable to burden of proof in WTO dispute settlement,
which require that a party claiming a violation of a provision of a WTO Agreement
by another Member must assert and prove its claim.
86 In this dispute, Canada, which
has challenged the consistency of the Unite d States' measures, thus bears the burden
of demonstrating that the measures are not c onsistent with the relevant provisions of
the relevant Agreements. It is generally for each party asserting a fact to provide
proof thereof.
87 Therefore, it is also for the Un ited States to provide evidence for the
facts which it asserts. We note in addition that a prima facie case is one which, in the
absence of effective refutation by the other pa rty, requires a panel, as a matter of law,
to rule in favour of the party presenting the prima facie case.
Again, the parties have no disagreement regarding th e applicability of the burden of proof in this
dispute.

A. ALLEGED VIOLATIONS OF ARTICLE 3.7 OF THE AD AGREEMENT AND ARTICLE 15.7 OF
THE SCM AGREEMENT
7.17 These asserted violations are at the heart of Ca nada's case. Canada argues that the factors
relied upon by the USITC do not support its conclusi on that there would be a substantial increase in
imports, that there would be likely adverse price eff ects, and that the US industry was "vulnerable".
Consequently, in Canada's view, imports could not be found to thr eaten material injury. Thus,
Canada considers that the section 129 determinati on suffers from essentially the same flaws as were
identified by the Panel in its original decision. Canada argues that the USITC's consideration of the
evidence, and the weight of the evidence itself, fall short of the minimum necessary to support the
determination of threat of material injury.
7.18 The United States asserts that the USITC determin ed that during the period of investigation,
imports were at a significant level, prices had declined, and the condition of the industry had
deteriorated and was vulnerable. The USITC, based in part upon evidence newly obtained, but
relating to the original period of investigation an d the period prior to the original determination,
addressed each of the points identif ied by the Panel in its original decision, carrying out an entirely
new analysis of the evidence. The USITC re ached additional conclusions on certain factors
considered, such as the rate of increase of dumpe d and subsidized imports, which it found to be
significant, and addressed questions raised by the Panel such as the interplay between increases in
import volumes and trends in US demand. The USIT C's overall conclusion was that, based on 1) the
trends during the period of investigation, which it concluded showed a significant rate of increase in
imports, 2) the restraining effects of the SLA duri ng the period of investigation and the likely effects
of its expiration, 3) import volumes and trends in import volumes during periods of no import
restrictions, 4) evidence of excess capacity, proj ected increases in capacity, capacity utilization and
production, and export orientati on in Canada, and 5) US dema nd forecasts, there would be a
substantial increase in imports. The USITC also c oncluded that in light of price trends during the
POI, and the degree of substitutability of US and im ported Canadian lumber, increased imports would

60 Panel Report, US – Softwood Lumber VI, supra note 1, at para. 7.23.

have adverse price effects, and that the US industr y was in a vulnerable condition, such that increased
imports at the price levels at the end of the period of investigation threatened material injury.
7.19 In evaluating Canada's arguments with respect to the adequacy of the USITC's consideration
of each of the factors upon which it relied, under the standard of review we must consider whether the
USITC properly established the facts (a matter which is not disputed by Canada), evaluated the facts
in an unbiased and objective manner, and whether the conclusions reached, in light of the
explanations given, were such as could have b een reached by an unbiased and objective decision
maker based on the facts. We may not substitute our judgment for that of the USITC, although we are
directed to carry out a detailed and searching anal ysis of the evidence relied upon and the reasoning
and explanations given in carrying out our review.
7.20 In this context, we note the recent decision of the Appellate Body in US – Countervailing
Duty Investigation on DRAMS concerning the proper role of Panels in reviewing decisions of national
authorities.
61 In that report, the Appellate Body was addr essing a case involving the conclusion of the
USDOC that the Government of Korea had "entrust ed or directed" certain private bodies to make
financial contributions to Hynix, a Korean manufacturer of DRAMS, thereby providing
countervailable subsidies within the meaning of Ar ticle 1.1(a)(i)(iv) of the SCM Agreement. The
Panel in that case had noted that USDOC had based its finding on the totality of the evidence before
it, and determined that it would follow the same appr oach in its review, an intention approved by the
Appellate Body.62 However, the Appellate Body, while it saw no error, in principle with a panel's
review of individual pieces of evidence in such a case, concluded that the Panel had erred by focusing
on whether each piece of evidence, in isolation, demonstrated entrustment or direction. The Appellate
Body stated that "having accepted an investiga ting authority's approach, a panel normally should
examine the probative value of a piece of evidence in a similar manner to that followed by the
investigating authority".63 The Appellate Body went on:
"Furthermore, in order to examine the ev idence in the light of the investigating
authority's methodology, a panel's analysis usually should seek to review the agency's
decision on its own terms, in particular, by identifying the inference drawn by the
agency from the evidence, and then by c onsidering whether the evidence could
sustain that inference. Where a panel examines whether a piece of evidence could
directly lead to an ultimate conclusion—rath er than support an intermediate inference
that the agency sought to draw from that particular piece of evidence—the panel risks
constructing a case different from that put forward by the investigating authority. 278
In so doing, the panel ceases to review the agency's determination and embarks on
its own de novo evaluation of the investigating authority's decision. As we explain
below, panels may not conduct a de novo review of agency determinations.
Access Memory Semiconductors (DRAMS) from Korea ("US – Countervailing Duty Investigation on DRAMS "),
WT/DS296/AB/R, adopted 20 July 2005.
62 Ibid. at para. 143.
63 Ibid. at para. 150.

Rather, the Panel's assessment reflected its own vi ews on the question of entrustment or direction,
indicating that it had engaged, improperly, in a de novo review of the evidence. Consequently, the
Appellate Body concluded that the Panel ha d "essentially "second-guessed" the investigating
authority's analysis of the evidence and thus overstepped the bounds of its review".65
7.22 Although the Appellate Body was addressing the correct application of the standard of review
under Article 11 of the DSU in cases of Panel revi ew of a national agency's determination, we
consider its views to be, if anything, even more pertinent to the understanding of the standard of
review applicable to determinations of fact by national investigating authorities under Article 17.6 of
the AD Agreement, and thus highly relevant to our task in this dispute.
7.23 Turning to Canada's specific allegations of e rror, we will address each of Canada's assertions
individually, but keep in mind that our review must be based on the totality of the evidence relied
upon by the USITC, and must respect the approach of the USITC to the analysis.
(a) likely increase in imports
7.24 Canada argues that the USITC made a "new" finding that there had been a significant rate of
increase in imports, based on no new evidence, which is undermined by the fact that the USITC had
found no material injury despite the fact that imports had much the same market share during the
period of investigation. Canada considers that in concluding that the 2.8 percent increase in imports
over the period of investigation was significant, th e USITC reversed the position it had taken in the
original determination. More over, Canada asserts that the rate of increase should be considered on a
year to year basis, rather than over the period of investigation as a whole, in which case the rate of
increase of imports would be seen to be essentia lly flat, at 1.4 percent annually, from 1999-2001.
Canada also considers that the additional eviden ce referred to in the section 129 determination, the
14.6 percent increase in import volumes in the first quarter of 2002 as compared with the first quarter
of 2001, represented an increase in Canadian market share within the historical pattern, and thus did
not support the conclusion that imports will increase beyond historical levels . Moreover, Canada
asserts that the comparison with the first quart er of 2002 was inappropriate because provisional
countervailing duty measures expired in December 2001, resulting in a "gap" in the application of
duties, and thus conditions in the first quarter of 2002 were not "normal". In Canada's view, the
comparison of import trends for the first quarter of 2002 with the first quarter of 2001 is particularly
unhelpful because opposite commercial incentives existe d in the two quarters – Canadian producers
had a short-term incentive to increase shipments to the United States during the first quarter of 2002 –
the "gap" period – before final duties were imposed, while they had a short-term disincentive to ship
to the United States in the first quarter of 2001 until the SLA expired on March 31.
7.25 The United States asserts that Canada's arguments concerning the volume of and increases in
imports ignore the significance of the baseline volum e of imports, make inappropriate comparisons of
percentage changes in numbers having different ba selines, and ignore the interrelationships between
the factors considered by the USITC. The Unite d States notes that the Panel had recognized the
USITC's finding that the volume and market share of imports during the period of investigation were
already at significant levels, and that this contex t is critical to understanding the analysis of import
trends. The United States stresses the fact that im ports held a consistently large and increasing share
of the US market during the period of investigation, accounting for between 33.2 percent to
34.7 percent of the US market for softwood lumber in the period examined. The USITC found that
the rate of increase in the volume of subject imports from 1999 to 2001 was 2.8 percent and
concluded that this was a significant rate “whe n the baseline volume is already so significant”
66 The
USITC also observed that this increase had occurre d during a period when imports from Canada were
subject to restraints under the SLA, and despite a sli ght decline in US apparent consumption. In the

65 Ibid. at para. 189.
66 Views of the Commission, Exhibit CDA-1, at page 21.

US view, Canada's focus on the percentage increase, without reference to the context of the large
baseline simply fails to appreciate the USITC's analys is. Similarly, the United States maintains that
Canada's arguments concerning the increases in imports at the end of the period of investigation miss
the point that subject imports were 6.2 percent higher in the first quarter of 2002 compared with the
first quarter of 2000, while apparent US consumption had declined by 2.3 percent.
67
7.26 It is clear that the USITC considered the ques tion that the Panel had raised in its original
determination, whether the rate of increase in imports during the period of investigation was
significant, and a factor supporting the affirmative dete rmination of threat of material injury. We can
find no error in the mere fact that the USITC made a "new" determination in this regard – indeed, that
is precisely what is expected in the context of im plementing a panel's report – that the investigating
authority will make a new determination. What is important at this junc ture is whether the new
determination is consistent with the United States' obligations under the asserted provisions of the AD
and SCM Agreements.
7.27 The fact that the USITC concluded that th e rate of increase was significant based on the
overall rate of increase over the period of investigation rather than the year-on-year rate of increase is
not demonstrably unreasonable, and we see no basi s for concluding that the USITC erred in this
regard. Moreover, we do not consider that, as ar gued by Canada, the USITC was required to explain
this conclusion as a "departure" from its previous conclusions on the issue, as argued by Canada.68 In
our original decision, we observed that the "USITC did not rely on a significant rate of increase
during the period of investigation in support of its conclusion that subject imports would increase
substantially in the future"69 That is, we found that the USITC had made no conclusion on this issue,
and consequently there is no prior conclusion from wh ich it needed to explain its "departure" in the
section 129 determination – even assuming such an e xplanation might be needed in the event of a
change. Looking at the decision in the section 129 proceeding on this issue, the conclusion that a
2.8 percent increase in imports was significant is not unreasonable, in light of the totality of the
factors considered by the USITC, including the significant baseline volume from which that increase
occurred, the restraining effect of the SLA, increases in Canadian imports at a significant rate after the
expiration of the SLA, increases in those imports during periods when they were not subject to
restraints, and the slight decline in US consumption.
7.28 Clearly, an alternative view of the evidence, focussing on the annual increase and stressing
the relatively small percentage ch ange, might support a different conc lusion, but this alone does not
demonstrate that the USITC's analysis and determin ation are inconsistent with the US obligations
under the AD and SCM Agreements. Nothing in Artic les 3.7, 15.7, or any other provisions of the AD
and SCM Agreements, establishes methodological requirements for the investigating authorities'
consideration of the factors set out in those Arti cles, or sets out standards for determining the
significance of the various factors. The requireme nts set out in Article 3.1, which governs injury
determinations generally, are that the investigating authorities consider the relevant factors, and make
a determination based on an objective examination of positive evidence concerning relevant factors.
On review, a panel must consider whether the determ ination made is one that could be reached by an
unbiased and objective investigating authority on the basis of the facts before it and in light of the
explanations given. Merely that alternative conc lusions might also be within the range of possible
determinations that would satisfy that standard does not demonstrate that the conclusions actually
reached are not consistent with the requirements of the AD and SCM Agreements.
7.29 Canada also asserts that the USITC reached a "new" finding that the restraining effects on
imports of the SLA were significant, despite having or iginally found only that the SLA had restrained
the volume of imports to some extent, and having vi rtually no new evidence on this issue. Canada

67 Views of the Commission, Exhibit CDA-1, at page 53.
68 Canada's answer to the Panel's question 2.
69 Panel Report, US – Softwood Lumber VI, supra note 1, at para. 7.90.

argues that the USITC emphasized the fact that imports increased during the period the SLA was in
effect, but notes that the USITC found no material in jury despite the increas e in Canadian market
share during the period of investigation. Canada also challenges the USITC's reliance on studies
concerning the SLA's effects, which the USITC found consistent with its conclusion that the SLA had
constrained imports, noting that the USITC did not ca tegorize these effects as significant, and did not
address whether the SLA had any significant restraini ng effect at the time it expired. In Canada's
view, the evidence demonstrated that the effects of the SLA changed over the time it was in effect.
Canada also challenges the USITC's reliance on the Stoner study, without recognizing methodological
criticisms of that study. Canada also asserts th at the USITC did not address evidence relied on by the
dissenting Commissioner that indicated the SLA had little influence on prices and that its expiration
would not result in significant price or volume changes.
7.30 The United States considers that Canada's arguments concerning the USITC's analysis
incorrectly assume that the USITC's findings in the section 129 determination concerning the
restraining effects of the SLA were different than in the original determination. In addition, the
United States argues that Canada incorrectly assum es that the USITC had found, in its analysis of
material injury, that the volume of imports did no t support an affirmative determination. The United
States maintains that the USITC had always recognized that imports increased even with the SLA in
place, and that substantial increases occurred duri ng periods when imports were not subject to
restraints. The USITC also considered evidence demonstrating the impact of the SLA on the
domestic market, including evidence that the constr aints on the volume of imports resulted in higher
prices for such imports and higher costs for construc tion than in the absence of the SLA. Additional
evidence demonstrating the restraining effect of the SLA included the fact that increases in subject
imports while the SLA was in effect did not keep pace with increases in demand from 1995 to 2001.
70
The United States maintains that Canada incorrec tly suggests that the USITC relied principally on
only one economic study with respect to the effect s of the SLA. The United States notes that there
were several studies in evidence. The United Stat es also asserts that Canada mischaracterizes the
facts concerning the use of different quotas av ailable under the SLA, which information also
supported the USITC's conclusions concerning the rest raining effects of the SLA. Finally, the United
States argues that the USITC had recognized that during the pendency of the SLA, shipments from
provinces outside the SLA's effect had more than doubled, but found that imports from provinces
covered by the SLA increased when it expired, wh ile exports from the other provinces continued at
levels higher than those reported prior to the SLA. Thus, the United States argues that the evidence
did not demonstrate that the SLA had merely resulted in a shift in imports.
7.31 Canada maintains that the USITC failed to an alyze whether import trends in the period April
– August 2001 represented an accurate gauge of what would happen in the future in the absence of
anti-dumping or countervailing duty measures or whether the increase represented nothing more than
a shift in timing of exports to take advantage of the window between the expiry of the SLA and the
imposition of provisional measures, an analysis Canada considers was necessary in light of the Panel's
original report. Canada asserts that the USIT C's conclusion rejecting the argument that these
increases represented nothing more than a shift in the timing of imports contains several critical
deficiencies. First, Canada asserts that the USITC focussed on total imports during this period, rather
than examining month-to-month changes, thereby fa iling to address the question whether the increase
in imports represented simply a shift in timing. Second, Canada maintains that the USITC focused
exclusively on increases in the absolute volume of s ubject imports, not market share, and asserts that
the change in market share was not significant. Moreover, Canada considers that a comparison of
volumes of imports during the period April – A ugust 2001 to levels in prior years would be
appropriate only if US consumption had been the same in prior years, which Canada maintains it was
not. Canada argues that a consideration of Canadi an market share as the basis of comparison shows
fluctuations consistent with shifts in timing by exporters. Finally, Canada argues that the USITC's
reliance on an increase in imports during the peri od April – August 2001 to support the conclusion

70 Views of the Commission, Exhibit CDA-1, at page 26.

that imports were likely to increase substantially in the near future cannot be reconciled with the
USITC's finding that it would not have found materi al injury even if provisional measures had not
been in place as from August 2001.
7.32 With respect to the consideration of import tr ends in the period 1994 to 1996, Canada argues
that the USITC did not analyze whether market conditions in this period before the period of
investigation were sufficiently similar to predicte d market conditions to warrant the conclusion that
imports would increase substantially. Canada asser ts that the USITC looked only at apparent US
consumption in this regard, but did not analyze wh y imports were increasing. Nor did it analyze why
imports also increased in the immediately pr eceding 1991 – 1994 period, a period during which
import restraints were in effect. Nor did the USITC even collect the da ta necessary to analyze
whether increasing imports had any injurious effect on the US industry during that time, even though
it would be impossible to draw inferences about th e future effect of increasing imports without
knowing what impact they had had in earlier periods . Consequently, in Canada's view, the USITC
failed to respond to the deficiencies identified by th e Panel in its original determination concerning
the USITC's analysis of the trend in import volumes.
7.33 The United States stresses that the USITC c onsidered import trends during periods of no
import restraints in order to establish the cont ext for evaluating the si gnificance of changes in
Canadian imports. The USITC had found that, durin g the period between the expiration of the SLA
and the imposition of preliminary counterva iling duties (April – August 2001), imports were
substantially higher than in the same period of each of the preceding three years, 1998-2000.
71 While
the rate of increase in imports slowed when, as a result of the preliminary affirmative countervailing
duty determination, bonding requirements on Canadian imports went into effect, Canadian imports for
the period April – December 2001 were still higher than during the same period of 2000.72 Moreover,
the United States points out that the new data addressed in the section 129 proceeding demonstrated a
significant increase in the first quarter of 2002 as compared with the first quarters of 2000 and 2001.
73
The United States argues that Canada's focus on the "gap" in application of provisional countervailing
duty measures from December to April 2002 fails to recognize that provisional anti-dumping duty
measures were still in place during that period. Moreover, the United States disputes Canada's
assertion that “opposite commercial incentives” in th e first quarters of 2002 and 2001, explain the
increase in imports during the first quarter of 2002. The United States notes that there was a
significant increase in the first quarter of 2002 as compared with the first quarter of 2000, and
maintains that market conditions (other than the presence or absence of the SLA), such as differences
in consumption, did not explain the significant increases in subject imports.
7.34 The United States argues that, in response to the Panel's concern that the USITC had not
addressed the argument that the increase in imports during the April-August 2001 period only
reflected a shift in the timing of imports, in its section 129 determination, the USITC found that
subject imports increased both during the April-Augus t 2001 period and afterward, a fact inconsistent
with the suggestion that import volumes during the period could be explained as a timing shift. The
United States maintains that Canada’s focus on monthly import data for the April-August 2001 period
does nothing to undermine this finding. In addition, the USITC also considered the pattern of
increases in imports, which was at a rate higher th an increases in US consumption during 1994-1996,
immediately prior to the adoption of the SLA, and wh ich increases ceased when the SLA entered into
force.
7.35 Again, it is clear that the USITC re-examined the evidence concerning import trends, and
considered that evidence in the light of the significant volume of imports during the period of
investigation. We cannot conclude that the USITC' s analysis of changes in demand and the effects of

71 Views of the Commission, Exhibit CDA-1, at page 28.
72 Ibid.
73 Ibid., at page 29.

the SLA and provisional measures put in place as a result of this investigation is unreasonable. The
USITC's section 129 determination explains why it determined that the SLA had restrained imports,
rather than resulting in mere shifts in the source and timing of imports, and why it concluded that the
expiry of the SLA, in the absence of anti-dumpi ng and countervailing measures, would result in a
substantial increase in imports, in the context of the already large baseline volume. While Canada's
arguments demonstrate that there is a plausible a lternative line of reasoning that could be followed,
under the standard of review applicable in this case, this is not sufficient for us to find a violation.
Moreover, we consider that while it may be possible to debate each aspect of the USITC
determination, and come to diffe rent conclusions depending on the starting point and focus of each
line of argument and analysis, our obligation is to consider whether the USITC's reasoning and
conclusion as set forth in its determination were t hose of an objective decision maker in light of the
facts, and not whether every possible argument is resolved in favour of that determination.
7.36 With respect to its consideration of forecasted US demand, Canada asserts that the USITC
reversed its position in the section 129 determination from its original view, without a sufficient basis
in evidence, which was largely un changed from the original determination. In Canada's view, the
USITC's conclusions regarding demand are not cons istent with the evidence which indicated that
demand would improve in the 18 months after the USITC’s vote in mid-2002.
7.37 The United States asserts that the USITC's determ ination, that there would not be substantial
growth in demand for softwood lumber in the imminent future, is almost identical to the finding in the
original determination. The United States points out that the USITC found that the demand forecasts
for softwood lumber from industry analysts were somewhat mixed, but overall indicate stable demand
with some growth. In the US view, while Canada focuses on the demand forecasts for softwood
lumber in isolation, the USITC properly consid ered those forecasts toge ther with forecasts for
softwood lumber’s primary end-use, US housing starts. The USITC found that the lack of a
correlation between some of the forecasts of lumber demand growth and forecasted housing starts and
the lack of any agreement among forecasters raised questions about the usefulness of these forecasts.
The USITC also found that the sharp decline in housing starts in March 2002 showed that the
improvements in demand during the mild winter of 2001-2002 were not sustainable.
7.38 With respect to the issue of importation rela tive to demand, the USITC found that there was
no basis in the record ev idence to conclude that likely substa ntial increases in imports would be
outpaced by increases in demand. The United States points out that the USITC found that in 2001,
the increase in imports outstripped demand, and that after the SLA expired, imports were 11.3 percent
higher for the April-August 2001 period compared to the same period in 2000, and 4.9 percent higher
for the April-December 2001 period compared to the April-December 2000 period, while apparent US
consumption for all of 2001 was only 0.2 percent higher than it had been in 2000.
74 The United States
also notes that new data considered in the sect ion 129 proceeding showed that apparent US.
consumption for first quarter 2002 increased at a s ubstantially lower rate, 9.7 percent, than the
14.6 percent increase in imports, as compared with first quarter 2001. 75 Moreover, imports were
6.2 percent higher in the first quarter of 2002 compar ed with the first quarter of 2000, while apparent
US consumption declined by 2.3 percent for first quarter 2002 compared with first quarter 2000.76
7.39 The USITC's section 129 determination provi des a not unreasonable explanation for its
conclusion that imports would not merely satisfy increasing demand in the US market in line with
historical trends, but would increase more than demand. We have looked at the underlying
information on demand relied upon by the USITC and cannot conclude that an objective and unbiased
investigation authority could not find that it supported the conclusion reached by the USITC.

74 Ibid., at page 21.
75 Ibid., at page 21-22.
76 Ibid., at footnote 53.

7.40 With respect to the USITC's considerati on of Canadian excess capacity, production, and
export orientation, Canada asserts that the USITC co ntinued to rely on "slight" increases in projected
capacity in support of its finding that imports w ould increase substantially in the imminent future,
despite Canadian producer projections that were within the range of historical experience. In
Canada's view, the USITC's conclusion that Canadian producer projections were inconsistent with
other data, and therefore not to be relied upon, was im proper in light of new da ta that was consistent
with the projections originally reported by Canadian producers.
7.41 The United States points out that, on the issue of available excess Canadian capacity, the
Panel had found that the USITC’s discussion regarding the Canadian industry’s export orientation did
not support the conclusion that excess capacity wo uld be exported to the United States beyond the
“historical” level. In response, in its section 129 determination, the USITC analyzed capacity and
concluded that Canadian producers had sufficient excess capacity, and projected increases in
production and capacity in 2002 and 2 003, to substantially increase expor ts to the United States. In
this regard, the USITC noted that Canada has subs tantial capacity to produce softwood lumber, equal
to about 60 percent of US consumption.
77 Excess Canadian capacity in 2001 had increased to a level
equivalent to 10 percent of US a pparent consumption, as capacity u tilization declined to 84 percent
from 90 percent in 1999. 78 The USITC found even more telling the fact that Canadian producers
projected increases in production and capacity u tilization from 2001 to 2003, a period during which
demand in the US market was forecast to remain relatively unchanged or increase only slightly. In
the United States' view, Canada’s arguments focus inappropriately on the incremental increase in
production capacity, without putting the information into context. In this regard, the United States
notes that Canadian production is tied to the US market, the most important market for Canadian
producers, accounting for 60-65 percent of Canadian production and shipments. Data considered in
the section 129 investigation showed that in the fi rst quarter 2002, as apparent Canadian consumption
declined by 23 percent compared with the first quarter of 2001, Canadian producers shifted sales from
the home market to the US market. 79 The United States maintains th at the USITC properly focused
on this evidence of the export orientation of Cana dian lumber producers, and discounted Canadian
producers’ projections that additional production wo uld be exported to the United States at below
historical levels.
7.42 Once more, the explanation concerning the available excess capacity in Canada and the
likelihood that a substantial portion of projected increases in production would enter the US market,
set forth in the section 129 determination provides reasoned support for the USITC's conclusion that
there would be a substantial increase in imports in the near future.
(b) likely price effects
7.43 Canada maintains that the factors relied upon by the USITC do not support its finding of
likely adverse price effects. Canada stresses that the focus of an investigating authorities analysis
under Article 3.7 (iii) of the AD Agreement and Artic le 15.7 (iv) of the SCM Agreement is on current
prices as a predictor of future price and demand effects. 80 Canada asserts that in the section 129
determination, the USITC relied on likely substan tial increases in subject import volumes and the at
least “moderate substitutability” between subject imports and dom estic product in finding likely
adverse price effects, and also noted that prices d eclined in the second half of 2001 to levels as low as
those observed in 2000. While the USITC found that there was some improvement in the first quarter
of 2002, it attributed this largely to an increase in consumption, and concl uded that the improvement

77 Ibid., at page 32.
78 Ibid.
79 Ibid., at page 37.
80 Article 3.7 (iii) of the AD Agreement and Article 15.7 (iv) of the SCM Agreement provide that an
investigating authority should consider “whether imports are entering at prices that will have a significant
depressing or suppressing effect on domestic prices, and would likely increase demand for further imports.”

was not likely to last, in light of a decline in housing starts (the primar y component of demand for
softwood lumber) in March 2002 from a record high in February. The USITC also noted that there
had been record housing starts during the period of investigation, but that this did not guarantee higher
prices in the US market. The USITC also looked at the price trends, which showed declines in the last
two quarters of 2001.
7.44 Canada maintains that the USITC's analysis in the section 129 determination fails to
acknowledge the pricing analysis it had undertaken in the original determination, in which no
significant underselling had been found, and declines in prices during the period of investigation were
attributed to excess supply from both domestic and Canadian sources, and consequently the USITC
could not conclude that imports had significant pri ce effects during the period of investigation in the
context of its material injury analysis. In the cont ext of its threat analysis, Canada maintains that the
USITC had not originally cited declines in prices in support of its finding that imports were entering
the US market at prices likely to cause adverse price effects, but in the section 129 determination, the
USITC cited the declines in prices in the third and fourth quarter of 2001 as support for the conclusion
that imports at the end of the period were entering at prices likely to have a significant depressing or
suppressing effect on US domestic prices. In Cana da's view, there is no explanation of how the
USITC could conclude that the same price trends could result in different conclusions regarding the
current effects of prices and the future effect s of prices, and these two conclusions cannot be
reconciled.
7.45 Canada maintains that the mere fact that pr ices declined says nothing about "whether imports
are entering at prices that will have a significant depressing or suppressing effect on domestic prices,"
and more particularly, says nothing about the cause of their decline – i.e., whether Canadian imports
caused the observed price declines. Moreover, Canada maintains that the USITC’s analysis of price
trends is incomplete and inaccurate, because it disc ounts the fact that prices rose after the fourth
quarter of 2001. Canada considers that the fact, cited by the USITC, that 2002 prices were not as high
in absolute terms as in prior years or prior quarter s, is not important in the context of a threat
determination – what was important was the directio n of price movements at the end of the period of
investigation. Canada asserts that the USITC’s fi nding that imports are likely to have a significant
price-depressing effect necessarily is dependent on its finding of likely future substantial increases in
import volumes, which finding Canada maintains is uns upported. Canada also asserts that the Panel
found, in its original determination, th at a substantial increase in imports in absolute terms, without a
finding of a significant increase in market share, was insufficient to support a finding that subject
imports will cause significant price depression or suppression in the future. Therefore, Canada
maintains that the USITC’s pricing analysis fails to support its finding that subject imports are likely
to enter at prices that will have a significant depressing or suppressing effect on prices.
7.46 Canada maintains that, as the USITC found US and Canadian lumber to be "substitutable" but
did not amend its prior characterization of "moderate" substitutability, the USITC was required to
consider whether, and to what extent, the predic ted increase in subject imports would likely involve
purchases by US consumers that do not consider Cana dian and US lumber to be close substitutes,
because the greater the percentage of subject imports that serve these segments of the US market, the
lower would be the potential for price suppression. Canada asserts that the USITC failed to undertake
such an analysis, focusing instead on evidence that imported and domestic lumber are interchangeable
in certain applications, while ignoring evid ence that many purchasers do not consider them
substitutable to a significant extent.
7.47 The United States observes that the USITC found th at the price trend evidence, particularly
the fact that prices reached their lowest levels as imports increased significantly after expiration of the
SLA, supported the conclusion that imports were en tering at prices that were likely to have a
significant depressing or suppressing effect on domestic prices, and thereby were likely to adversely
impact the US industry in the imminent future. In support of this conclusion, the USITC noted that
prices for softwood lumber declined substantially du ring the period of investigation, particularly in

2000.
81 In mid-2001, at a time of considerable uncertain ty in the market due to the expiration of the
SLA and the commencement of the original invest igations, prices for softwood lumber increased.
However, these increases were temporary; prices began to decline in the July - September 2001 period
and fell substantially in the October - December 2001 period to levels as low as those in 2000.82 Even
with an improvement in the January - March 2002 period, prices at the end of the period of
investigation were still near the lowest levels reported for the period examined. 83 The USITC found
that the price increase in the first quarter of 2002 w as largely due to an increase in consumption– an
improvement that was not likely to be sustained, in light of the sharp decline in housing starts in
March 2002 from the record high reported for February 2002. Further, the USITC found that record
US housing starts throughout the period of investig ation clearly did not guarantee higher prices in the
US market, given price competition and excess supply.
7.48 The United States asserts that, contrary to Canada's argument, the USITC had not found that
imports had no effect on prices during the period of investigation. Rather, the USITC had concluded,
in its material injury analysis that substantial pr ice declines in 2000, and resulting deterioration of the
condition of the domestic industry, were due to excess supply from both subject imports and domestic
production. Thus, the evidence supported a finding that subject imports had some adverse price
effect. However, the USITC concluded that during th e period of investigation, they had not yet had a
significant price effect so as to be a substantial cause of material injury to the domestic industry, and
that domestic product contributed to the adverse pric e effects. The United States points out that the
USITC also found that the prices at the end of the period of investigation ( i.e., July-September and
October-December 2001 and January-March 2002) we re at levels as low as those in 2000,
84 and that
import prices, combined with the imminent significant increase in subject import volume, were likely
to have a significant depressing or suppressing effect on domestic prices in the imminent future.
Moreover, the USITC had found that the SLA had a significant restraining effect on the volume of
subject imports and, had therefore limited the effect of subject imports on prices in the US market.
7.49 The United States considers that Canada’s discu ssion of the pricing data in the section 129
determination focuses on the first quarter 2002 data a nd mischaracterizes the USITC’s analysis. The
United States asserts that Cana da's focus on the comparison between first quarters 2002 and 2001
ignores the evidence that prices for the January - March 2001 period had not yet recovered from the
low levels of the July - September and October - December periods of 2000 and were subject to
considerable uncertainty in the market due to the pending expiration of the SLA. Moreover, the
United States argues that Canada errs in asserting th at the USITC made a finding of no significant
price underselling. Rather, the United States maintain s that the USITC found that, as agreed to by all
parties to the investigations, making direct cr oss-species price comparisons in order to assess
underselling was inappropriate. Thus, although diff erences in the imported and domestic species of
softwood lumber limited the meaningfulness of any direct price comparisons, the evidence indicated
competition across species, such that prices of a par ticular species would affect the prices of other
species. The United States points out that the USITC had concluded that imported and US softwood
lumber were interchangeable and s ubstitutable, and that moderate subs titutability is sufficient in the
context of the USITC's determination of likely adverse price effects.
7.50 While we can certainly see the reasoning underl ying Canada's arguments, we cannot see that
they demonstrate that the USITC's determination was not one that could be reached by an unbiased
and objective investigating authority, on the basis of the evidence and the explanations. Canada's
arguments stress different aspects of the prici ng information, focusing on the most recent trends,
while the USITC's analysis integrates the pricing in formation into the context of the condition of the
industry, the volume and trend of imports, and th e effects of the SLA. As noted above, there is

81 Views of the Commission, Exhibit CDA-1, at page 41-42.
82 Ibid., at page 44.
83 Ibid.
84 Ibid., at page 46.

nothing in the AD or SCM Agreements that establishes methodological requirements for an
investigating authority's consideration of the factors relevant to a determinati on of material injury or
threat of material injury. There is certainly nothing that would require a focus on one aspect of the
information, such as the most recent data, so l ong as the ultimate conclusion is one that could be
reached by an unbiased and objective investigatin g authority in light of the facts before it and
explanations given.
85 Finally, we note that Canada's argumen ts stress aspects of the evidence other
than those relied on by the USITC, such as the fact that underselling could not be substantiated, or
price comparisons over different time periods. However, these arguments, while presenting reasoned
alternative conclusions, do not persuade us that the USITC's determination regarding price effects,
taken as a whole and on its own terms, is insufficiently reasoned or not based on positive evidence.
7.51 In this regard, we note the statement of the Appellate Body in US – Countervailing Duty
Investigation on DRAMS:
"[t]he explanation provided by the investiga ting authority – with respect to its factual
findings as well as its ultimate subsidy determination – should also address
alternative explanations that could reasona bly be drawn from the evidence, as well as
the reasons why the agency chose to disc ount such alternative in coming to its
conclusions."
86
The USITC did not just make conclusions based on the facts before it, but did in fact address the
arguments of the parties concerning the interpretati on of that evidence. We note that many of the
arguments presented by Canada in this proceeding, not only with respect to the pricing information,
but in other aspects, are largely similar to argume nts that were presented to, and rejected by, the
USITC. While this does not, of course, necessarily mean that we will find the USITC's determination
to be consistent with the AD a nd SCM Agreements, it does indicate to us that the USITC did in fact
make its determinations after having considered possible alternatives, and explaining why,
nonetheless, it reached the conclusions it did.

7.52 Taking into account the framework of the USITC's analysis, we cannot find that the
determination that imports were entering the US at prices likely to have a depressing or suppressing
effect on US prices is inconsistent with the oblig ations of the AD and SCM Agreements. While it is
true, as Canada argues, that prices were increasing at the end of the period of investigation, it is also
true, as the United States argues, that prices were as low as they had been earlier in the period, at a
time when the financial condition of the domestic industry was poor. Moreover, the USITC had
found prices at those levels were the cause of the poor condition of the industry, but that US lumber
sales had contributed to the price effects. Thus, if that aspect were to change (as the USITC found to
be the case, as discussed below), a finding of threat of material injury would not be unreasonable or

85 We recognize, as argued by Canada, that the AB has observed that "[t]he likely state of the domestic
industry in the very near future can best be gauged from data from the most recent past... in principle, within the
period of investigation as a whole, evidence from the most recent past will provide the strongest indication of
the likely future state of the domestic industry." Appellate Body Report, United States – Safeguard Measures
on Imports of Fresh, Chilled or Frozen Lamb Meat from New Zealand and Australia (" US – Lamb "),
WT/DS177/AB/R, WT/DS178/AB/R, adopted 16 May 2001, at para. 137. The Appellate Body went on to add,
however, that such information from the end of the period of investigation is not to be considered in isolation
from data from the entire period of investigation. "The real significance of the short-term trends in the most
recent data, evident at the end of the period of investigation, may only emerge when those short-term trends are
assessed in the light of the longer-term trends in th e data for the whole period of investigation." Ibid. at para.
138. It seems clear in this case that the USITC did in fact consider the most recent data, but did not focus
exclusively on that data in isolation, but against the background of the information concerning the period of
investigation as a whole. In that context, and in light of the explanations given by the USITC, we cannot find
that its conclusions were not those of an unbiased and objective investigating authority.

86 Appellate Body Report, US – Countervailing Duty Investigation on DRAMS , supra note 61, at
para. 186.

unsupported by the evidence considered. While we might (or might not) have reached the same
conclusions were we making the decision in the first instance based on the evidence before the
USITC, we are, of course, precluded from conducting a de novo review. We cannot conclude that the
USITC acted unreasonably in finding that increased im ports at such price levels posed a threat of
injury to the US industry, when viewed, as the USITC did, against the background of the
circumstances of the industry during the period of investigation.
(c) vulnerability of the domestic industry
7.53 Canada asserts that the USITC's finding that the US industry was vulnerable is unsupported
by the factors relied upon. Canada notes that th e USITC in both its original and its section 129
determination found that the domestic industry’s cond ition was “deteriorating," despite the fact that
new data obtained in its section 129 proceeding for the first quarter of 2002 showed improvement in
the US industry’s condition, including capacity, pro duction, capacity utilization, shipments, per-unit
revenues, operating income, cash flow, employme nt, wages, productivity, and, most importantly,
financial performance. The USITC acknowledged th is improvement, but conc luded that information
for a single quarter was not necessarily indicative of the industry's performance for the entire year,
and therefore did not alter its finding of vulnerabilit y. In Canada's view, th is conclusion cannot be
reconciled with the USITC's reliance on the decline in housing starts from February to March 2002 in
support of its finding that increased consumption was not likely to be sustained. Moreover, Canada
asserts that the profitability of the industry had been improving over a longer period, citing the fact
that, after reporting negative operating margins for the final three quarters of 2000 and the first quarter
of 2001, the domestic industry repor ted a positive operating margin of 3.7 percent in the final three
quarters of 2001. In Canada's view, this indicates that the improvement in the first quarter of 2002
compared to the first quarter of 2001 is a continuation of a trend which undermines any finding that
the industry is “vulnerable.” Canada also consid ers it more important to consider whether the US
industry's condition was improving or deteriorati ng following the 9/11 recession, than to consider
whether its financial performance was poorer in the firs t quarter of 2002 than it had been in the first
quarter of 2001.
7.54 The United States points out that the USITC found that the condition of the domestic
industry, and in particular its fi nancial performance, deteriorated over the period of investigation, as a
result of the substantial decline in prices. Imports were increasing substantially after expiry of the
SLA and at the end of the period of investigation, and were entering at prices at their lowest levels
during the period of investigation. Thus, the USITC found that the industry was vulnerable to future
injury. Domestic producers' market share had declined, and the financial performance had dropped
dramatically from 1999 to 2000.
87 While the data in the section 129 proceeding showed some
improvements in the domestic industry’s financial performance in the first quarter of 2002 compared
with the first quarter of 2001, 88 the USITC concluded that a single quarter’s performance did not
change the fact that, overall, the industry’s perfo rmance had deteriorated and remained weak. The
United States argues that these factors clearly sup port the conclusion that the US industry was
vulnerable to injury.
7.55 With respect to the USITC's findings of vulnerab ility, we do not consider that the mere fact
that the condition of the US industry was improving at the end of the period of investigation precludes
a finding that its condition was nonetheless vulnerable. It is clear that the USITC had found the
industry to be in poor condition during the period of investigation, a condition which might have
supported an affirmative finding of material injury but for the fact that the USITC determined that
factors other than Canadian imports contributed to that condition. Information concerning the
domestic industry at the end of the period of investigation, while showing improvements, continued to

87 Views of the Commission, Exhibit CDA-1, at page 60-61.
88 Ibid., at page 62.

reflect less than robust performance, despite import r estraints having been in place. In this context,
we cannot conclude that the USITC's finding is unreasonable or not based on positive evidence.
7.56 Overall, it seems clear to us that Canada has presented a reasoned alternative interpretation of
the evidence in the r ecord. However, Canada has failed to de monstrate that the USITC's analysis and
determination that imports were likely to increase substantially, taken as a whole and considered in
light of the approach taken by the USITC in its anal ysis and determination, is not one that could be
reached by an objective and unbiased investigating au thority. This is particularly the case because
Canada's arguments largely present an alternative, different interpretation of the evidence before the
USITC. This is not, however, sufficient to de monstrate error in the interpretation on which the
USITC actually based its decision, which relied in major part on the background and context of the
poor financial performance of the domestic industry caused by low prices, the significant volume and
increases of imports, and the substantial portion of apparent US consumption accounted for by those
imports, during the period of investigation.89
7.57 Moreover, despite Canada's attempts to dem onstrate inconsistencies between the findings
with respect to present material injury and threat of ma terial injury, it is clear to us that the finding of
no material injury caused by Canadian imports dur ing the period of investigation does not preclude a
finding of threat of material injury in the circumstances of this case. The USITC did not find no
material injury to the domestic industry during th e period of investigation in the sense that the
condition of the industry was good, but rather that the poor condition of the domestic industry could
not be attributed to the effects of Canadian imports so as to support an affirmative determination and
the imposition of measures. Against that backgr ound, while it is possible to disagree with the
USITC's analysis, we cannot conclude that it is unr easonable. Finally, as we noted at the outset, we
must review the section 129 determination on its own term. The fact that th e USITC made somewhat
different findings, or expressed di fferent conclusions based on differe nt or additional analysis and
evidence than in the original determination is simply not dispositive in our decision whether the
section 129 determination is incons istent with the United States obligations under the AD and SCM
Agreements. Thus, we conclude that the determination of the USITC with respect to the likely
volume and price effects of imports from Canada is not inconsistent with the requirements of
Articles 3.7 of the AD Agreement and 15.7 of the SCM Agreement
B. A
LLEGED VIOLATIONS OF ARTICLE 3.5 OF THE AD AGREEMENT AND ARTICLE 15.5 OF
THE SCM AGREEMENT
(a) The USITC’s Analysis of Causal Link
7.58 Canada asserts that the USITC failed to make an adequate finding with respect to causation in
violation of Articles 3.5 and 15.5 of the AD and SCM Agreements. Canada considers that the
USITC's finding of causal link rests upon the conclusion that excess supply in the US market would
result in price declines, and that excess supply would be from Canadian imports, because US
producers had brought their production into line with consumption in the US market. Canada asserts
that the USITC relied on a single consultant's repor t as support for this latter conclusion, which the
Panel had previously found insufficient in this re gard. In addition, Canada asserts that new data

89 In addition, we note that we find little significance in the fact that one Commissioner dissented from
the decision of the USITC. Canada refers in severa l instances to this Commissioner's views as demonstrating
that the evidence supports a different outcome from that reached by the USIT C. This may well be true, but is
not sufficient to demonstrate error in the USITC's secti on 129 determination, which is the determination before
us on review. We have looked carefully at the dissenting Commissioner's views, which set out different
conclusions that were reached by an unbiased and objective investigating authority, based on a different focus in
the analysis and the interpretation and explanation of the evidence. This is not, of course, under the applicable
standard of review, sufficient to demonstrate that the determination of the USITC is not one which could be
reached by an unbiased and objective investigating aut hority, based on the facts before it and in light of the
explanations given.

obtained in the section 129 determination showed that US production increased by nearly 5 percent
during the first quarter of 2002, while Canadian produc tion declined by over 2 percent. In Canada's
view, this evidence refutes the conclusion that US producers had curbed overproduction. Overall,
Canada considers that as the USITC's conclusion that imports were likely to increase substantially is
unsupported, the USITC's causation analysis is perfo rce inconsistent with Articles 3.5 of the AD
Agreement and 15.5 of the SCM Agreement.
7.59 The United States notes that the USITC found that imports, already at significant and
increasing levels even with the restraining effect of the SLA in place, and with significant increases in
volume after expiration of the SLA, would continue to enter the US market at significant levels and
were projected to further increase substantially. In support of its conclusion the USITC observed that
prices were weak toward the end of the period of i nvestigation, with prices in the third and fourth
quarters of 2001 at levels as low as they had been in 2000. While prices increased in the first quarter
of 2002, as consumption temporarily increased, they were still at the low levels reported in 2000, a
time when imports were affecting the financial performance of the domestic industry. The USITC
found that the likely substantial increases in subj ect imports would result in excess supply in the US
market, putting further downward pressure on prices.
7.60 However, the USITC found that, unlike the situa tion during the period of investigation, when
both US and Canadian producers contributed to th e excess supply which caused substantial price
declines and led to deterioration in the condition of the domestic industry, by the end of 2001, US
producers had brought their production into line with consumption. Canadian producers, however,
had excess capacity, and projected increased produc tion, with the United States being the likely
market for this excess production. This latter condition would result in excess supply in the US
market. Thus, the USITC found that subject impor ts were likely to increase substantially and were
entering at prices, particularly at the low levels seen at the end of the period of investigation, that were
likely to have a significant depressing or suppressing effect on domestic prices, were likely to increase
demand for further imports, and thereby were likel y to adversely impact the US industry in the
imminent future, unless protective action were taken.
7.61 The United States notes that, in the section 129 determination, the USITC integrated its
causation discussion into its analysis of the threat fa ctors, particularly its analysis of the likely volume
and likely price effects of subject imports on the already vulnerable domestic industry. Thus, the
United States argues that Canada errs in focu sing on the separate section of the section 129
determination that reviewed the factors involved in those findings. Moreover, the United States
considers that Canada mischaracterizes the USIT C's determination that US producers had brought
production in line with consumption, arguing that cont rary to Canada's argument, the basis for this
conclusion was not a single footnote reference. Rather, the United States points out that the USITC
relied on evidence regarding domestic production and capacity. Thus, the United States notes that US
production capacity was fairly level during the peri od of investigation, and that while production
increased during the first quarter of 2002 as compared with the first quarter of 2001, it did so less than
apparent consumption, and was even so lower than it had been in the first quarter of 2000.
7.62 As with its arguments concerning the likely increases in imports and price effects of imports,
Canada has presented a reasonable alternative interp retation of the evidence in the record, but has
failed to demonstrate that the USITC's analysis and determination that the projected increased levels
of imports, in light of the prices at the end of the period of investigation and given the vulnerable
condition of the domestic industry, th reatened material injury to the US industry is not one that could
be reached by an objective and unbiased investigati ng authority. Having found, above, that the
USITC's determination concerning likely increased vol umes of imports is not inconsistent with the
AD and SCM Agreements, it is in that context that we must consider the USITC's causal analysis. In
this regard, we note that our original finding that the USITC's causation determination was not
consistent with Articles 3.5 and 15.5 of the AD and SCM Agreements, respectively, rested on our

finding that because of an error in a fundamental element of its analysis, the USITC's entire causal
analysis could not be sustained.
"we have found that the USITC's determinati on is inconsistent with the requirements
of Article 3.7 of the AD Agreement and Article 15.7 of the SCM Agreement in that
the conclusion that imports would increase s ubstantially is not one that could have
been reached by an unbiased investig ating authority based on an objective
examination of the evidence concerning releva nt factors in the investigation. The
entire analysis of the USITC with respect to causation rests upon the likely effect of
substantially increased imports in the near future. Having found that a fundamental
element of the causal analysis is not consis tent with the Agreements, it is clear to us
that the causal analysis cannot be consistent with the Agreements."
90
In this proceeding, by contrast, we have found that the USITC's conclusion that imports would
increase substantially is not inconsistent with Articles 3.7 and 15.7 of the AD and SCM Agreements.
It is in light of that important difference in its underpinnings that we have assessed the USITC's causal
analysis in the section 129 determination.
7.63 While it is possible to disagree with the USITC's analysis, we cannot conclude that it is
unreasonable. Moreover, as we noted above, we do not consider that a determination can be
sustained on review only if every argument and conflict in the evidence is resolved by the
investigating authority in favour of the determina tion made. It is the task of the investigating
authority to weigh the evidence and make a reasoned judgement – this implies that there may well be
evidence, and arguments, that detract from the conclusions reached. Un less such evidence and
arguments demonstrate that an unbiased and objective investigating authority could not reach a
particular conclusion, we are obliged to sustain th e investigating authorities' judgment, even if we
would not have reached that conclusion ourselves. Thus, we conclude that the determination of the
USITC with respect to causal link is not inconsistent with the requirements of Articles 3.5 of the AD
Agreement and 15.5 of the SCM Agreement
(b) The USITC’s Consideration of “Other Factors”
7.64 Canada also argues that the USITC's analysis of "other causes of injury" fails to satisfy the
requirements of Article 3.5 of the AD Agreement a nd Article 15.5 of the SCM Agreement. In its
section 129 determination, the USITC concluded that there were no known “other causal factors”
relevant to its investigation that could constitute a threat of injury to the domestic industry. Therefore,
the USITC concluded that it was not necessary for it to conduct a non-attribution analysis, because
there were no known factors threatening material injury to the US industry other than Canadian
imports. Canada considers that factors other than Canadian imports had substantial adverse effects on
the US domestic industry during the period of investig ation, as demonstrated by the USITC's material
injury analysis. Canada argues that the USITC had acknowledged that other factors had contributed
to the substantial declines in price during the period of investigation. Canada argues that at least three
other causal factors were affecting the domestic i ndustry, and the USITC erred in dismissing them as
factors potentially threatening material injury.
(i) US domestic oversupply
7.65 Canada notes that in its original determina tion, the USITC had found that Canadian imports
were not causing material injury because both US and Canadian lumber contributed to excess supply,
precluding a finding that imports had a significant im pact on the domestic industry. Canada, relying
on its view that the USITC's conclusion that US producers had brought production in line with
consumption was in error, argues that the cen tral problem facing the US industry was US

90 Panel Report, US – Softwood Lumber VI, supra note 1, at para. 7.122.

overproduction, and that therefore the USITC erred in concluding that it did not threaten injury to the
domestic industry.
7.66 The United States considers that Canada mischa racterizes the USITC's determination that US
producers had brought production in li ne with consumption, arguing that that contrary to Canada's
argument, the basis for this conclusion was not a sing le footnote reference. Rather, the United States
points out that the USITC also relied on evidence regarding US production and capacity. Thus, the
USITC noted that US production capacity was fairly le vel during the period of investigation, and that
while production increased during the first quarter of 2002 as compared with the first quarter of 2001,
it did so less than apparent consumption, and was even so lower than it had been in the first quarter of
2000. Canadian producers, however, had excess cap acity, and projected increases in production.
Moreover, while production data for 2000-2001 s howed that both Canadian and US production
declined by similar quantities, it al so demonstrated that Canadian e xports to the US market increased
during this period. Thus, the USITC concluded that the likely market for excess Canadian production
was the US market, and Canadian exports would c ontinue to oversupply the US market. The United
States also notes that Canadian producers projected increases in production of 8.9 percent from 2001
to 2003. When Canadian consumption declined by 23 percent in the first quarter of 2002 compared
with the first quarter of 2001, production declined somewhat, but imports to the United States
increased, indicating a shift in sales to the US market.
(ii) Third country imports
7.67 Canada considers that the USITC’s principal reason for concluding that third country imports
were not a factor threatening injury was their small market share. However, in Canada's view, the real
issue was the expected rate of increase in their ma rket share at the expense of the domestic industry,
and not the absolute level of those imports. Cana da notes that the USITC had cited an increase of 1.1
percentage points in Canadian market share from 1999 to 2001 in support of its conclusion that
Canadian imports were likely to increase in the fu ture, and argues that third country import market
share increased by a similar amount – 0.9 percentage points. Moreover, Canada argues that the rate of
increase in third country import market share was hi gher than for Canadian imports. Canada also
argues that the fact that individual third country impor ts would be considered negligible in the context
of a material injury analysis, cited by the USIT C, is irrelevant to the question whether those
increasing imports, as a whole, were a factor threateni ng injury to the US industry. Finally, Canada
considers that the USITC's conclusion that third country imports were not likely to increase relative to
Canadian imports because third country imports had not been subject to import restraints during the
period of investigation, as Canadi an imports were, fails to recognize that continued increase in third
country imports equivalent to the increase in Canadian imports would have an equal effect on the US
industry. Canada asserts that even if third country imports merely kept pace with Canadian imports,
they would have at least an equal effect on the US industry. Canada argues that nothing in the record
indicated that the factors causing the increase in third country imports would change, and that
therefore there was no support for the USITC's view that it was speculative to conclude that such
imports would continue to increase if no order were imposed. Canada considers that the USITC was
obligated to determine whether the factors that caused the large increase during the period of
investigation would continue in the imminent future.
7.68 With respect to third country imports, the USITC found that such imports never accounted for
more than 3.0 percent of apparent consumption, while Canadian imports accounted for at least
34 percent of the US market. Moreover, individual country non-subject imports would have been
deemed negligible, with no individual country accoun ting for more than 1.3 percent of imports, while
Canadian imports accounted for about 93 percent of all imports. The United States asserts that
Canada ignores the significance of the baseline in focusing on incremental increases in import
volume. Thus, the United States points out that while the USITC recognized that the incremental
increase in Canadian import volume between 1999 and 2001 was approximately the same as the
increase in third country imports import volume, cons idered in perspective, Canadian imports were

enormous in volume and accounted for about 34 pe rcent of US apparent consumption in the 1999-
2001 period, while third country imports never exceed ed 2.6 percent of US apparent consumption.
Moreover, the USITC noted that the third countr y imports were higher value than the Canadian
imports. The United States considers that Canada e rrs in focusing on the rate of increase Canadian
and third country imports, while ignoring the absolute volumes. The United States also notes that the
increases occurred during a period when imports from Canada were subject to restraint, while third
country imports were not restrained. In the US vi ew, Canada fails to explain its basis for believing
that any significant increase in third country imports would be imminent and how any likely imminent
increase in such a small volume of third country im ports relative to apparent consumption might rise
to the level of having a causal impact on the domestic industry, given the low level of such imports.
(iii) Cross-Border Integration
7.69 Canada argues that the view that integrated fi rms would not harm their related companies is a
common-sense proposition recognized by the USITC in other cases, and not speculation, as the
USITC characterized it in this case. Moreover, Cana da argues that the USITC failed to consider the
fact that integration in the North American lumber market was increasing, and the fact that the USITC
did not exclude any US companies from the domestic industry as related parties supports the view that
integrated firms are unlikely to import Canadian lumber at injurious prices or volumes.
7.70 The United States considers that Canada's argume nt that increasing integration in the North
American lumber industry indicated that integrated firms would not import so as to harm related
companies in the US industry is based on facts in a different case, and points out that the USITC
found no evidence to support the assertion. The United States argues that the USITC’s decision not to
exclude from its analysis any domestic producers under the “related parties” provision was because
there was no evidence that they were “closely aligned” and likely to be shielded from harm.
7.71 Canada argues that these three factors "indisput ably" constitute other f actors causing injury,
and that therefore, the United States was required to carry out a non-attribution analysis. However, it
is not clear to us why this should be the case. While it is clear that these are factors that are at play in
the US lumber industry and market, and that they may have had some effects on the industry, that
does not necessarily mean that they potentially thr eaten injury to the domestic industry, and must
therefore be the subject of analysis and determ inations under the non-attribution provisions of
Articles 3.5 and 15.5 of the AD and SCM Agreements . In our view, there is nothing unreasonable in
the USITC's conclusion that the mere fact of cro ss-border integration, even if increasing, does not
pose a potential threat of injury to the US lumber industry.
7.72 Similarly, the mere fact that the volume of the increase in third country imports was
approximately the same as the volume of increase in Canadian imports does not require the
conclusion that third country imports potentially threat en injury to the US industry. When considered
in the context of the absolute volume of such imports, as compared to the absolute volume of
Canadian imports, and in light of the large number of third country suppliers, the fact that these
imports were not restrained during the period of investigation and the higher unit values of third
country imports, we cannot conclude that the USITC's conclusion, that these imports do not
potentially threaten material injury to the US i ndustry, is not one which an unbiased and objective
investigating authority could reach.
7.73 Finally, with respect to potential US oversupply, we note that the principal basis for the
USITC's conclusion that the condition of the industry during the period of inv estigation could not be
attributed to Canadian imports was the fact that US supply contributed to the price declines in the
market. In the section 129 determination, the USITC explained that, in light of the increased
correlation between US production, capacity and demand at the end of the period of investigation,
excess supply from US sources was not a potential threat of injury. The availability of capacity in
Canada, likely increased production, and the likelihood that exports will be predominantly to the US

market are not relevant to the question whether the USITC erred in so concluding. While those
factors support the conclusion that imports from Cana da are likely to increase, they do not affect the
question whether excess supply from domestic sources potentially threatens the domestic industry.
7.74 We therefore conclude that the USITC's dete rmination regarding other factors potentially
threatening injury to the US industry is not inc onsistent with Articles 3.5 and 15.5 of the AD and
SCM Agreements, respectively.
VIII. CONCLUSIONS AND RECOMMENDATION
8.1 Based on the foregoing, we conclude that the de termination of the USITC in the section 129
proceeding investigation is not inconsistent with the asserted provisions of:
• Article 3.5 of the AD Agreement,
• Article 3.7 of the AD Agreement,
• Article 15.5 of the SCM Agreement, and
• Article 15.7 of the SCM Agreement.
8.2 We therefore consider that the United States ha s implemented the decision of the Panel, and
the DSB, to bring its measure into conformity with its obligations under the AD and SCM
Agreements.
8.3 Having found that the United States did not act inconsistently with its obligations under the
asserted WTO Agreements, we consider that no recommendation under Article 19.1 of the DSU is
necessary, and we make none.