UNITED STATES – FINAL COUNTERVAILING DUTY DETERMINATION WITH RESPECT TO CERTAIN SOFTWOOD LUMBER FROM CANADA AB-2003-6
Document: Report of the Appellate Body
Date: 19 January 2004
Document codes: WT/DS257/AB/R
Complainant: Canada
Respondent: U.S.
Third parties: China, EU, India, Japan
Dispute stage: Mutually Agreed Solution
Agreements cited: Art. 10, 11, 32, 1, 2, 12, 14, 19, 22  Subsidies and Countervailing Measures (SCM)Art. VI, X:3  GATT 1994Art. 21  Subsidies and Countervailing Measures (SCM)

UNITED STATES – FINAL COUNTERVAILING DUTY
DETERMINATION WITH RESPECT TO CERTAIN
SOFTWOOD LUMBER FROM CANADA
AB-2003-6
Report of the Appellate Body

APPELLATE BODY
United States – Final Countervailing Duty
Determination with Respect to Certain
Softwood Lumber from Canada
United States, Appellant/Appellee
Canada, Appellant/Appellee
European Communities, Third Participant
India, Third Participant
Japan, Third Participant
AB-2003-6
Present:
Baptista, Presiding Member
Lockhart, Member
Sacerdoti, Member
I. Introduction
1. The United States and Canada each appeals certain issues of law and legal interpretation in
the Panel Report, United States – Final Countervailing Duty Determination with Respect to Certain
Softwood Lumber from Canada (the "Panel Report"). 1 The Panel was established to consider a
complaint by Canada concerning countervailing duties imposed by the United States against imports
of certain softwood lumber products from Canada ("softwood lumber"). Before the Panel, Canada
challenged a number of aspects of the final determination by the United States Department of
Commerce ("USDOC") that led to the imposition of the duties.
2. On 22 May 2002, USDOC published in the United States Federal Register a countervailing
duty order in respect of softwood lumber from Canada.
2 The countervailing duty order followed a
final countervailing duty determination by USDOC on 21 March 2002. 3 In that determination,
USDOC found that softwood lumber benefited from countervailable subsidies attributable to a

1, 29 August 2003.
2Panel Report, para. 2.4. See also "Notice of Amended Final Affirmative Countervailing Duty
Determination and Notice of Countervailing Duty Order: Certain Softwood Lumber Products From Canada",
United States Federal Register, 22 May 2002 (volume 67, number 99), p. 36070.
3Panel Report, para. 2.1. USDOC's final countervailing duty determination was published in the
United States Federal Register as: "Notice of Final Affirmative Countervailing Duty Determination and Final
Negative Critical Circumstances Determination: Certain Softwood Lumber Products from Canada" (the "Final
Determination"), United States Federal Register, 2 April 2002 (volume 67, number 63), p. 15545. The United
States Federal Register notice made reference to a further document entitled "Issues and Decision
Memorandum: Final Results of the Countervailing Duty Investigation of Certain Softwood Lumber Products
from Canada" (the "Decision Memorandum"), (unpublished, Exhibit CDA-1 submitted by Canada to the Panel),
which was generally referred to in the Panel Report as the "USDOC Final Determination".

number of Canadian government programs. USDOC found that, by conferring a right to harvest
timber through stumpage programs, certain provincial governments provided goods to lumber
producers.
 4 According to USDOC, these goods were prov ided at less than adequate remuneration,
thereby conferring a benefit. 5 USDOC also found that the subsidies conferred through the stumpage
programs were specific to an industry or group of industries. 6
3. Canada argued before the Panel that USDOC's final countervailing duty determination was
inconsistent with the United States' obligations under Articles 1.2, 2.1, 2.4, 10, 12, 14, 14(d), 19.1,
19.4 and 32.1 of the Agreement on Subsidies and Countervailing Measures (the " SCM Agreement")
and Article VI:3 of the General Agreement on Tariffs and Trade 1994 (the "GATT 1994").
4. The Panel Report was circulated to Members of the World Trade Organization ("WTO") on
29 August 2003. In the Panel Report, the Panel concluded, at paragraph 8.1:
(a) that the USDOC's determination that provision of stumpage
constituted a financial contribution in the form of the
provision of a good or service was not inconsistent with
Article 1.1 (a) (1) (iii) [of the] SCM Agreement, and we
therefore reject Canada's claim that the United States'
imposition of countervailing duties on the basis of that
determination was inconsistent with Articles 10, 19.1, 19.4
and 32.1 [of the] SCM Agreement, and Article VI:3 of
GATT 1994;
(b) that the USDOC's determination of the existence and amount
of benefit to the producers of the subject merchandise was
inconsistent with Articles 14 and 14(d) [of the] SCM
Agreement, and we therefore uphold Canada's claim that
the United States' imposition of countervailing duties on the
basis of that determination was inconsistent with Articles 14,
14(d), 10 and 32.1 [of the] SCM Agreement; ...
7

4Decision Memorandum, supra, footnote 3, pp. 29–30.
5Ibid., p. 45.
6Ibid., p. 52.
7Having reached this conclusion with respect to Canada's claim regarding the existence and amount of
a benefit, the Panel declined to rule on Canada's additional allegation that USDOC's flawed benefit analysis
meant that the United States imposed countervailing duties in a manner inconsistent with Articles 19.1 and 19.4
of the SCM Agreement.

(c) that the USDOC's failure to conduct a pass-through analysis
in respect of upstream transactions for log and lumber inputs
between unrelated entities was inconsistent with Article 10
[of the] SCM Agreement and Article VI:3 of GATT 1994,
and we therefore uphold Canada's claim that the United
States' imposition of countervailing duties in respect of such
transactions was inconsistent with Articles 10 and 32.1 [of
the] SCM Agreement and Article VI:3 of GATT 1994; ... 8
(original italics)
5. The Panel also found that USDOC's determination that provincial stumpage programs provide
specific subsidies within the meaning of Article 2.1 was not inconsistent with the SCM Agreement.9
The Panel declined to rule on Canada's claims regarding the methodology used by USDOC to
calculate the subsidy rate and USDOC's conduct of the investigation. 10 The Panel concluded that, to
the extent the United States acted inconsistently with the provisions of the SCM Agreement and the
GATT 1994, the United States had nullified or impaired benefits accruing to Canada under those
Agreements. The Panel therefore recommended that the Dispute Settlement Body (the "DSB")
request the United States to bring its measure into conformity with its obligations under the
SCM Agreement and the GATT 1994.
11
6. On 2 October 2003, the United States notified the DSB of its intention to appeal certain issues
of law covered in the Panel Report and certain legal interpretations developed by the Panel, pursuant
to paragraph 4 of Article 16 of the Understanding on Rules and Procedures Governing the
Settlement of Disputes (the "DSU"), and filed a Notice of Appeal pursuant to Rule 20 of the Working
Procedures for Appellate Review (the "Working Procedures").
12 On 3 October 2003, for scheduling
reasons, the United States withdrew its Notice of Appeal pursuant to Rule 30 of the Working
Procedures, conditional on its right to re-file the Notice of Appeal at a later date. 13 O n
21 October 2003, the United States re-filed a substantively identical Notice of Appeal pursuant to

8Having reached this conclusion with respect to Canada's claim regarding the need for a pass-through
analysis, the Panel declined to rule on Canada's additional allegation that USDOC's failure to complete a pass-
through analysis meant that the United States imposed countervailing duties in a manner inconsistent with
Articles 19.1 and 19.4 of the SCM Agreement.
9Panel Report, para. 8.1(d). (This finding of the Panel is not appealed)
10Ibid., para. 8.2. (This finding of the Panel is not appealed)
11Ibid., para. 8.4.
12WT/DS257/6, 6 October 2003.
13WT/DS257/7, 7 October 2003.

Rule 20 of the Working Procedures.14 On that same day, the United States filed its appellant's
submission in accordance with the Working Schedule drawn up by the Division for this appeal.15
7. On 23 October 2003, the European Communities, a third participant in these proceedings,
requested the Appellate Body to modify the Working Schedule.16 On 24 October 2003, the Appellate
Body declined the European Communities' request , noting that extending the date for the filing of
third participants' submissions would significantly reduce the time available for the Division to
consider carefully the arguments raised therein as well as the time available to the participants to
respond to those arguments.
17 The Division also observed that the new Notice of Appeal filed by the
United States on 21 October 2003 was, in all relevant respects, identical to the one submitted on
2 October 2003, and that the critical time-period for third participants and appellees to prepare their
responses to arguments raised by appellants and other appellants is the period between the receipt of the
appellant's or other appellant's submissions, which contains the appellants' arguments, and the due date
for the filing of the third participants' submissions. The Division noted that the time-period between the
receipt of the appellant's submission and the due date for third participants' submissions in this case was
the same as it would have been, had the Notice of Appeal of 21 October 2003 been filed 10 days before
the date of the appellant's submission, as normally occurs.
8. On 27 October 2003, Canada filed an other appellant's submission.
18 On 5 November 2003,
Canada and the United States each filed an appellee's submission. 19 On that same day, the European
Communities and Japan filed third participants' submissions. 20 On 27 October 2003, pursuant to
Rule 24(2) of the Working Procedures, India notified the Appellate Body Secretariat that it would
not be filing a third participant's submission, but that it intended to make a statement at the oral
hearing.

14WT/DS257/8, 24 October 2003.
15Pursuant to Rule 21(1) of the Working Procedures.
16In a letter from the Permanent Delegation of the European Commission dated 23 October 2003, the
European Communities argued that the time-period within which it had to file its third participant's submission
was contrary to Rule 24(1) of the Working Procedures because it was less than 25 days from the date of the re-
filing of the Notice of Appeal.
17Letter from the Director of the Appellate Body Secretariat dated 24 October 2003.
18Pursuant to Rule 23(1) of the Working Procedures.
19Pursuant to Rule 22(1) and Rule 23(3) of the Working Procedures.
20Pursuant to Rule 24(1) of the Working Procedures.

9. The Appellate Body received two amicus curiae briefs during the course of these
proceedings. The first, dated 21 October 2003, was received from the Indigenous Network on
Economies and Trade (based in Vancouver, British Columbia, Canada).
21 The second, dated
7 November 2003, was a joint brief filed by Defenders of Wildlife (based in Washington, D.C.,
United States), Natural Resources Defense Council (based in Washington, D.C., United States) and
Northwest Ecosystem Alliance (based in Bellingham, state of Washington, United States). 22 Th e se
briefs dealt with some questions not addressed in the submissions of the participants or third
participants. No participant or third participant adopted the arguments made in these briefs.
23
Ultimately, in this appeal, the Division did not find it necessary to take the two amicus curiae briefs
into account in rendering its decision.
10. In a letter dated 12 November 2003, the Director of the Appellate Body Secretariat informed
the participants and third participants that, in accordance with Rule 13 of the Working Procedures,
the Appellate Body had selected Mr. Giorgio Sacerdoti to replace Mr. A.V. Ganesan as a Member of
the Division hearing this appeal because the latter was prevented from continuing to serve on the
Division for serious personal reasons.
11. The oral hearing was held on 20 November 2003. The participants and third participants each
presented oral arguments and responded to questions put to them by the Members of the Division
hearing the appeal.
II. Arguments of the Participants and the Third Participants
A. Claims of Error by the United States – Appellant
1. Calculation of Benefit
12. The United States requests the Appellate Body to reverse the Panel's finding that Article 14(d)
of the SCM Agreement required the United States to determine the adequacy of remuneration for
government-provided timber based on any observed non-government prices for timber in Canada,
even when such prices are substantially influenced, or even effectively determined, by the
government's financial contribution.

21This brief purported to add an indigenous dimension to the issues raised by this appeal.
22The organizations filing this brief commented on the environmental implications of the issues raised
by this appeal.
23Responses to questioning at the oral hearing.

13. The United States argues that the guidelines for the calculation of benefit in Article 14(d)
must be interpreted in a manner consistent with the term "benefit" as it is used in Article 1.1(b) of the
SCM Agreement. The United States refers to the Appellate Body's interpretation of the term "benefit"
in Article 1.1(b) in Canada – Aircraft and recalls that a government financial contribution confers a
benefit if the "'financial contribution' makes the recipient 'better off' than it would otherwise have
been absent that contribution", and that the marketplace provides the appropriate basis for
comparison.
24 The United States criticizes the Panel's interpretation because it does not permit
identification of the trade-distorting potential of a financial contribution. Rather, it requires a circular
analysis in which government prices are compared to other prices that simply reflect the government's
participation in the market.
14. The United States contends that the term "market conditions" as used in Article 14(d) can
only mean "commercial" market conditions that are not determined or substantially influenced by the
government's financial contribution. The United States agrees with the Panel that "prevailing" market
conditions are market conditions as they exist or which are predominant, but argues that the Panel
incorrectly interpreted the phrase "prevailing market conditions" as the "prevailing conditions of sale
for the good in question", without inquiring whether the prevailing conditions are "market"
conditions.
25 The United States submits that not all prevailing conditions are market conditions
within the meaning of Article 14(d). The United States further argues that the designation in the
chapeau to Article 14 of the provisions of that article as "guidelines" signifies that they are guides or
principles, not rigid rules that purport to contemplate every conceivable circumstance. This
interpretation is supported, according to the United States, by the use of the broad phrase "in relation
to" before "prevailing market conditions" in the text of Article 14(d).
15. The United States thus takes issue with the Panel's finding that the United States was required
to use private timber prices in Canada in assessing the adequacy of remuneration for government
stumpage. Although the Panel acknowledged that, if the government were the sole supplier of the
goods in question, the conditions prevailing would not be "market conditions", the Panel failed to
consider that, in Canada, provincial governments control the vast majority of timber and are therefore
the predominant suppliers. According to the United States, the conclusion should have been the same
regardless of whether the government was the sole or predominant supplier. The United States
accordingly contends that it was appropriate for it to conduct its analysis of the adequacy of
remuneration for government stumpage in Canada using proxies other than private Canadian timber
prices.

2. Pass-Through Analysis
16. The United States requests the Appellate Body to reverse the Panel's finding that, in failing to
carry out a pass-through analysis, the United States acted inconsistently with Article 10 of the
SCM Agreement and Article VI:3 of the GATT 1994, and, consequently, that the United States'
imposition of countervailing duties was inconsistent with Articles 10 and 32.1 of the SCM
Agreement and Article VI:3 of the GATT 1994.
26 Although the United States accepts that the
SCM Agreement requires that countervailing duties not be imposed in an amount exceeding the
"subsidy found to exist", it contends that the Panel erred in finding that a pass-through analysis is
required in respect of sales of logs from tenure-holding sawmills producing softwood lumber to
unrelated sawmills, and for sales of lumber by tenure-holding sawmills to unrelated lumber
remanufacturers. The United States does not appeal the Panel's finding that, where a subsidy is
received by an independent timber harvester, a pass- through analysis is required in respect of sales to
unrelated sawmills or unrelated remanufacturers.
27
17. The United States contends that the SCM Agreement does not require investigating
authorities to determine the "subsidy found to exis t" on a company-specific or transaction-specific
basis before imposing countervailing duties. Rather, according to the United States, the SCM
Agreement expressly contemplates that, in an investigation, a Member may adopt an aggregate
methodology that may subject individual exporters or producers to countervailing duties without
individually investigating whether those exporters or producers actually received a subsidy.
18. With this in mind, the United States argues that a pass-through analysis is required only
where the subsidy is bestowed indirectly. Thus, if a subsidy is received directly by someone other
than a producer of the product under investigation, an investigation is required to determine whether
some or all of that subsidy is passed through to enterprises that do produce the product under
investigation. Because USDOC's investigation with respect to softwood lumber from Canada
involved subsidies that were granted directly to Canadian producers of softwood lumber and were not
received by someone other than a producer of softwood lumber, the United States argues that no pass-
through analysis was required. The United States recalls that the product under investigation
—softwood lumber—includes both primary lumber and remanufactured lumber. The United States
contends that there is no basis in the SCM Agreement, or the GATT 1994, for the Panel's finding that
"what constitutes the 'product' for which subsidies are being measured depends in part on what
happens to the product after it is produced."
 28 There is also no basis for the Panel's finding that the

26Panel Report, paras. 7.99 and 8.1(c).
27United States appellant's submission, footnote 7 to para. 5.
28Ibid., para. 42.

United States was required to reduce the "subsidy found to exist" by the amount of subsidies
attributable to certain lumber products sold domestically, unless it could establish that those subsidies
passed through to an exported product.
19. The United States argues that the Panel erred in requiring a pass-through analysis to
determine what, if any, portion of the total subsidie s could be specifically traced to products entering
the United States that were produced by companies that purchase logs or lumber from unrelated
entities. Article 19.3 of the SCM Agreement explicitly recognizes that exporters who are "not
actually investigated" may be "subject to" countervailing duties.
29 There is thus no requirement, in an
aggregate investigation, to investigate whether individual exporters receive subsidies. Article 19.3
simply requires that expedited reviews be available to enterprises that were not individually
investigated. The United States argues that, in finding that a pass-through analysis was required in
this case, the Panel expanded the obligation to determine the subsidy granted to production of a
product, to include an obligation to determine the subsidy granted to specific producers of that
product.
B. Arguments of Canada – Appellee
1. Calculation of Benefit
20. Canada requests the Appellate Body to uphold the Panel's finding that the United States'
determination of the existence and amount of benefit was inconsistent with Article 14 and
Article 14(d) of the SCM Agreement and, therefore, that the United States' imposition of
countervailing duties on the basis of that determination was inconsistent with Articles 14, 14(d), 10,
and 32.1 of the SCM Agreement.
21. Canada observes that Article 14(d) requires the adequacy of remuneration to be determined
"in relation to the prevailing market conditions … in the country of provision", and submits that the
ordinary meaning of Article 14(d) of the SCM Agreement requires Members to use prevailing market
conditions in the country of provision as the benchmark against which to determine the adequacy of
remuneration. Canada contends that "in the country of provision" can only mean "in the country of
provision", and nothing in the context, object and purpose, or negotiating history of Article 14 permits
an alternative reading. In particular, according to Canada, the use of the term "in relation to" does not
give discretion to Members to reject in-country benchmarks for comparison.
22. Canada also argues that the Panel's interpretation of the phrase "prevailing market conditions"
is consistent with the ordinary meaning of these terms as used in Article 14(d). Canada disagrees with

29United States appellant's submission, para. 46. (italics omitted)

the approach taken by the United States, which, it contends, interprets the word "market" in
Article 14(d) in isolation from the qualifying term "prevailing" and the phrase "in the country of
provision". Canada claims that the United States mischaracterized the Panel's findings as to when
in-country prices would not govern the determination of adequate remuneration, and that the Panel
was correct in finding that in only two situations it would not be possible to use in-country prices.
The first situation is where the government is the only supplier of the relevant goods, and the second
situation is where the government administratively controls all the prices for those goods. The Panel
found that the facts before it did not fall within either one of these situations. Canada asserts,
moreover, that the United States' attempt to equate the government's position as a dominant supplier
of goods with formal government price-setting is untenable because it would permit investigating
authorities to avoid the in-country comparisons required by Article 14(d).
23. In addition, Canada submits that the Panel's interpretation of Article 14(d) is entirely
consistent with WTO jurisprudence relating to the term "benefit" in Article 1.1(b) of the
SCM Agreement. The Panel did not dismiss the Appellate Body's statements in Canada – Aircraft as
irrelevant to the interpretation of Article 14(d). Rather, the Panel concluded, consistent with that
Appellate Body decision, that the marketplace provided the appropriate basis in which to compare
transactions. Canada distinguishes the report of the panel in Brazil – Aircraft (Article 21.5
– Canada II), which dealt with a different type of financial contribution.
24. Canada asserts that the Panel's interpretation of Article 14(d) is supported by the context of
that provision. In particular, Canada submits that, even though the chapeau of Article 14 refers to the
paragraphs that follow as "guidelines", it is clear from the use of the mandatory term "shall" that the
calculation of benefit by an investigating authority must be consistent with those provisions. As a
result, the "guidelines" cannot be referred to as "general principles" because they mandate the type
of evidence that must be employed to determine and measure any benefit conferred. Similar
contextual support is provided by paragraphs (b) and (c) of Article 14, which do not mention the
country of provision or the territory of the Member. According to Canada, this indicates that, if the
drafters of Article 14 had intended to allow reference to be made to the countries other than the
country of provision, they would have done so explicitly.
25. Finally, Canada argues that the Panel's interpretation is supported by economic logic. It
points out that there are inherent economic problems with cross-border comparisons, as well as a
broad range of other considerations that also affect the comparability of forestry resources.

2. Pass-Through Analysis
26. Canada requests that the Appellate Body uphold the Panel's interpretation that Article 10 of
the SCM Agreement and Article VI:3 of the GATT 1994 required USDOC to conduct a pass-through
analysis in its countervailing duty investigation of softwood lumber from Canada.
27. Canada contends that, by not appealing the Panel's finding that a pass-through analysis is
required where subsidies are received by independent harvesters of timber, the United States has
accepted that a pass-through analysis is required in instances of alleged indirect subsidization.
According to Canada, the United States thus concedes that when a Member wishes to impose
countervailing duties on the products of producer A, that Member must demonstrate that a subsidy
bestowed upon producer B is passed through producer B's arm's-length sale of an input to producer A.
For Canada, this is an acceptance of the fundamental principle reflected in the SCM Agreement, and
of the GATT 1994, that a Member may not presume the existence of a subsidy.
28. Canada submits that the requirement for a pass-through analysis applies equally to arm's-
length sales of log inputs between sawmills, and to arm's-length purchases of lumber inputs from
sawmills by lumber remanufacturers. In Canada's view, the fact that the United States chose to
undertake its countervailing duty investigation on an aggregate, country-wide basis does not exempt
the United States from the requirement to make such a pass-through determination. Canada argues
that Article 19.3 of the SCM Agreement, which the United States invokes, does not permit a Member
to simply presume subsidization. According to Canada, in order to impose countervailing duties on a
product, a Member must first determine that ther e is a subsidy to a recipient, in the sense of
Article 1.1 of the SCM Agreement, which relates to the manufacture, production or export of that
product. The United States' decision to conduct its investigation on an aggregate basis cannot absolve
it of the fundamental requirement to establish the existence of a subsidy in respect of the products of
sawmills and lumber remanufacturers who purchase their log or lumber inputs at arm's length.
According to Canada, the Panel's findings follow consistent GATT and WTO jurisprudence on
impermissible presumptions of subsidization, including the findings of the panel in US – Softwood
Lumber III.
29. In Canada's view, the United States' arguments to the contrary impermissibly reduce to
inutility the obligation in Article 10 of the SCM Agreement to "take all necessary steps" to determine
subsidization in accordance with Article VI of the GATT 1994 and the SCM Agreement. Canada
argues that any presumption of subsidization, especially in the face of evidence establishing no
subsidy, fails to ensure that countervailing measures offset actual subsidization. Canada contends,
further, that the United States' arguments reverse the burden of proving subsidization from the

investigating authority to the producers on whose products a countervailing duty is imposed. Canada
dismisses as unsatisfactory the United States' argument that affected companies may request a post
facto expedited review at which they may seek to "disprove Commerce's presumed pass-through of
the alleged subsidy".30
C. Claims of Error by Canada – Appellant
1. Financial Contribution
30. Canada asks the Appellate Body to reverse the Panel's finding with respect to the existence of
a "financial contribution". Canada contends that the Panel made several errors of law in developing
legal interpretations related to what constitutes a "financial contribution" within the meaning of
Article 1.1(a) of the SCM Agreement.
31. First, the Panel erred in interpreting the wo rd "goods" in Article 1.1(a)(1)(iii) of the
SCM Agreement. Canada argues that the Panel misinterpreted the text of Article 1.1(a)(1)(iii), in its
context, in finding that the word "goods" referred to tangible or movable personal property other than
money. Although Canada agrees that the Panel's definition reflects the ordinary meaning of the term,
Canada argues that, in the context of Article 1.1(a)(1)(iii) of the SCM Agreement, the term "goods" is
limited to "tradable items with an actual or potential tariff classification".
31 In support of this view,
Canada observes that Article 3.1(b) of the SCM Agreement refers to measures that favour "domestic
over imported goods", and argues that the term "imported" in this context means that goods must be
tradable. Canada reasons that this means the "goods" referred to in Article 1.1(a)(1)(iii) must also be
tradable. In addition, Canada observes that the terms "goods" and "products" are synonymous and are
used at various points in the Multilateral Ag reements on Trade in G oods (Annex 1A of the
Marrakesh Agreement Establishing the World Trade Organization (the "WTO Agreement")) to refer
to items that are traded or imported or exported. It follows, for Canada, that all "goods" and
"products" must be tradable and must be capable of bearing a tariff classification. Further, even if it is
accepted that the term "goods" encompasses tangible or movable personal property other than money,
Canada argues that the Panel erred in its legal characterization of the facts before it. According to
Canada, the Panel found that unidentified trees, with roots firmly in the ground, constitute tangible or
movable personal property. Canada submits that the Panel erred because standing timber is not
personal property.

31Canada's other appellant's submission, para. 25.

32. Finally, Canada contends that the Panel erred in finding that Canadian provincial
governments "provide" standing timber through stumpage programmes. In Canada's view, the Panel
erred in giving the word "provides" the broad interpretation "to make available". This was
inappropriate, according to Canada, because, throughout the WTO Agreement, the meaning of the
term "provides" is limited to "supplying" or "givin g". Canada argues that the only thing provided by
provincial governments under stumpage programmes is an intangible right to harvest. This right to
harvest cannot be equated with providing standing trees, without effectively making the intangible
right of exploitation "goods".
33. Canada requests the Appellate Body, should it reverse the findings of the Panel with respect
to the existence of a financial contribution, to recommend that the DSB request the United States to
bring its measures into conformity with the SCM Agreement , inter alia, by revoking the
countervailing duties on softwood lumber and refunding deposits paid.
D. Arguments of the United States – Appellee
1. Financial Contribution
34. The United States argues that, by finding that standing timber constitutes "goods" within the
meaning of Article 1.1(a)(1)(iii) of the SCM Agreement , the Panel interpreted the term "goods"
consistently with its ordinary meaning and context, and in the light of the object and purpose of the
SCM Agreement . The United States agrees with the Panel that the ordinary meaning of the term
"goods" includes things to be severed from real property, such as standing timber. Nothing in the
language or context of the term "goods" in Article 1.1(a)(1)(iii) suggests any limitation of the term to
tradable products. Nor does the object and purpose of the SCM Agreement support Canada's
position. In particular, the United States argues that the use of the term "imported goods" in
Article 3.1(b) of the SCM Agreement, and similar terminology in other agreements, cannot be read to
imply that the term "goods" in Article 1.1(a)(1)(iii) can only mean goods capable of being imported or
traded. The United States points to the lack of a qualifier such as "imported" in Article 1.1(a)(1)(iii).
In addition, the United States argues that Canada's interpretation of "goods" would render superfluous
the explicit exception in Article 1.1(a)(1)(iii) for "general infrastructure", because that provision could
never encompass any infrastructure if "goods" were interpreted in such a narrow manner. If that were
the case, then there would be no need for the explicit exception. The United States also contends that
Canada's argument regarding whether standing timber is "personal property" is inapposite. According
to the United States, the Panel rightly did not attempt to interpret property laws, nor was it required to
do so in considering whether standing timber was goods within the meaning of Article 1.1(a)(1)(iii).

35. The United States further argues that, by finding that the provincial governments provided
standing timber to Canadian tenure holders, the Panel interpreted the term "provides" in
Article 1.1(a)(1)(iii) of the SCM Agreement consistently with its ordinary meaning and context and
in the light of the object and purpose of the SCM Agreement . According to the United States,
Canada elevates form over substance by arguing that the only thing provided by the provincial
governments is an intangible right to harvest, and that the granting of such a right is not the provision
of goods. Noting that the definition of "provide" includes to "make available" and to "supply or
furnish for use", the United States contends that it is beyond dispute that when a government transfers
ownership of goods by giving a company the right to take them, the government is providing those
goods within the meaning of Article 1.1(a)(1)(iii) of the SCM Agreement.
36. Finally, the United States argues that, in the event the Appellate Body finds that the
United States has not acted in conformity with its obligations under the SCM Agreement or the
GATT 1994, the Appellate Body should refrain from making any recommendation regarding the
specific manner in which such findings should be implemented.
E. Arguments of the Third Participants
1. European Communities
(a) Financial Contribution
37. The European Communities disagrees with Canada that the term "goods" in
Article 1.1(a)(1)(iii) of the SCM Agreement should be limited to "tradable items with an actual or
potential tariff classification". The European Communities argues that the ordinary meaning of the
word "goods" includes many forms of property, and is not limited to movable property. It finds
support for the view that the term "goods" in Article 1.1(a)(1)(iii) of the SCM Agreement
encompasses immovable property in the French and Spanish versions of the SCM Agreement. This
understanding is further corroborated by the immediate context of the term "goods" in
Article 1.1(a)(1)(iii), which refers to the provision of goods or services "other than general
infrastructure". Only where such goods are "general" infrastructure are they excluded from the
coverage of that provision. The European Communities also points to the object and purpose of the
SCM Agreement and argues that the broad phrase "goods and services other than general
infrastructure" is intended to cover any in-kind transfer of resources. The European Communities
notes that subsidies may take the form of complex bundles of rights involving, for example, rights to
movable or immovable goods, services or intellectual property. According to the European
Communities, if such complex economic transactions were not covered by the disciplines of the SCM
Agreement, there would be considerable room for circumvention.

(b) Calculation of Benefit
38. The European Communities agrees with the Panel that Article 14(d) of the SCM Agreement
obliges WTO Members to use market prices in the country of provision to determine whether
government-provided goods confer a benefit. The term "prevailing" clarifies that the benchmark is
not a hypothetical market free from any government intervention, but, instead, it is the existing
market, even if it is affected by the government's presence in the market. Therefore, private prices in
the country of provision may not be disregarded as a benchmark based only on the government's
presence in the market.
39. The European Communities asserts that, in exce ptional situations where all domestic prices
are effectively determined by the government or the government is the only suitable supplier
available, there would be no market conditions within the meaning of Article 14(d). In such
situations, other benchmarks would need to be used, as the Panel itself acknowledged. The decision
as to whether market conditions exist must be made on a case-by-case basis. In this case, however,
USDOC was not entitled to use cross-border prices instead of Canadian market prices on the basis of
a mere assertion—without further explanation—that private Canadian prices are driven by prices of
government-provided timber.
(c) Pass-through Analysis
40. The European Communities agrees with the gene ral principle that investigating authorities
must make a determination of subsidization in respect of a product and cannot simply assume
subsidization where subsidies were bestowed on a product other than the one subject to a
countervailing duty investigation, and where the input producers were unrelated to the producers of
the subject merchandise. However, the European Communities disagrees with the Panel's application
of this general principle to the specific case of an aggregate investigation. According to the European
Communities, the Panel's reasoning fails to preserve fully the right of WTO Members to conduct
aggregate investigations. The European Commun ities agrees with the United States that the SCM
Agreement does not oblige investigating authorities to make a company-specific assessment by
investigating and determining, in each case, what portion of the subsidies to the production of
softwood lumber in Canada was received by specific producers of those products, before imposing the
countervailing duty. The European Communities contrasts the first sentence of Article 6.10 of the
Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade 1994 (the
"Anti-Dumping Agreement
 "), which explicitly requires a determination of an individual margin for
exporters of the dumped goods unless special situations occur which render individual examination
impractical, with the SCM Agreement , which does not require WTO Members to determine an

individual margin of subsidization for exporters of the subsidized goods. The European Communities
finds further support for the ability of Members to conduct aggregate investigations in Article 19.3 of
the SCM Agreement.
41. For the European Communities, investigating authorities have a broad margin of discretion
in establishing the existence of subsidization, including the ability to select the appropriate
methodology for each case. Investigating authorities must be able to make a determination that is not
based on a company-specific investigation and determination. The European Communities notes,
however, that where the available facts reveal the existence of different categories of producers who
have received different amounts of subsidization, such categories should be taken into account in any
methodology chosen.
2. India
42. Pursuant to Rule 24 of the Working Procedures , India chose not to submit a third
participant's submission. In its statement at the oral hearing, India addressed the issue of calculation
of benefit and contested the admissibility of unsolicited amicus curiae briefs in WTO dispute
settlement proceedings.
3. Japan
(a) Financial Contribution
43. Japan submits that the Panel's finding that "goods" in Article 1.1(a)(1)(iii) encompasses
"tangible or movable personal property other than money" provides useful guidance on the
interpretation of the meaning of "subsidy" in the SCM Agreement . For Japan, the concepts of
"goods" and "services" in Article 1.1(a)(1)(iii) have broad meanings paralleling monetary transfers.
In the light of the fact that, in the context of providing the financial contribution described in
Article 1.1(a)(1)(iii), "goods" are provided by governments to domestic producers, Japan disagrees
with Canada that "goods" should be limited to tradable items with an actual or potential tariff
classification.

(b) Calculation of Benefit
44. Japan submits that the Panel correctly relied on a textual interpretation of Article 14(d) of the
SCM Agreement in finding that the prevailing market conditions to be used as a benchmark are those
in the country of the provision of goods. Thus, according to Japan, the United States has the burden
of proving that, despite this explicit requirement of an in-country analysis, a cross-border analysis is
also permissible. Japan asserts that, even if a cross-border analysis were deemed permissible in
certain exceptional situations, the United States has not demonstrated that a cross-border analysis is
appropriate in this case. In particular, the United States failed to show that no market prices existed
for stumpage in Canada, or that it was not possible to construct a proxy for, or estimate of, the market
price in Canada. Therefore, Japan asserts that it is not clear why a comparison with the United States
domestic market was the only option available for the United States to conduct a benefit analysis
under Article 14(d) of the SCM Agreement.
III. Issues Raised in This Appeal
45. This appeal raises the following issues:
(a) whether the Panel erred, in paragraph 7.30 of the Panel Report, in finding that
Canadian provincial stumpage programs "provide goods", in the sense of
Article 1.1(a)(1)(iii) of the SCM Agreement, thereby making a financial contribution
in accordance with that provision;
(b) whether the Panel erred, in paragraphs 7.64 and 7.65 of the Panel Report, in finding
that USDOC failed to determine benefit in a manner consistent with Articles 14
and 14(d) of the SCM Agreement by not using as a benchmark prices of private
stumpage in Canada, and that, therefore, USDOC's imposition of countervailing
measures was inconsistent with the United States' obligations under Articles 10, 14,
14(d) and 32.1 of the SCM Agreement; and
(c) whether the Panel erred, in paragraph 7.99 of the Panel Report, in finding that
USDOC's failure to conduct a "pass-through" analysis in respect of arm's length sales
of logs and lumber by tenure-holding timber harvesters owning sawmills and
producing lumber, to unrelated sawmills or lumber remanufacturers, is inconsistent
with Articles 10 and 32.1 of the SCM Agreement and Article VI:3 of the
GATT 1994.

IV. Financial Contribution
A. Introduction
46. We first consider Canada's appeal regarding the existence of a financial contribution within
the meaning of Article 1.1(a)(1)(iii) of the SCM Agreement . In its final determination, USDOC
found that Canadian provincial governments made a financial contribution because, through stumpage
arrangements, those governments provide goods to timber harvesters.
47. The Panel found that:
… the USDOC Determination that the Canadian provinces are
providing a financial contribution in the form of the provision of a
good by providing standing timber to the timber harvesters through
the stumpage programmes is not inconsistent with Article 1.1 (a) (1)
(iii) [of the] SCM Agreement.
 32
On this basis, the Panel rejected all of the claims of violation raised by Canada in respect of the
SCM Agreement and the GATT 1994 that flowed from Ca nada's allegation that stumpage programs
do not constitute financial contributions. 33
48. Canada requests us to reverse this finding on the ground that the Panel erred in its
interpretation of Article 1.1(a)(1)(iii) of the SCM Agreement or, alternatively, that it erred in the
legal characterization of the facts before it. Canada argues that standing timber, that is, trees attached
to the land and therefore incapable of being traded as such, are not "goods" in the sense of
Article 1.1(a)(1)(iii). It further contends that the Panel erred in finding that the provincial
governments "provide" standing timber through stumpage arrangements.
49. The United States requests us to uphold the Panel's finding. The United States contends that
the meaning of the term "goods" in Article 1.1(a)(1)(iii) encompasses things severable from land, such
as standing timber. It also argues that the Panel was right in finding that standing timber is "provided"
to harvesters through the conferral of a right to harvest it.
B. General Interpretation of the Requirements of Article 1.1(a)(1)(iii) of the SCM
Agreement
50. We begin our analysis of this issue with the text of the relevant provision. Article 1 sets out a
definition of "subsidy" for the purposes of the SCM Agreement. It reads as follows:

32Panel Report, para. 7.30.
33Ibid.

Definition of a Subsidy
1.1 For the purpose of this Agreement, a subsidy shall be
deemed to exist if:
(a)(1) there is a financial contribution by a government or
any public body within the territory of a Member
(referred to in this Agreement as "government"), i.e.
where:
(i) a government practice involves a direct transfer of
funds (e.g. grants, loans, and equity infusion),
potential direct transfers of funds or liabilities (e.g.
loan guarantees);
(ii) government revenue that is otherwise due is
foregone or not collected (e.g. fiscal incentives such
as tax credits);
(iii) a government provides goods or services other than
general infrastructure, or purchases goods;
(iv) a government makes payments to a funding
mechanism, or entrusts or directs a private body to
carry out one or more of the type of functions
illustrated in (i) to (iii) above which would normally
be vested in the government and the practice, in no
real sense, differs from practices normally followed
by governments;
or
(a)(2) there is any form of income or price support in the
sense of Article XVI of GATT 1994;
and
(b) a benefit is thereby conferred. (emphasis added,
footnote omitted)
51. The concept of subsidy defined in Article 1 of the SCM Agreement captures situations in
which something of economic value is transferred by a government to the advantage of a recipient. A
subsidy is deemed to exist where two distinct elements are present.
34 First, there must be a financial
contribution by a government, or income or price support. Secondly, any financial contribution, or
income or price support, must confer a benefit. Canada's appeal focuses on the Panel's finding with
respect to the first element, namely the existence of a financial contribution.

52. An evaluation of the existence of a financial contribution involves consideration of the nature
of the transaction through which something of economic value is transferred by a government. A
wide range of transactions falls within the meaning of "financial contribution" in Article 1.1(a)(1).
According to paragraphs (i) and (ii) of Article 1.1(a)(1), a financial contribution may be made through
a direct transfer of funds by a government, or the foregoing of government revenue that is otherwise
due. Paragraph (iii) of Article 1.1(a)(1) recognizes that, in addition to such monetary contributions,
a contribution having financial value can also be made in kind through governments providing goods
or services, or through government purchases. Paragraph (iv) of Article 1.1(a)(1) recognizes that
paragraphs (i) – (iii) could be circumvented by a government making payments to a funding
mechanism or through entrusting or directing a private body to make a financial contribution. It
accordingly specifies that these kinds of actions are financial contributions as well. This range of
government measures capable of providing subsidies is broadened still further by the concept of
"income or price support" in paragraph (2) of Article 1.1(a).
 35
53. Article 1.1(a)(1)(iii) of the SCM Agreement , the specific provision at issue in Canada's
appeal, sets forth that a financial contribution exists where a government "provides goods or services
other than general infrastructure, or purchases goods". As such, the Article contemplates two distinct
types of transaction. The first is where a government provides goods or services other than general
infrastructure. Such transactions have the potential to lower artificially the cost of producing a
product by providing, to an enterprise, inputs having a financial value. The second type of transaction
falling within Article 1.1(a)(1)(iii) is where a government purchases goods from an enterprise. This
type of transaction has the potential to increase artificially the revenues gained from selling the
product.
54. Canada's appeal requires us to focus upon one element of the first type of transaction
contemplated by Article 1.1(a)(1)(iii), namely, whether, through stumpage programs, provincial
governments provide goods. Canada takes issue with the Panel's interpretation of each of the two
words in this expression. With respect to the meaning of the term "goods" in Article 1.1(a)(1)(iii) of

35We note, however, that not all government measures capable of conferring benefits would necessarily
fall within Article 1.1(a). If that were the case, there would be no need for Article 1.1(a), because all
government measures conferring benefits, per se, would be subsidies. In this regard, we find informative the
discussion of the negotiating history of the SCM Agreement contained in the panel report in US – Export
Restraints, which was not appealed. That panel, at paragraph 8.65 of the panel report, said that the:
… negotiating history demonstrates ... that the requirement of a financial
contribution from the outset was intended by its proponents precisely to
ensure that not all government measures that conferred benefits could be
deemed to be subsidies. This point was extensively discussed during the
negotiations, with many participants consistently maintaining that only
government actions constituting financial contributions should be subject to
the multilateral rules on subsidies and countervailing measures. (footnote
omitted)

the SCM Agreement , Canada submits that the Panel erred in finding that "standing timber" falls
within the meaning of that term. Canada advances two arguments in support of this aspect of its
appeal. First, it argues that, in the context of Article 1.1(a)(1)(iii) of the SCM Agreement, the term
"goods" is limited to "tradable items with an actual or potential tariff classification."
 36 Secondly,
even if we were to find that the Panel's interpretation of the term "goods" is correct, Canada argues
that the Panel erred in its legal characterization of the facts before it, because standing timber does not
fall within the definition proposed by the Panel, which defines goods, inter alia, by reference to the
concept of "personal property".
 37
55. Canada further argues that the Panel erred in its interpretation of the term "provides". 38 I n
particular, Canada submits that the Panel incorrectly found that standing timber was "provided" to
harvesters merely by virtue of the conferral, through stumpage arrangements, of an intangible right to
harvest.
39
56. Before we consider each of the separate elements of Canada's appeal, we observe that the
arguments put forward by Canada relating to th e nature of "personal property", raise issues
concerning the relevance, for WTO dispute settlement, of the way in which the municipal law of a
WTO Member classifies or regulates things or transactions. Previous Appellate Body Reports
confirm that an examination of municipal law or particular transactions governed by it might be
relevant, as evidence, in ascertaining whether a financial contribution exists.
 40 However, municipal
laws—in particular those relating to property—var y amongst WTO Members. Clearly, it would be
inappropriate to characterize, for purposes of applying any provisions of the WTO covered
agreements, the same thing or transaction differently, depending on its legal categorization within the
jurisdictions of different Members. Accordingly, we emphasize that municipal law classifications are
not determinative of the issues raised in this appeal.

36Canada's other appellant's submission, para. 25.
38Ibid., para. 52 ff.
39Ibid., para. 56.
40In US – FSC , for example, a consideration of the meaning of United States tax law was required to
determine whether the taxation measure at issue in those proceedings represented the foregoing of "revenue that
is otherwise due", as contemplated by Article 1.1(a)(1)(ii) of the SCM Agreement . (Appellate Body Report,
US – FSC, para. 90) We recall as well that, in India – Patents (US) , the Appellate Body observed that panels
must often complete a detailed examination of the relevant aspects of a Member's domestic law to determine
whether a situation regulated by the covered agreements exists. (Appellate Body Report, India – Patents (US) ,
paras. 65–71) See also Appellate Body Report, US – Section 211 Appropriations Act, paras. 103–106.

C. Do Provincial Stumpage Programs "Provide Goods" in the Sense of
Article 1.1(a)(1)(iii) of the SCM Agreement ?
57. With this in mind, we turn to Canada's argument that standing timber does not fall within the
meaning of the term "goods" in the phrase "provides goods or services other than general
infrastructure". At the outset, we note that there is no dispute that trees are goods once they are
harvested.
 41 The question raised by Canada's appeal is, rather, whether the term "goods" in
Article 1.1(a)(1)(iii) captures trees before they are harvested, that is, standing timber attached to the
land (but severable from it) and incapable of being traded across borders as such.
58. The meaning of a treaty provision, properly construed, is rooted in the ordinary meaning of
the terms used. 42 The Panel adopted a definition of the term "goods", drawn from Black's Law
Dictionary, put forward in the submissions of both Canada and the United States, that the term
"goods" includes "tangible or movable personal property other than money". 43 In particular, the
Panel noted that this definition set out in Black's Law Dictionary contemplates that the term "goods"
could include "growing crops, and other identified things to be severed from real property". 44 W e
observe that the Shorter Oxford English Dictionary offers a more general definition of the term
"goods" as including "property or possessions" especially—but not exclusively—"movable
property". 45
59. These definitions offer a useful starting point for discerning the ordinary meaning of the word
"goods". In particular, we agree with the Panel that the ordinary meaning of the term "goods", as used
in Article 1.1(a)(1)(iii), includes items that are tangible and capable of being possessed. We note,
however, as we have done on previous occasions, that dictionary definitions have their limitations in
revealing the ordinary meaning of a term.
 46 This is especially true where the meanings of terms used

41See, for example, Canada's other appellant's submission, paras. 46 and 58.
42Article 31(1) of the Vienna Convention on the Law of Treaties (the " Vienna Convention") provides:
"[a] treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of
the treaty in their context and in the light of its object and purpose". (Done at Vienna, 23 May 1969, 1155
U.N.T.S. 331; 8 International Legal Materials 679)
43Panel Report, paras. 7.23–7.24, citing Black's Law Dictionary , 7th ed., B.A. Garner (ed.) (West
Group, 1999), pp. 701–702. The Panel also noted that The New Shorter Oxford Dictionary defines "goods" as
"saleable commodities, merchandise, wares". ( The New Shorter Oxford Dictionary , L. Brown (ed.) (Clarendon
Press, 1993), Vol. I, p. 1116)
44Panel Report, para. 7.23.
45Shorter Oxford English Dictionary , 5th ed., W.R. Trumble, A. Stevenson (eds.) (Oxford University
Press, 2002), Vol. I, p. 1125.
46Appellate Body Report, Canada – Aircraft , para. 153. See also, Appellate Body Report,
EC – Asbestos, para. 92.

in the different authentic texts of the WTO Agreement are susceptible to differences in scope. We
note that the European Communities, in its third participant's submission, observed that in the French
version of the SCM Agreement, Article 1.1(a)(1)(iii) addresses, inter alia , the provision of
"biens".
 47 In the Spanish version, the term used is " bienes". 48 The ordinary meanings of these terms
include a wide range of property, including immovable property. As such, they correspond more
closely to a broad definition of "goods" that includes "property or possessions" generally, than with
the more limited definition adopted by the Panel. As we have observed previously, in accordance
with the customary rule of treaty interpretation reflected in Article 33(3) of the Vienna Convention on
the Law of Treaties (the " Vienna Convention "), the terms of a treaty authenticated in more than
one language—like the WTO Agreement—are presumed to have the same meaning in each authentic
text.
 49 It follows that the treaty interpreter should seek the meaning that gives effect, simultaneously,
to all the terms of the treaty, as they are used in each authentic language. 50 With this in mind, we find
that the ordinary meaning of the term "goods" in th e English version of Article 1.1(a)(1)(iii) of the
SCM Agreement should not be read so as to exclude tangible items of property, like trees, that are
severable from land.
60. We find that terms that accompany the word "goods" in Article 1.1(a)(1)(iii) support this
interpretation. In Article 1.1(a)(1)(iii), the only explicit exception to the general principle that the
provision of "goods" by a government will result in a financial contribution is when those goods are
provided in the form of "general infrastructure". In the context of Article 1.1(a)(1)(iii), all goods that
might be used by an enterprise to its benef it—including even goods that might be considered

47European Communities' third participant's submission, para. 7. The term " biens" includes " chose
matérielle susceptible d'appropriation, et tout droit faisant partie du patrimoine " and can mean " acquêt, ...
capital, cheptel, domaine, fortune, … fruit, héritage, patrimoine, possession, produit, propriété, récolte,
richesse". (Le Nouveau Petit Robert, P. Robert (ed.) (Dictionnaires le Robert, 2003), p. 252)
48According to the Diccionario de la Lengua Española , the term " bienes" encompasses both " bienes
muebles" and "bienes immuebles". (Diccionario de la Lengua Española , (22nd ed.) (Real Academia Española,
2001), p. 213)
49Article 33(3) of the Vienna Convention, supra, footnote 42, provides: "[t]he terms of the treaty are
presumed to have the same meaning in each authentic text."
50See Appellate Body Report, EC – Bed Linen (Article 2.15 – India) , footnote 153 to para. 123. We
also note that, in discussing the draft article that was later adopted as Article 33(3) of the Vienna Convention,
the International Law Commission observed that the "presumption [that the terms of a treaty are intended to
have the same meaning in each authentic text] requires that every effort should be made to find a common
meaning for the texts before preferring one to another". ( Yearbook of the International Law Commission
(1966), Vol. II, p. 225) With regard to the application of customary rules of interpretation in respect of treaties
authenticated in more than one language, see also International Court of Justice, Merits, Case Concerning
Elettronica Sicula S.p.A. (ELSI) (United States v. Italy) 1989, ICJ Reports, para. 132, where, in interpreting a
provision of the Treaty of Friendship, Commerce and Navigation between the United States of America and the
Italian Republic of 1948, the International Court of Justice noted that it was possible to interpret the English and
Italian versions "as meaning much the same thing", despite a potential divergence in scope.

infrastructure—are to be considered "goods" within the meaning of the provision, unless they are
infrastructure of a general nature.
61. Canada puts two arguments in support of its contention that the context of
Article 1.1(a)(1)(iii) requires that—notwithstanding its ordinary meaning—the term "goods" must be
read as limited to "tradable items with an actual or potential tariff classification". First, Canada
observes that Article 3.1(b) of the SCM Agreement deals with "subsidies contingent ... upon the use
of domestic over imported goods". Because the reference to "imported goods" necessarily refers to
tradable (and indeed traded) goods, Canada reasons that all goods must be tradable and capable of
bearing a tariff classification.
 51 Secondly, in a similar vein, Canada submits that "goods" in
Article 1.1(a)(1)(iii) of the SCM Agreement has the same meaning as the term "products" in Part V
of the SCM Agreement and elsewhere in the covered agreements. Canada observes that Part V of the
SCM Agreement represents an elaboration of Article VI of the GATT 1994, which itself is an
exception to Article II of the GATT 1994. For Canada, this means that the scope of Part V of the
SCM Agreement and Article II of the GATT must be the same. 52 Canada seems to imply that,
because Article II of the GATT deals with the binding of tariffs in respect of particular "products",
such "products"—and therefore "goods" in Article 1.1(a)(1)(iii) of the SCM Agreement —must
inherently be susceptible to tariff classification. Canada raises a similar argument with respect to
other rules that either regulate "trade in goods" generally
 53; that address "imported or exported
goods" 54; or, that simply deal with "goods" in the context of trade. 55 Canada claims that these
provisions also imply that all goods must be tradable. 56
62. Canada's arguments in this regard are not convincing. Article 3.1(b) of the SCM Agreement
addresses a certain situation in which subsidies favour domestic goods over "imported goods". In that
provision, the word "goods" is qualified by the word "imported". In Article 1.1(a)(1)(iii), the word
"goods" is not so qualified. The use of the word "goods" in Article 3.1(b), therefore, gives little
contextual guidance to the meaning of the term "goods" in Article 1.1(a)(1)(iii). Contrary to Canada's
argument, it does not preclude that there may be "goods" in the sense of Article 1.1(a)(1)(iii) that are
not actually "imported" or traded.

51Canada's other appellant's submission, paras. 30–32.
52Ibid., paras. 33–34.
53Canada points to the rule of conflict set out in the General Interpretative Note to Annex 1A and to
Articles 1 and 2 of the Agreement on Trade-Related Investment Measures. (Ibid., paras. 35–36)
54Canada cites generally the Agreement on Implementation of Article VII of the General Agreement on
Tariffs and Trade 1994. (Canada's other appellant's submission, para. 37)
55Canada observes that the Agreement on Rules of Origin refers to goods in the context of Articles I,
II, III, XI and XIII of the GATT 1994. (Canada's other appellant's submission, para. 38)
56Canada's other appellant's submission, para. 39.

63. For the same reason, we are of the view that the fact that certain agreements falling within the
Multilateral Agreements on Trade in Goods (Annex 1A of the WTO Agreement) regulate "trade in
goods" and deal with "imported" or "exported" goods, does not control the meaning of the term
"goods" as used in Article 1.1(a)(1)(iii) of the SCM Agreement. Similarly, we disagree with Canada's
argument relating to the term "products" in Article II of the GATT 1994. We do not see why a
provision that governs an aspect of commerce between WTO Members and contemplates the binding
of tariffs in respect of certain "products", requires that the "goods" referred to in Article 1.1(a)(1)(iii)
must also be capable of having tariff classifications. "Goods" in Article 1.1(a)(1)(iii) of the
SCM Agreement and "products" in Article II of the GATT 1994 are different words that need not
necessarily bear the same meanings in the different contexts in which they are used.
64. Moreover, to accept Canada's interpretati on of the term "goods" would, in our view,
undermine the object and purpose of the SCM Agreement, which is to strengthen and improve GATT
disciplines relating to the use of both subsidies and countervailing measures, while, recognizing at the
same time, the right of Members to impose such measures under certain conditions.
 57 It is in
furtherance of this object and purpose that Article 1.1(a)(1)(iii) recognizes that subsidies may be
conferred, not only through monetary transfers, but also by the provision of non-monetary inputs.
Thus, to interpret the term "goods" in Article 1.1( a)(1)(iii) narrowly, as Canada would have us do,
would permit the circumvention of subsidy disciplines in cases of financial contributions granted in a
form other than money, such as through the provision of standing timber for the sole purpose of
severing it from land and processing it.
65. In seeking to exclude "standing timber" from the definition of "goods" in
Article 1.1(a)(1)(iii), Canada contends in the alternative that, even if we find that the term is not
limited to "tradable items with an actual or potential tariff classification", standing timber is still not
"goods" as the Panel has defined them, because it is neither "personal property" nor an "identified
thing to be severed from real property". The concepts of "personal" and "real" property are, in the
context Canada raises them, creatures of municipal law that are not reflected in Article 1.1(a)(1)(iii)
itself. As we have said above, the manner in which the municipal law of a WTO Member classifies
an item cannot, in itself, be determinative of the interpretation of provisions of the WTO covered
agreements.
 58 As such, we do not believe that the distinction drawn by Canada is dispositive of the
issues raised in this appeal.

57Appellate Body Report, US – Carbon Steel, paras. 73–74.
58See supra, para. 56. See also Appellate Body Report, US – Corrosion-Resistant Steel Sunset Review,
footnote 87 to para. 87.

66. Similarly, we reject Canada's argument that specific trees are not "identified" in stumpage
contracts and therefore cannot fall within the scope of "goods" within the meaning of the dictionary
definition relied upon by the Panel. We disagree that trees must be specifically and individually
"identified" in order to constitute "goods" for purposes of Article 1.1(a)(1)(iii) of the SCM
Agreement. As the Panel found, stumpage contracts concern a specified area of land containing a
predictable quantity of timber that may be harvested under certain conditions.
 59 H a r v e s t e r s p a y a
volumetric "stumpage fee" only for that volume of timber actually harvested. 60 In these
circumstances, we do not see the relevance, for an assessment of whether trees are goods, of the fact
that each individual tree within the specified area of land covered by a stumpage contract may not be
identified at the time the contract is made. Indeed, the identification of trees by reference to a general
area of forest renders the situation of the timber growing in that area similar to that of fungible goods.
Fungible goods are goods even though they are identifiable only by number, volume, value or weight.
We see no reason why disciplines on subsidies that regulate the provision of non-monetary resources
should focus on identifiable physical objects and not on tangible, but fungible, input material. We
note that, in Canada – Dairy, the Appellate Body reasoned that "the provision of milk at discounted
prices to processors for export ... constitutes 'pay ments', in a form other than money, within the
meaning of Article 9.1(c) [of the Agreement on Agriculture]".
 61 We see no reason to treat differently
the standing timber subject to stumpage arrangements, for purposes of determining what constitutes
a financial contribution through the provision of goods within the definition of subsidy in Article 1 of
the SCM Agreement.
67. In sum, nothing in the text of Article 1.1(a)(1)(iii), its context, or the object and purpose of the
SCM Agreement , leads us to the view that tangible items—such as standing, unfelled trees—that
are not both tradable as such and subject to tariff classification, should be excluded, as Canada
suggests, from the coverage of the term "goods" as it appears in that Article. It follows that we agree
with the Panel that standing timber—trees—are "g oods" within the meaning of Article 1.1(a)(1)(iii) of
the SCM Agreement.

59Panel Report, para. 7.18. The Panel said that it did:
… not consider relevant the distinction that Canada makes between a
contract which identifies individual trees to be cut, and an agreement
concerning harvesting rights over a certain area of forest land. In our view,
in both cases, trees are provided. In an y case, it appears to us that, although
a tenure agreement may not provide for a precise number of identified trees
to be cut, the tenure holder knows all too well how many trees and which
species of trees can be found on the area of land covered by his tenure.
(footnote omitted)
60Ibid., para. 7.16.
61Appellate Body Report, Canada – Dairy, para. 113. (emphasis added)

68. Having considered the meaning of the term "goods ", we now turn to consider what it means
to "provide" goods, for purposes of Article 1.1(a)(1)(iii) of the SCM Agreement. Canada argues that
stumpage arrangements do not "provide" standing timber. According to Canada, all that is provided
by these arrangements is an intangible right to harvest. At best, this intangible right "makes
available" standing timber. But, in Canada's submission, the connotation "makes available" is not an
appropriate reading of the term "provides" in Article 1.1(a)(1)(iii). In contrast, the United States
argues that the Panel's interpretation that stumpage arrangements "provide" standing timber is correct.
The United States contends that, where a government transfers ownership in goods by giving
enterprises a right to take them, the government "provides" those goods, within the meaning of
Article 1.1(a)(1)(iii).
69. Again, we begin with the ordinary meaning of the term. Before the Panel, the United States
pointed to a definition of the term "provides", which suggested that the term means, inter alia, to
"supply or furnish for use; make available".
 62 This definition is the same as that relied upon by
USDOC in making its determination that "regardless of whether the Provinces are supplying timber or
making it available through a right of access, they are providing timber" within the meaning of the
provision of United States countervailing duty law that corresponds to Article 1.1(a)(1)(iii) of the
SCM Agreement.
 63 We note that another definition of "provides" is "to put at the disposal of". 64
70. Notwithstanding these definitions, Canada submits that the meaning of the term "provides" in
Article 1.1(a)(1)(iii) of the SCM Agreement should be limited to the supplying or giving of goods or
services. Canada raises two arguments to support this view. First, Canada suggests that the terms
"provides goods" and "provides services" cannot be read to include the mere "making available" of
goods or services, because "[t]o ' make available services' … would include any circumstance in
which a government action makes possible a later receipt of services and to ' make available goods'
would capture every property law in a jurisdiction". 65 Secondly, Canada points to the use of the term

62United States' first written submission to the Panel, para. 29, referring to The New Shorter Oxford
English Dictionary , supra, footnote 43, Vol. II, p. 2393. We observe that this definition is unchanged in the
recently published fifth edition of the Shorter Oxford English Dictionary, supra, footnote 45, Vol. II, p. 2382.
63Decision Memorandum, supra, footnote 3, pp. 29–30.
64Collins Dictionary of the English Language , G.A. Wilkes (ed.) (Wm. Collins Publishing, 1979),
p. 1176.
65Canada's other appellant's submission, para. 54. (original emphasis)

"provide" in Articles 3.2 and 8 of the Agreement on Agriculture 66 and in Article XV:1 of the
General Agreement on Trade in Services (the "GATS") 67 to suggest that "provides", when used in the
context of the granting of subsidies, requires the actual giving of a subsidy. 68
71. With respect to Canada's first argument, we do not see how the general governmental acts
referred to by Canada would necessarily fall within the concept of a government "making available"
services or goods. In our view, such actions w ould be too remote from the concept of "making
available" or "putting at the disposal of", which requires there to be a reasonably proximate
relationship between the action of the government providing the good or service on the one hand, and
the use or enjoyment of the good or service by the recipient on the other. Indeed, a government must
have some control over the availability of a specific thing being "made available".
72. Moreover, Canada's argument in this respect seems to disregard the fact that, in order to be
subject to the disciplines of the SCM Agreement, or countervailing measures under Part V of that
Agreement, a government action would also need to meet all other elements of the subsidy definition.
Under Article 1.1(a)(1)(iii) of the SCM Agreement, not all government actions providing goods and
services are necessarily financial contributions. If a government provides goods and services that are
"general infrastructure", no financial contribution will exist. Furthermore, not all financial
contributions are subsidies. The definition of subsidy includes further elements, in particular, that a
financial contribution by a government must confer a "benefit". Finally, in accordance with

66Article 3.2 of the Agreement on Agriculture reads:
Subject to the provisions of Article 6, a Member shall not provide support
in favour of domestic producers in excess of the commitment levels
specified in Section I of Part IV of its Schedule. (emphasis added)
Article 8 of the Agreement on Agriculture reads:
Export Competition Commitments
Each Member undertakes not to provide export subsidies otherwise than in
conformity with this Agreement and with the commitments as specified in
that Member's Schedule. (emphasis added)
67Article XV:1 of the GATS reads:
Members recognize that, in certain circumstances, subsidies may have
distortive effects on trade in services. Members shall enter into negotiations
with a view to developing the necessary multilateral disciplines to avoid
such trade-distortive effects. The negotiations shall also address the
appropriateness of countervailing procedures. Such negotiations shall
recognize the role of subsidies in relation to the development programmes
of developing countries and take into account the needs of Members,
particularly developing country Members, for flexibility in this area. For
the purpose of such negotiations, Members shall exchange information
concerning all subsidies related to trade in services that they provide to
their domestic service suppliers. (emphasis added; footnote omitted)
68Canada's other appellant's submission, para. 55.

Articles 1.2 and 2 of the SCM Agreement, a subsidy must be "specific" in order to be subject to the
disciplines of the Agreement.
73. In any event, in our view, it does not make a difference, for purposes of applying the
requirements of Article 1.1(a)(1)(iii) of the SCM Agreement to the facts of this case, if "provides" is
interpreted as "supplies", "makes available" or "puts at the disposal of". What matters for determining
the existence of a subsidy is whether all elements of the subsidy definition are fulfilled as a result of
the transaction, irrespective of whether all elements are fulfilled simultaneously.
74. With respect to Canada's second argument regarding the Agreement on Agriculture and the
GATS
 69, the articles cited by Canada involve the provision of "subsidies" or "support". We note that
in Article 1.1(a)(1)(iii) of the SCM Agreement , the term "provides" relates to the provision of
"goods" and "services" in the context of describing a certain type of financial contribution. The
different context of these provisions means that it is not necessarily appropriate to equate, precisely,
the scope of the term "provide" or "provides" as they are used in these different agreements.
Accordingly, even if we were to accept Canada's contention that the context of Articles 3.2 and 8 of
the Agreement on Agriculture and Article XV:1 of the GATS limits the meaning of the term
"provide" in those provisions, this would not necessarily imply that the meaning of the term
"provides" should be similarly limited in the context of Article 1.1(a)(1)(iii) of the SCM Agreement.
75. Turning to the Panel's finding regarding what is provided by provincial stumpage programs,
we note that the Panel found that stumpage arrangements give tenure holders a right to enter onto
government lands, cut standing timber, and enjoy exclusive rights over the timber that is harvested.
 70
Like the Panel, we conclude that such arrangements represent a situation in which provincial
governments provide standing timber. Thus, we disagree with Canada's submission that the granting
of an intangible right to harvest standing timber cannot be equated with the act of providing that
standing timber. By granting a right to harvest, the provincial governments put particular stands of
timber at the disposal of timber harvesters and allow those enterprises, exclusively, to make use of
those resources. Canada asserts that governments do not supply felled trees, logs, or lumber through
stumpage transactions.
 71 In our view, this assertion misses the point, because felled trees, logs and
lumber are all distinct from the "standing timber" on which the Panel based its conclusions.
Moreover, what matters, for purposes of determining whether a government "provides goods" in the
sense of Article 1.1(a)(1)(iii), is the consequence of the transaction. Rights over felled trees or logs
crystallize as a natural and inevitable consequence of the harvesters' exercise of their harvesting

69See supra, para. 70.
70Panel Report, paras. 7.14–7.15.
71Canada's other appellant's submission, para. 56.

rights. 72 Indeed, as the Panel indicated, the evidence suggests that making available timber is the
raison d'être of the stumpage arrangements. 73 Accordingly, like the Panel, we believe that, by
granting a right to harvest standing timber, governments provide that standing timber to timber
harvesters. We therefore agree with the Panel that, through stumpage arrangements, the provincial
governments "provide" such goods, within the meaning of Article 1.1(a)(1)(iii) of the SCM
Agreement.
76. For these reasons, we uphold the Panel's finding, in paragraph 7.30 of the Panel Report, that
USDOC's "[d]etermination that the Canadian provinces are providing a financial contribution in the
form of the provision of a good by providing standing timber to timber harvesters through the
stumpage programmes" is not inconsistent with Article 1.1(a)(1)(iii) of the SCM Agreement.
V. Calculation of Benefit
A. Introduction
77. We turn next to the issue whether the Panel erred in its interpretation of Article 14(d) of the
SCM Agreement, which relates, inter alia, to the calculation of benefit when goods are provided by
a government. In the countervailing duty invest igation underlying this dispute, USDOC determined
that there were "no useable market-determined prices between Canadian buyers and sellers" that could
be used to determine whether provincial stumpage programmes provide goods for less than adequate
remuneration.
 74 Therefore, USDOC used as a benchmark prices of stumpage in certain bordering

72The Panel found, at paragraph 7.14 of the Panel Report, that:
In light of Canada's answers, it app ears that the United States is correct
when it argues that "there is no record evidence of stumpage contracts under
which the contracting party (tenure holder or licensee) does not have
ownership rights to the harvested timber". (footnote omitted)
73In this regard, we note that the Panel cited with approval a finding by the panel in US – Softwood
Lumber III that "from the perspective of the tenure holder, the only reason to enter into tenure agreements
with the provincial governments is to obtain the timber." (Panel Report, para. 7.16 (emphasis added)) In
footnote 97 to that paragraph, the Panel continued, noting "that Canada acknowledged before that Panel that the
main interest of tenure holders is the end-product of the harvest." (emphasis added) Indeed, the panel record in
these proceedings shows that timber harvesters pay a "stumpage fee" only on the basis of the volume of timber
that is actually harvested. (See, for example, Canada's response to Question 2 posed by the Panel at the First
Panel Meeting; Panel Report, p. A-2) Moreover, the reco rd shows that, at least in Quebec, Ontario and Alberta,
the provincial governments retain a residual interest in the timber harvested until such time as the harvester has
paid this volumetric fee. (See Canada's response to Question 3 posed by the Panel at the First Panel Meeting;
Panel Report, pp. A-3–A-4). These considerations indicate that it is standing timber , as opposed to a mere
right to harvest trees, that is the thing of value contracted for in a stumpage contract.
74Decision Memorandum, supra, footnote 3, pp. 36 ff. USDOC also refused to use as a benchmark the
prices of stumpage from Canadian provinces not subject to the countervailing duty investigation, namely, the
"Maritime Provinces" as defined by USDOC as New Brunswick, Nova Scotia, Prince Edward Island, and
Newfoundland. (Final Determination, supra, footnote 3, pp. 15547) Those stumpage prices were rejected by
USDOC for lack of sufficient pricing data. (Decision Memorandum, supra, footnote 3, p. 39)

states in the northern United States 75, making adjustments purportedly to account for differences in
conditions between those states and Canadian provinces. 76
78. Before the Panel, Canada claimed that, by rejecting private prices in Canada, and using
instead adjusted cross-border prices, USDOC acted inconsistently with Articles 10, 14, 14(d), 19.1,
19.4, and 32.1 of the SCM Agreement and Article VI:3 of the GATT 1994. 77 The United States
responded that the "appropriate benchmark for measuring benefit in this case would normally have
been the fair market value of timber in Canada", but that private timber sales in Canada did not
represent a "commercial" market because they were distorted by government intervention.
 78
Therefore, according to the United States, USDOC was entitled to use prices for comparable
stumpage from alternative sources, in this case from the bordering states in the northern United States,
which were then adjusted to reflect market conditions in Canada, in accordance with Articles 1
and 14(d) of the SCM Agreement.
 79
79. The Panel agreed with Canada and found that:
In light of the fact that the USDOC acknowledged the existence of a
private stumpage market in Canada, we find that the resort to US
prices as the benchmark for the determination of benefit on grounds
that private prices in Canada were distorted is inconsistent with
Article 14 (d) [of the] SCM Agreement. 80

75Prices of stumpage in the bordering states of the northern United States were used by USDOC as
representing world market prices available in Canada. (See Decision Memorandum , supra, footnote 3, p. 40)
The specific states of the United States used as a benchmark for each Canadian province were: Maine for
Quebec; Washington, Idaho and Montana for British Columbia; Michigan and Minnesota for Ontario; and
Minnesota for Alberta, Manit oba and Saskatchewan. (See ibid., pp. 54 ff) We use the term "cross-border
prices" to refer to prices from those bordering states in the northern United States.
76With respect to the prices in the states of the northern United States chosen as benchmarks for
specific Canadian provinces, USDOC assessed the need for adjustments to account for differences in market
conditions, including factors such as road construction and maintenance requirements, fire extinction and
protection costs, insect and disease protection and prevention costs, silviculture requirements, silviculture credits
for non-mandatory activities, sustainable forest management and planning, reforestation and forest care costs,
seedling transport expenses, environmental costs, forest inventory costs, geographic information system (GIS)
costs, costs of developing annual reports, land use administration costs, other administration costs,
transportation distances, harvesting costs, procurement costs, logging camp costs, helicopter logging costs,
harvesting costs, rot and quality differences, differences in timber size, timber sale costs, old growth timber and
quality characteristics, scaling costs, time value of mo ney, time of payment, taxes and fees on United States
harvesters, obligations to the First Nations, overlapping tenure costs, and bid preparation costs. ( Decision
Memorandum, supra, footnote 3, pp. 54 ff )
77Request for the Establishment of a Panel by Canada, WT/DS257/3, 19 August 2002, p. 2.
78Panel Report, para. 7.38.
79Ibid.
80Ibid., para. 7.64.

In addition, the Panel found consequential violations of Articles 10 and 32.1 of the SCM Agreement
because the "countervailing measures were imposed on the basis of an inconsistent determination of
the existence and amount of a subsidy".
 81
80. On appeal, the United States claims that the Panel erred in interpreting Article 14(d) as
requiring that the determination of the adequacy of remuneration be based on any observed
non-government prices, even when those prices are "substantially influenced" or "effectively
determined" by the government's financial contribution.
 82 The United States argues that the Panel's
interpretation of Article 14(d) is "completely at odds" with the concept of "benefit", as used in
Article 1.1 of the SCM Agreement and as interpreted by the Appellate Body.
 83 The United States
refers to the Appellate Body's interpretation of the term "benefit" in Article 1.1(b) in Canada –
Aircraft, where it said that a government financial contribution confers a benefit if the "'financial
contribution' makes the recipient 'better off' than it would otherwise have been, absent that
contribution", and that the marketplace provides the appropriate basis for comparison.
 84 According to
the United States, the Panel's interpretation would not permit an investigating authority to determine
whether the recipient is better off than it would have been absent the financial contribution. 85 I n
addition, the United States contends that the term "market conditions" in Article 14(d) "can only mean
a market undistorted by the government's financial contribution."
 86 Therefore, the United States
submits that USDOC could rightfully reject the prices of private transactions in Canada as a
benchmark and, consequently, requests that we reverse the Panel's finding that the United States
acted inconsistently with Articles 10, 14, 14(d) and 32.1 of the SCM Agreement.
 87

81Panel Report, para. 7.65. (footnote omitted) The Panel declined to rule on Canada's claims relating to
the calculation of benefit under Articles 19.1 and 19.4 of the SCM Agreement and Article VI:3 of the
GATT 1994.
83Ibid., para. 17.
85United States' appellant's submission, paras. 16–17.
86Ibid., para. 30.
87Ibid.

81. Canada submits that the Panel correctly interpreted Article 14(d) of the SCM Agreement.
According to Canada, the ordinary meaning of Article 14(d) requires a comparison with
"prevailing"—in the sense of existing—market conditions in the country of provision.
 88 Canada
asserts, furthermore, that the Panel's analysis is consistent with the Appellate Body's interpretation of
the term "benefit" under Article 1.1(b) of the SCM Agreement in Canada – Aircraft. 89 In addition,
Canada argues that the Panel's interpretation has contextual support in the chapeau of Article 14,
which uses the term "shall", thus negating the United States' contention that the use of the term
"guidelines" in the chapeau suggests that paragraph (d) does not set out mandatory rules.
 90 Moreover,
the absence of a reference to the country of provision in paragraphs (b) and (c) demonstrates,
according to Canada, that when the drafters intended to permit consideration of conditions in another
country, they did so explicitly.
 91 Finally, Canada contends that the "inherent economic problems with
cross-border comparisons", coupled with the broad range of other considerations that affect the
comparison of forestry resources, demonstrate the correctness of the Panel's interpretation of
Article 14(d) as applied in this case.
 92 Consequently, Canada requests that we uphold the Panel's
finding that the United States acted inconsistently with Articles 10, 14, 14(d) and 32.1 of the
SCM Agreement.
B. Whether Article 14(d) of the SCM Agreement Permits Investigating Authorities to Use
a Benchmark Other Than Private Prices in the Country of Provision
82. The initial issue before us is whether an investigating authority may use a benchmark, under
Article 14(d) of the SCM Agreement , other than private prices in the country of provision for
determining if goods have been provided by a government for less than adequate remuneration.
 93 If
our answer were to be in the affirmative, two additional questions would arise: (i) what are the
specific circumstances under Article 14(d) in which an investigating authority may use a benchmark
other than private prices in the country of provision; and (ii) assuming such circumstances exist, what
alternative benchmarks may an investigating authority use to determine whether goods were provided
by a government for less than adequate remuneration.

89Ibid., paras. 33 and 38, referring to Appellate Body Report, Canada – Aircraft, paras. 157–158.
90Canada's appellee's submission, paras. 45–48.
91Ibid., para. 49.
92Ibid., paras. 51–52.
93As we have discussed in Section IV, the underlying countervailing duty investigation involved a
financial contribution in the form of the provision of goods. Therefore, we limit our examination of this issue to
instances involving the provision of goods and do not address situations where the financial contribution takes
the form of the provision of services or the purchase of goods.

83. Article 14 of the SCM Agreement provides:
Calculation of the Amount of a Subsidy in Terms
of the Benefit to the Recipient
For the purpose of Part V, any method used by the investigating
authority to calculate the benefit to the recipient conferred pursuant
to paragraph 1 of Article 1 shall be provided for in the national
legislation or implementing regulations of the Member concerned
and its application to each particular case shall be transparent and
adequately explained. Furthermore, any such method shall be
consistent with the following guidelines:
(a) government provision of equity capital shall not be
considered as conferring a benefit, unless the investment
decision can be regarded as inconsistent with the usual
investment practice (including for the provision of risk
capital) of private investors in the territory of that Member;
(b) a loan by a government shall not be considered as conferring
a benefit, unless there is a difference between the amount
that the firm receiving the loan pays on the government loan
and the amount the firm would pay on a comparable
commercial loan which the firm could actually obtain on the
market. In this case the benefit shall be the difference
between these two amounts;
(c) a loan guarantee by a government shall not be considered as
conferring a benefit, unless there is a difference between the
amount that the firm receiving the guarantee pays on a loan
guaranteed by the government and the amount that the firm
would pay on a comparable commercial loan absent the
government guarantee. In this case the benefit shall be the
difference between these tw o amounts adjusted for any
differences in fees;
(d) the provision of goods or services or purchase of goods by a
government shall not be considered as conferring a benefit
unless the provision is made for less than adequate
remuneration, or the purchase is made for more than
adequate remuneration. The adequacy of remuneration
shall be determined in relation to prevailing market
conditions for the good or service in question in the country
of provision or purchase (including price, quality,
availability, marketability, transportation and other
conditions of purchase or sale). (emphasis added)

84. As we observed earlier in this Report, not every financial contribution by a government in the
form of provision of goods constitutes a subsidy, because a "benefit" must be conferred by virtue of
that provision of goods. 94 Article 14(d) establishes that the provision of goods by a government shall
not be considered as conferring a benefit unless the provision is made for less than adequate
remuneration. As the Panel observed, the term "adequate" in this context means "sufficient,
satisfactory". 95 "Remuneration" is defined as "reward, recompense; payment, pay". 96 Thus, a benefit
is conferred when a government provides goods to a recipient and, in return, receives insufficient
payment or compensation for those goods.
85. The question then becomes how to determine whether adequate remuneration was paid for the
goods provided by the government. This is dealt with in the second sentence of Article 14(d), which
provides that "[t]he adequacy of remuneration shall be determined in relation to prevailing market
conditions for the good or service in question in the country of provision or purchase (including
price, quality, availability, marketability, transportation and other conditions of purchase or sale)".
(emphasis added)
86. In interpreting the second sentence of Article 14(d), the Panel noted first that, in this context,
the term "in relation to" means "in comparison with".
 97 The Panel next observed that "prevailing"
market conditions refers to "the market conditions 'as they exist' or 'which are predominant' in the
country of provision".
 98 From this, the Panel reasoned that:
Therefore, according to Article 14 (d), the price of the good provided,
its quality, availability, marketability, transportation and other
conditions of purchase or sale which are used as the benchmark for
determining the adequacy of the remuneration have to be such as are
prevailing in the country of provision. In sum, a plain reading of the
text of Article 14 (d) leads us to the initial conclusion that the market
which is to be used as the benchmark for determining benefit to the
recipient is the market of the country of provision, in this case
Canada.
 99

94See supra, para. 51.
95Panel Report, para. 7.48, quoting from The New Shorter Oxford English Dictionary , supra,
footnote 43, Vol. I, p. 26. The Shorter Oxford English Dictionary includes the following definitions for
"adequate" when used as an adjective: "Equal in magnitude or extent; ... Commensurate in fitness; sufficient,
satisfactory; ... Of an idea or concept; fully and clearly representing its object". ( Shorter Oxford English
Dictionary, supra, footnote 45, Vol. I, p. 26)
96Shorter Oxford English Dictionary, supra, footnote 45, Vol. II, p. 2529.
97Panel Report, para. 7.48.
98Ibid., para. 7.50, quoting from The New Shorter Oxford English Dictionary , supra, footnote 43,
Vol. II, p. 2347. (footnote omitted)
99Panel Report, para. 7.50. (footnote omitted)

The Panel then went on to reject the United States' contention that the term "market" means "fair
market value" or a market "undistorted by government intervention" 100, stating that:
… Article 14 (d) [of the] SCM Agreement identifies the market
conditions which shall be used to determine adequacy of remuneration
as those which are "prevailing" in respect of the price of the good, its
quality, availability, marketability, transportation, and other
conditions of purchase or sale, in other words, the market conditions
"as can be found".
 101
The Panel reasoned that, "as long as there are prices determined by independent operators following
the principle of supply and demand, even if supply or demand are affected by the government's
presence in the market, there is a 'market' in th e sense of Article 14(d) [of the] SCM Agreement."
 102
Therefore, the Panel concluded that "[i]n light of the fact that the USDOC acknowledged the
existence of a private stumpage market in Canada ... resort to US prices as the benchmark for the
determination of benefit on grounds that private prices in Canada were distorted is inconsistent with
Article 14(d) [of the] SCM Agreement."
 103
87. Turning first to the text of Article 14(d), we consider the submission of the United States that
the term "market conditions" necessarily implies a market undistorted by the government's financial
contribution. In our view, the United States' approach goes too far. We agree with the Panel that
"[t]he text of Article 14 (d) [of the] SCM Agreement does not qualify in any way the 'market'
conditions which are to be used as the benchmark … [a]s such, the text does not explicitly refer to a
'pure' market, to a market 'undistorted by govern ment intervention', or to a 'fair market value'."
 104

100Panel Report, paras. 7.50–7.51.
101Ibid., para. 7.51.
102Ibid., para. 7.60. (footnote omitted)
103Ibid., para. 7.64. The Panel noted the following summary by USDOC of the market situation in
various Canadian provinces:
During the POI, total softwood harvested from Crown lands accounted for
between approximately 83 and 99 per cent of all softwood timber harvested
in each of the Provinces. Specifically, the Provincial, federal and private
share of softwood timber harvests, by Province are:
British Columbia – 90 per cent Provincial, less than 1 per cent federal, and
almost 10 per cent private;
Quebec – 83 per cent Provincial, and 17 per cent private;
Ontario – 92 per cent Provincial and 7 per cent private;
Alberta – 98 per cent Provincial, 1 per cent federal, and 1 per cent private;
Manitoba – 94 per cent Provincial, 1 per cent federal and 5 per cent private;
Saskatchewan – 90 per cent Provincial, 1 per cent federal and 9 per cent
private.
(Ibid., para. 7.61, quoting from the Decision Memorandum, supra, footnote 3, pp. 37-38)
104Panel Report, paras. 7.50–7.51.

This is confirmed by the Spanish and French versions of Article 14(d), neither of which supports the
contention that the term "market" qualifies the term "conditions" so as to exclude situations in which
there is government involvement.
 105
88. We now examine the meaning of the phrase "in relation to" in Article 14(d). We are of the
view that the Panel failed to give proper meaning and effect to the phrase "in relation to" as it is used
in Article 14(d). The Panel reasoned that the phrase "in relation to" in the context of Article 14(d)
means "in comparison with".
 106 Hence, the Panel concluded that the determination of the adequacy of
remuneration has to be made "in comparison with" prevailing market conditions for the goods in the
country of provision, and thus no other comparison will do when private market prices exist. We do
not agree.
89. As we see it, the phrase "in relation to" implies a comparative exercise, but its meaning is not
limited to "in comparison with".
 107 The phrase "in relation to" has a meaning similar to the phrases
"as regards" and "with respect to". 108 These phrases do not denote the rigid comparison suggested by
the Panel, but may imply a broader sense of "relation, connection, reference". 109 Thus, the use of the
phrase "in relation to" in Article 14(d) suggests that, contrary to the Panel's understanding, the drafters
did not intend to exclude any possibility of using as a benchmark something other than private prices
in the market of the country of provision. This is not to say, however, that private prices in the market
of provision may be disregarded. Rather, it must be demonstrated that, based on the facts of the case,
the benchmark chosen relates or refers to, or is connected with, the conditions prevailing in the market
of the country of provision.

105The phrase used in the French version is " aux conditions du marché existantes " and the Spanish
version is "condiciones reinantes en el mercado".
106Panel Report, para. 7.48.
107We observe that the phrase "in relation to" is used in other provisions of the SCM Agreement in a
manner that does not connote "in comparison with". For instance, Article 15.6 of the SCM Agreement states
that "[t]he effect of the subsidized imports shall be assessed in relation to the domestic production of the like
product". Article 15.6 cannot properly be read as requiring a comparison between "[t]he effect of the subsidized
imports" and "the domestic production of the like product". Similarly, Article 15.3 of that Agreement provides
that, in order to assess cumulatively the effects of imports of a product from more than one country that are
simultaneously subject to countervailing duty investigations, investigating authorities must determine that, inter
alia, "the amount of subsidization established in relation to the imports from each country is more than de
minimis". In this provision, the phrase "in relation to" is not used in the sense of "in comparison with" but rather
in the sense of "in proportion to". Therefore, the precise meaning of the phrase "in relation to" will vary
depending on the specific context in which it is used.
108Shorter Oxford English Dictionary , supra, footnote 45, Vol. II, p. 2520, defines "in relation to" as
"as regards". In turn, "as regards" is defined as "concerning, with respect to". ( Ibid, Vol. II, p. 2512) The
French version of Article 14(d) of the SCM Agreement supports our view. It uses the term " par rapport aux".
plusieurs objets distincts et que l'esprit constate." (Le Nouveau Petit Robert, supra, footnote 47, p. 2170)
109The definition of "respect" includes "Relation, connection, reference, regard" as well as
"Comparison". (Shorter Oxford English Dictionary, supra, footnote 45, Vol. II, p. 2550)

90. Although Article 14(d) does not dictate that private prices are to be used as the exclusive
benchmark in all situations, it does emphasize by its terms that prices of similar goods sold by private
suppliers in the country of provision are the primary benchmark that investigating authorities must use
when determining whether goods have been provided by a government for less than adequate
remuneration.
 110 In this case, both participants and the third participants agree that the starting-point,
when determining adequacy of remuneration, is the prices at which the same or similar goods are sold
by private suppliers in arm's length transactions in the country of provision. This approach reflects
the fact that private prices in the market of provision will generally represent an appropriate measure
of the "adequacy of remuneration" for the provision of goods. However, this may not always be the
case. As will be explained below, investigating authorities may use a benchmark other than private
prices in the country of provision under Article 14(d), if it is first established that private prices in that
country are distorted because of the government's predominant role in providing those goods.
 111
91. In addition to confining, in our view incorrectly, the meaning of the phrase "in relation to" in
Article 14(d) to "in comparison with", the Panel's interpretation does not give due consideration to
the provision's immediate context, particularly the chapeau of Article 14. The chapeau of Article 14
requires that " any" method used by investigating authorities to calculate the benefit to the recipient
shall be provided for in a WTO Member's legislation or regulations, and it requires that its application
be transparent and adequately explained. The reference to " any" method in the chapeau clearly
implies that more than one method consistent with Article 14 is available to investigating authorities
for purposes of calculating the benefit to the reci pient. The Panel's interpretation of paragraph (d)
that, whenever available, private prices have to be used exclusively as the benchmark, is not
supported by the text of the chapeau, which gives WTO Members the possibility to select any
method that is in conformity with the "guidelines" set out in Article 14.
92. The chapeau of Article 14 also provides that any method used by an investigating authority in
calculating benefit "shall be consistent with the ... guidelines" set out in paragraphs (a) through (d).
(emphasis added) The Panel observed that:

110As Canada noted, paragraph (d) of Article 14 refers expressly to "in the country of provision".
Paragraph (a) of Article 14 similarly refers to "in the te rritory of that Member". By contrast, paragraphs (b)
and (c) do not refer either to the country of provision or the territory of the Member.
111See infra, para. 103.

… Article 14 (d) [of the] SCM Agreement uses the term "shall" to
indicate that adequacy of remuneration must be determined in relation
to, i.e. compared with, the prevailing market conditions in the country
of provision, and the data to be used are those which reflect the
prevailing market conditions in the country of provision. The precise
detailed method of calculation is not determined, in that sense
Article 14 (a) – (d) [of the] SCM Agreement are guidelines, but the
framework within which this calculation is to be performed is clearly
determined and limited in a mandatory manner by the prevailing
market conditions in the country of provision.
 112
We agree with the Panel that the term "shall" in the last sentence of the chapeau of Article 14 suggests
that calculating benefit consistently with the guid elines is mandatory. We also agree that the term
"guidelines" suggests that Article 14 provides the "framework within which this calculation is to
performed", although the "precise detailed method of calculation is not determined". 113 T a k e n
together, these terms establish mandatory parameters within which the benefit must be calculated, but
they do not require using only one methodology for determining the adequacy of remuneration for the
provision of goods by a government. Thus, we find merit in the United States' submission that the use
of the term "guidelines" in Article 14 suggests that paragraphs (a) through (d) should not be
interpreted as "rigid rules that purport to contemplate every conceivable factual circumstance".
 114
93. Furthermore, the Panel's interpretation is not supported by the objective of Article 14. As the
title indicates, Article 14 deals with the "Calculation of the Amount of a Subsidy in Terms of the
Benefit to the Recipient". As noted above, in Canada – Aircraft, the Appellate Body stated that the
"there can be no 'benefit' to the recipient unless the 'financial contribution' makes the recipient 'better
off' than it would otherwise have been, absent that contribution".
 115 According to Article 14(d), this
benefit is to be found when a recipient obtains goods from the government for "less than adequate
remuneration", and such adequacy is to be evaluated in relation to prevailing market conditions in the
country of provision. Under the approach advocated by the Panel (that is, private prices in the country
of provision must be used whenever they exist), however, there may be situations in which there is no
way of telling whether the recipient is "better off" absent the financial contribution. This is because
the government's role in providing the financial co ntribution is so predominant that it effectively
determines the price at which private suppliers sell the same or similar goods, so that the comparison
contemplated by Article 14 would become circular.
 116

112Panel Report, para. 7.49.
113Ibid.

94. The Panel itself acknowledged that there were problems of "economic logic" inherent in its
interpretation of Article 14(d). 117 As the Panel explained, in certain situations where government
involvement in the market is substantial, the prices of private suppliers may be artificially suppressed
because of the prices charged for the same goods by the government.
 118 "In such cases", the Panel
said:
… a comparison of the conditions of the government financial
contribution with the conditions prevailing in the private market
would not fully capture the extent of the distortion arising from the
government financial contribution, a result that in our view would not
necessarily be the most sensible one from the perspective of economic
logic. 119
Notwithstanding this, the Panel concluded that it wo uld not be appropriate "to substitute its economic
judgement for that of the drafters". 120
95. We have said that the Panel's restrictive interpretation of paragraph (d) frustrates the purpose
of Article 14. More generally, it also frustrates the object and purpose of the SCM Agreement, which
includes disciplining the use of subsidies and countervailing measures while, at the same time,
enabling WTO Members whose domestic industries are harmed by subsidized imports to use such
remedies.
 121 This is because the determination of the existence of a benefit is a necessary condition
for the application of countervailing measures under the SCM Agreement. If the calculation of the
benefit yields a result that is artificially low, or even zero, as could be the case under the Panel's
approach, then a WTO Member could not fully offset, by applying countervailing duties, the effect of
the subsidy as permitted by the Agreement.
96. In sum, the Panel's interpretation of Article 14(d) appears, in our view, to be overly restrictive
and based on an isolated reading of the text. To us, such a restrictive reading of Article 14(d) is not
supported by the text of the provision, when read in the light of its context and the object and purpose
of the SCM Agreement, as required by Article 31 of the Vienna Convention. Thus, in our view,
Members are obliged, under Article 14(d), to abide by the guideline for determining whether a
government has provided goods for less than adequate remuneration. However, contrary to the views
of the Panel, that guideline does not require the use of private prices in the market of the country of

117Panel Report, para. 7.58.
118USDOC found that there were no "usable" market-determined prices from transactions involving
Canadian buyers and sellers that could be used to measure whether the provincial stumpage programs provide
goods for less than adequate remuneration. (Decision Memorandum, supra, footnote 3, pp. 36 ff.)
119Panel Report, para. 7.58.
120Ibid., para. 7.59.
121Appellate Body Report, US – Carbon Steel, paras. 73–74.

provision in every situation. Rather, that guideline requires that the method selected for calculating
the benefit must relate or refer to, or be connected with, the prevailing market conditions in the
country of provision, and must reflect price, quality, availability, marketability, transportation and
other conditions of purchase or sale, as required by Article 14(d).
C. When May Investigating Authorities Use a Benchmark Other Than Private Prices in
the Country of Provision?
97. Having established that prices in the market of the country of provision are the primary, but
not the exclusive, benchmark for calculating benefit, we come to the next question that arises in our
analysis, namely, when an investigating authority may use a benchmark other than private prices in
the country of provision for purposes of calculating the benefit under Article 14(d).
98. Despite the Panel's finding that Article 14(d) requires the use of private prices in the country
of provision as the benchmark whenever they exist, the Panel nevertheless acknowledged that "it will
in certain situations not be possible to use in-country prices" as a benchmark, and gave two examples
of such situations, neither of which it found to be present in the underlying countervailing duty
investigation: (i) where the government is the only supplier of the particular goods in the country;
and, (ii) where the government administratively controls all of the prices for those goods in the
country.
 122 In these situations, the Panel reasoned that the "only remaining possibility would appear
to be the construction of some sort of a proxy for, or estimate of, the market price for the good in that
country".
 123
99. The United States claims, on appeal, that the Panel erred in not recognizing that Article 14(d)
also allows investigating authorities to use a benchmark other than private prices in a third situation:
where private prices are "substantially influenced" or "effectively determined" by the government's
financial contribution.
 124 We understand that by "substantially influenced" or "effectively
determined", the United States refers to a situation where the government has such a predominant role
in the market, as a provider of certain goods, that private suppliers will align their prices with those of
the government-provided goods; in other words, a situation where the government effectively acts as
a "price-setter" and private suppliers are "price-takers". Considering that the situation of government
predominance in the market, as a provider of certain goods, is the only one raised on appeal by the

122In both situations, the Panel assumed an absence of imports. (Panel Report, para. 7.57)
123Ibid., para. 7.57. In footnote 136 to that paragraph, the Panel noted, moreover, that Canada itself
agreed that, where a government is the sole supplier, "import prices for the same good, which may or may not
be 'world market prices', if available to purchasers in the country of provision, could be used as a benchmark".

United States, we will limit our examination to whether an investigating authority may use a
benchmark other than private prices in the country of provision in that particular situation.
100. In analyzing this question, we have some difficulty with the Panel's approach of treating a
situation in which the government is the sole supplier of certain goods differently from a situation in
which the government is the predominant supplier of those goods. In terms of market distortion and
effect on prices, there may be little difference between situations where the government is the sole
provider of certain goods and situations where the government has a predominant role in the market
as a provider of those goods. Whenever the government is the predominant provider of certain goods,
even if not the sole provider, it is likely that it can affect through its own pricing strategy the prices of
private providers for those goods, inducing the latter to align their prices to the point where there may
be little difference, if any, between the government price and the private prices. This would be so
even if the government price does not represent adequate remuneration. The resulting comparison of
prices carried out under the Panel's approach to interpreting Article 14(d) would indicate a "benefit"
that is artificially low, or even zero, such that the full extent of the subsidy would not be captured, as
the Panel itself acknowledged.
 125 As a result, the subsidy disciplines in the SCM Agreement and the
right of Members to countervail subsidies could be undermined or circumvented when the
government is a predominant provider of certain goods.
101. It appears to us that the language found in Article 14(d) ensures that the provision's purposes
are not frustrated in such situations. Thus, while requiring investigating authorities to calculate
benefit "in relation to" prevailing conditions in the market of the country of provision, Article 14(d)
permits investigating authorities to use a benchmark other than private prices in that market. When
private prices are distorted because the government's participation in the market as a provider of the
same or similar goods is so predominant that private suppliers will align their prices with those of the
government-provided goods, it will not be possible to calculate benefit having regard exclusively to
such prices.
102. We emphasize once again that the possibility under Article 14(d) for investigating authorities
to consider a benchmark other than private prices in the country of provision is very limited. We
agree with the United States that "[t]he fact that the government is a significant supplier of goods does
not, in itself, establish that all prices for the goods are distorted".
 126 Thus, an allegation that a
government is a significant supplier would not, on its own, prove distortion and allow an investigating
authority to choose a benchmark other than private prices in the country of provision. The
determination of whether private prices are distorted because of the government's predominant role in

125Panel Report, para. 7.58.

the market, as a provider of certain goods, must be made on a case-by-case basis, according to the
particular facts underlying each countervailing duty investigation.
103. For these reasons, we reverse the Panel's finding, in paragraph 7.64 of the Panel Report, with
respect to the interpretation of Article 14(d) of the SCM Agreement . We find, instead, that an
investigating authority may use a benchmark other than private prices of the goods in question in the
country of provision, when it has been established that those private prices are distorted, because of
the predominant role of the government in the market as a provider of the same or similar goods.
When an investigating authority re sorts, in such a situation, to a benchmark other than private prices
in the country of provision, the benchmark chosen must, nevertheless, relate or refer to, or be
connected with, the prevailing market conditions in that country, and must reflect price, quality,
availability, marketability, transportation and other conditions of purchase or sale, as required by
Article 14(d).
D. Alternative Benchmarks
104. Having reached this conclusion, the question thus arises what alternative benchmark,
consistent with Article 14(d), could be available in such situations, for purposes of determining
whether the goods have been provided by the government for less than adequate remuneration.
105. During the Panel proceedings, Canada suggested that an alternative benchmark that
investigating authorities could possibly use for these purposes was "import prices for the same good,
which may or may not be 'world market prices', if available to purchasers in the country of
provision".
 127 At the oral hearing, Canada referred to three possible alternative benchmarks: (i) a
benchmark constructed using a methodology similar to that provided in Article 2.2 of the Agreement
on Implementation of Article VI of the General Agreement on Tariffs and Trade 1994 (the " Anti-
Dumping Agreement "); (ii) a proxy estimated on the basis of costs of production 128; and (iii) a
methodology that examines whether government prices are consistent with market principles. The
United States submitted that, in certain situations, world market prices available in the country of

127Canada suggested this alternative benchmark in the context of a situation where the government is
the sole supplier of certain goods or services. The European Communities suggested that world market prices
could be used in a similar context. (See Panel Report, footnote 136 to para. 7.57) As noted earlier, the Panel
stated that, where the government is the sole supplier or administratively controls all of the prices, "[t]he only
remaining possibility would appear to be the construction of some sort of a proxy for, or estimate of, the market
price for the good in that country". ( Ibid., para. 7.57) During the countervailing duty investigation, the
respondents contended that USDOC should use prices in the Canadian provinces not subject to the investigation,
namely the Maritime Provinces, as a benchmark. USDOC rejected the use of prices in other Canadian
provinces, namely the Maritime Provinces, as a benchmark, due to lack of information in the record about prices
in those provinces. (Decision Memorandum, supra, footnote 3, p. 39)
128Canada, in this regard, referred to the Appellate Body Report, in Canada – Dairy (Article 21.5 –
New Zealand and US).

provision, on the one hand, and an examination of the consistency with market principles, on the
other, may be alternative benchmarks that could be used to determine the adequacy of
remuneration.
 129
106. We agree with the submissions of the participants and third participants that alternative
methods for determining the adequacy of remuneration could include proxies that take into account
prices for similar goods quoted on world markets, or proxies constructed on the basis of production
costs. We emphasize, however, that where an investigating authority proceeds in this manner, it is
under an obligation to ensure that the resulting benchmark relates or refers to, or is connected with,
prevailing market conditions in the country of provision, and must reflect price, quality, availability,
marketability, transportation and other conditions of purchase or sale, as required by Article 14(d). At
any rate, we are not called upon, in this appeal, to suggest alternative methods that would be available
to investigating authorities upon a determination that private prices in the country of provision are
distorted due to the government's predominant role in the market as provider of the same or similar
goods. Nor are we required to determine the consistency with Article 14(d) of all the alternative
methods mentioned by the participants and third participants; such assessment will depend on how
any such method is applied in a particular case. We, therefore, make no findings on the WTO-
consistency of any of these methods in the abstract.
107. Rather, it is only the specific alternative method used by USDOC in the underlying
countervailing duty investigation for determining the adequacy of remuneration that is at issue in this
appeal. The benchmark used by USDOC consisted of prices of stumpage in bordering states of the
northern United States.
 130 The United States explained before the Panel that cross-border stumpage
prices were duly adjusted to take into account market conditions prevailing in Canada. 131 We turn to
this method used by USDOC next.
E. The Consistency of the Alternative Benchmark Used by USDOC with Article 14(d)
108. Before reviewing the Panel's finding with respect to the particular benchmark used by
USDOC, we observe that, when choosing an alternative method for determining the adequacy of

129United States' responses to questioning at oral hearing.
130We note that, in the underlying countervailing du ty investigation, USDOC considered that adjusted
prices of stumpage in the bordering states of the northern United States represented world market prices
available in Canada. (See supra, footnote 75 to para. 77)
131During the oral hearing, the United States explained that, generally speaking, the adjustments made
related to three areas: silviculture, roads construction and maintenance, and fire protection. Before the Panel,
the United States also mentioned adjustments related to species mix. (United States' response to Question 8
posed by the Panel at the First Panel Meeting; Panel Report, pp. A-38–A-39) As noted previously, the Decision
Memorandum discusses other adjustments considered specifically by province. ( Decision Memorandum, supra,
footnote 3, pp. 54 ff; see supra, footnote 76)

remuneration, it has to be kept in mind that prices in the market of a WTO Member would be
expected to reflect prevailing market conditions in that Member; they are unlikely to reflect
conditions prevailing in another Member. Therefore, it cannot be presumed that market conditions
prevailing in one Member, for instance the United States, relate or refer to, or are connected with,
market conditions prevailing in another Member, such as Canada for example. Indeed, it seems to us
that it would be difficult, from a practical point of view, for investigating authorities to replicate
reliably market conditions prevailing in one country on the basis of market conditions prevailing in
another country. First, there are numerous factors to be taken into account in making adjustments to
market conditions prevailing in one country so as to replicate those prevailing in another country;
secondly, it would be difficult to ensure that all necessary adjustments are made to prices in one
country in order to develop a benchmark that relates or refers to, or is connected with, prevailing
market conditions in another country, so as to reflect price, quality, availability, marketability,
transportation and other conditions of purchase or sale in that other country.
 132
109. It is clear, in the abstract, that different factors can result in one country having a comparative
advantage over another with respect to the production of certain goods. In any event, any
comparative advantage would be reflected in the market conditions prevailing in the country of
provision and, therefore, would have to be taken into account and reflected in the adjustments made to
any method used for the determination of adequacy of remuneration, if it is to relate or refer to, or be
connected with, prevailing market conditions in the market of provision. This is because
countervailing measures may be used only for the purpose of offsetting a subsidy bestowed upon a
product, provided that it causes injury to the domestic industry producing the like product. They must
not be used to offset differences in comparative advantages between countries.
110. Turning to the examination of the specific alternative method used by USDOC in the
underlying countervailing duty investigation, we note that the Panel examined Canada's claims
against USDOC's benefit determination in the light of the Panel's interpretation of Article 14(d) of the
SCM Agreement. According to that interpretation, "as long as there are prices determined by
independent operators following the principle of supply and demand, even if supply or demand are
affected by the government's presence in the market, there is a 'market' in the sense of Article 14(d)

132USDOC acknowledged that "it may be difficult to achieve perfect comparability", but rejected the
contention that "the size and scope of the adjustments make comparability impossible". According to USDOC,
prices of stumpage in the United States were not, in this case, "outside the spectrum of commercial reality and
availability". (Decision Memorandum, supra, footnote 3, p. 41)

[of the] SCM Agreement." 133 The Panel found further "that the USDOC acknowledged the existence
of a private market for stumpage in Canada" 134 and concluded that:
In light of the fact that the USDOC acknowledged the existence of a
private stumpage market in Canada, we find that the resort to US
prices as the benchmark for the determination of benefit on grounds
that private prices in Canada were distorted is inconsistent with
Article 14 (d) [of the] SCM Agreement.
 135
111. The Panel further stated that it did not need to "address the issue whether the USDOC had
sufficient evidence of price suppression or conducted a proper analysis of the alleged distortive effect
of the dominant government presence in the market." 136 Thus, the Panel did not establish whether
private prices of the goods in question in the c ountry of provision were distorted because of the
predominant role of the government in that market as a provider of the same or similar goods.
112. Therefore, the Panel's ultimate finding that USDOC failed to determine benefit consistently
with Articles 10, 14, 14(d) and 32.1 of the SCM Agreement is predicated exclusively on its
interpretation of Article 14(d), which we have already reversed above. Thus, we must also reverse
the Panel's consequential finding, in paragraph 7.65 of the Panel Report, that USDOC failed to
determine benefit consistently with Articles 14 and 14(d) of the SCM Agreement and that the
imposition of countervailing duties based on that determination was inconsistent with Articles 10
and 32.1 of that Agreement.
 137 It does not necessarily follow, however, that we find that USDOC's
determination of benefit in the underlying countervailing duty investigation is consistent with Article
14(d), as we have interpreted this provision in the preceding paragraphs.
113. In order to determine the WTO-consistency of USDOC's benefit determination, we would
have to complete the legal analysis. Thus, as a preliminary step, we must consider whether it is
possible for us to do so in order to facilitate the prompt settlement of the dispute, in accordance with
Article 3.3 of the DSU, by examining Canada's claim ourselves. The Appellate Body has stated in

133Panel Report, para. 7.60.
134Ibid., para. 7.63.
135Ibid., para. 7.64.
136Ibid.
137The Panel found in paragraph 7.65 of the Panel Report that:
… USDOC failed to determine benefit in a manner consistent with
Articles 14 and 14(d) [of the] SCM Agreement and we therefore find that
the USDOC's imposition of countervailing measures was inconsistent with
the United States' obligations under Articles 14 and 14(d) [of the] SCM
Agreement as well as Articles 10 and 32.1 of the SCM Agreement as these
countervailing measures were imposed on the basis of an inconsistent
determination of the existence and amount of a subsidy. (footnote omitted)

previous cases that it is possible and appropriate to complete the legal analysis provided there are
sufficient findings of fact by the Panel or undisputed facts in the Panel record to enable it to do so. 138
114. Both participants acknowledged during the oral hearing that, if we were to modify or reverse
the Panel's interpretation of Article 14(d), there would be insufficient findings of fact by the Panel or
undisputed facts in the Panel record to enable us to complete the legal analysis of this issue. We
agree. In concluding that the United States acted inconsistently with Article 14(d), the Panel made
only the following two findings of fact: (i) that "the USDOC acknowledged the existence of a private
market for stumpage in Canada"; and (ii) that "the USDOC had before it private stumpage prices for
four of the most important [Canadian] provinces".
 139 The Panel abstained from making additional
findings and said:
... we need not address the issue whether the USDOC had sufficient
evidence of price suppression or conducted a proper analysis of the
alleged distortive effect of the dominant government presence in the
market. Nor need we address whether the proxy used by the United
States for the prevailing market conditions in Canada was appropriate,
i.e. whether the USDOC made proper adjustments to the US stumpage
prices to reflect market conditions in Canada. Neither do we consider
it relevant to rule on the argument made by Canada that any benefit
analysis should include a determination of the potential trade
advantage for the recipient of the subsidy.
 140
115. We have already found that Article 14(d) permits investigating authorities to use a benchmark
other than private prices in the country of provision, if it is established that those private prices are
distorted because the government's participation in the market, as a provider of the same or similar
goods, is so predominant that private suppliers will align their prices with those of the government-
provided goods. As stated above, the Panel, however, made no findings of fact relating to the alleged
distortive effect on prices of the provincial governments' participation in the market for standing
timber.
 141 The Panel record indicates that the facts surrounding this question are not undisputed, and
that Canada challenged the evidence relied on by USDOC to conclude that private prices for
stumpage in Canada were distorted.
 142 Therefore, there are insufficient Panel findings or undisputed
facts in the record to enable us to determine whether USDOC was justified, under Article 14(d), in

138Appellate Body Report, US – Section 211 Appropriations Act, para. 343.
139Panel Report, para. 7.63.
140Ibid., para. 7.64.
141For instance, the Panel made no findings regarding the level of market distortion in each Canadian
province given the differences in government market share, which ranged from 83 to 99 percent. (See supra,
footnote 103)
142Canada's response to questions posed by the Panel at the First Panel Meeting, paras. 90–103; Panel
Report, pp. A-19–A-21.

using a benchmark other than private prices in Canada, on the basis that prices of private stumpage in
Canada were distorted by the Canadian provinces' predominant participation in the market as
providers of standing timber.
116. Even if we were to assume that USDOC was justified in rejecting private prices in Canada,
we would then have to determine whether the particular benchmark used by USDOC in the
underlying countervailing duty investigation complies with the requirements of Article 14(d). This
would require an examination of whether the prices of private stumpage in the bordering states in the
northern United States that USDOC selected as a benchmark, following the adjustments performed by
USDOC, related or referred to, or were connected with, prevailing market conditions in Canada,
(including price, quality, availability, marketability, transportation and other conditions of purchase or
sale). In other words, an examination would be required whether USDOC correctly determined that
standing timber was provided by the provincial governments for less than adequate remuneration and
whether the benefit received by the recipients was correctly calculated. The Panel, however, made no
findings of fact relating to whether prices of private stumpage in the bordering states of the northern
United States used by USDOC as a benchmark were adequately adjusted so as to be consistent with
Article 14(d).
117. Moreover, the Panel record indicates that Canada disputed most aspects of the USDOC's
decision to use cross-border prices, including the adjustment factors. For instance, Canada questioned
USDOC's assertion that United States standing timber is "available" in Canada so as to reflect world
market prices available in Canada.
 143 Canada also alleged that "[United States] state agencies
recognize that a range of differences affect stumpage values even within a single state". 144 Canada,
moreover, disputed the United States' contention that USDOC "made adjustments that took into
account the prevailing market conditions 'to ensure a proper comparison between the government
price and the market benchmark price'".
 145 It also pointed out before the Panel and reiterated on
appeal a number of factors that undermine the cross-border comparability of forestry resources. 146
Canada emphasized that cross-border comparisons do not account for comparative advantages arising

143Canada argued before the Panel that "... even if in certain areas of the United States Canadian
producers can legally bid on certain cutting rights in the United States, harvest US timber and import US logs
for milling, US standing timber – the alleged good provided, not logs produced from the standing timber - is still
not available 'in' Canada". (Panel Report, para. 7.35)
144Canada's appellee's submission, footnote 52 to para. 52.
145Canada's second written submission to the Panel, para. 29, referring to the United States' response to
Question 8 posed by the Panel at the First Panel Meeting, para. 11; Panel Report, p. A-39.
146These include: differences in timber characteristics and operating conditions such as the type, mix,
quality and location of forest resources, as well as costs of harvesting and transporting timber; measurement
systems; and the rights and obligations related to tenures, including the duration of harvesting rights and
responsibilities including silviculture, road-building and forest management. (Canada's appellee's submission,

from differences in natural resource endowments between countries. It is also clear from the
participants' submissions during the oral hearing that the factual information is not undisputed.
118. Accordingly, there are insuffici ent factual findings by the Panel and undisputed facts in the
Panel record to enable us to examine whether the benchmark used by USDOC in the underlying
investigation related or referred to, or was connected with, prevailing market conditions in Canada, as
required by Article 14(d), so as to adequately reflect price, quality, availability, marketability,
transportation and other conditions of purchase or sale. Consequently, we are unable to complete the
legal analysis of Canada's claim that the United St ates acted inconsistently with Article 14(d) of the
SCM Agreement. We observe, in this regard, that panels sometimes make alternative factual findings
that serve to assist the Appellate Body in completing the legal analysis should it disagree with legal
interpretations developed by the panel, but this is not the case in the Panel Report before us.
119. In conclusion, for the reasons stated above, we reverse the Panel's finding, in paragraph 7.64
of the Panel Report, with respect to the interpretation of Article 14(d) of the SCM Agreement and
find, instead, that an investigating authority may use a benchmark other than private prices in the
country of provision, when it has been established that private prices of the goods in question in that
country are distorted, because of the predominant role of the government in the market as a provider
of the same or similar goods.
120. We emphasize, however, that when an investigating authority proceeds in this manner, it is
obliged, pursuant to Article 14(d), to ensure that the alternative benchmark it uses relates or refers to,
or is connected with, prevailing market conditions in the country of provision, (including price,
quality, availability, marketability, transportation and other conditions of purchase or sale), with a
view to determining, ultimately, whether the goods at issue were provided by the government for less
than adequate remuneration.
121. We also reverse the Panel's consequential finding, in paragraph 7.65 of the Panel Report,
that the United States acted inconsistently with Articles 10, 14, 14(d) and 32.1 of the SCM
Agreement, because it is predicated exclusively on the Panel's finding, which we reversed, with
respect to the interpretation of Article 14(d) of the SCM Agreement.
122. We also find that we are unable to complete the legal analysis of whether USDOC's
determination of benefit is consistent with Article 14(d) of the SCM Agreement. Having found that
there is an insufficient factual basis to complete the legal analysis, we do not make findings on
whether USDOC's determination of the existence and amount of benefit in the underlying
countervailing duty investigation is consistent or inconsistent with Articles 14 and 14(d) of the

SCM Agreement and whether the imposition of countervailing duties based on that determination is
consistent or inconsistent with Articles 10 and 32.1 of that Agreement.
VI. Pass-Through
A. Introduction
123. The third issue raised in this appeal is wh ether the Panel erred in finding that USDOC's
failure to conduct a "pass-through" analysis, in respect of arm's length sales of logs and lumber by
tenure-holding timber harvesters owning sawmills and producing lumber, to unrelated sawmills or
lumber remanufacturers, is inconsistent with Article 10 and thus Article 32.1 of the SCM Agreement
and Article VI:3 of the GATT 1994.
 147
124. We found above that the stumpage programs of Canadian provinces at the heart of this case
provide standing timber to timber harvesters, allegedly conferring a benefit. 148 The standing timber
eventually becomes felled trees or logs, which are processed into softwood lumber as well as
remanufactured lumber products. USDOC defined the product subject to the investigation at issue as
"certain softwood lumber", which includes "primary" lumber and "remanufactured" lumber.
 149 The
United States imposed countervailing duties on imports of these softwood lumber products from
Canada. The pass-through issues in this appeal concern situations where the activities of
harvesting standing timber, processing logs into softwood lumber, and further processing lumber into
remanufactured lumber products, are not carried out by vertically integrated enterprises. This
appeal, therefore, concerns only arm's length sales of logs and lumber by tenured timber
harvesters/sawmills
 150 to sawmills 151 and lumber remanufacturers 152, none of which is related through
common ownership or in any other way. Thus, we must examine whether a Member is required to
analyze whether the subsidy conferred on products of certain enterprises in the production chain was
"passed through", in arm's length transactions, to other enterprises producing the countervailed
product.

147Panel Report, para. 7.99.
149"Primary" lumber is lumber that is produced when a log is processed for the first time.
"Remanufactured" lumber is primary lumber that undergoes some additional processing, such as cutting to odd
lengths and planing.
150We use the term "tenured timber harvester/sawmill" to refer to an enterprise holding a stumpage
contract that fells trees and produces logs, and also processes logs into softwood lumber.
151We use the term "sawmill" to refer to an enterprise that processes logs into softwood lumber and
does not hold a stumpage contract.
152We use the term "remanufacturer" to refer to an enterprise that further processes softwood lumber
into remanufactured lumber products.

125. The Panel found that:
... USDOC's failure to conduct a pass-through analysis in respect of
logs sold by tenure-holding timber harvesters (whether or not also
lumber producers) to unrelated sawmills producing subject softwood
lumber; and in respect of lumber sold by tenure-holding
harvester/sawmills to unrelated lumber re-manufacturers was
inconsistent with Article 10 and thus Article 32.1 [of the]
SCM Agreement, and with Article VI:3 of GATT 1994.
 153
126. The United States appeals this finding in part, as we explain in the next section.
B. Scope of the Issue Appealed
127. The United States notes that it "does not appeal the Panel's finding that, where the subsidy is
received by independent harvesters, i.e., entities that do not produce [softwood lumber] product[s]
under investigation and operate at arm's length, a pass through analysis would be required to
determine if the subsidy received by the independent harvesters was indirectly bestowed on
production of softwood lumber".
 154 Thus, the situation where tenured timber harvesters do not
process logs into softwood lumber and sell at ar m's length all the logs they harvest to unrelated
sawmills is not before us in this appeal. We also note that Canada does not argue that a pass-through
analysis is required in the absence of arm's leng th transactions between tenured timber harvesters,
sawmills and remanufacturers.
 155 Hence, the situation where vertically integrated enterprises, not
operating at arm's length, harvest timber under stumpage contracts, produce softwood lumber and
remanufacture lumber, is also not before us.

153Panel Report, para. 7.99. The Panel continued, stating that, in the light of its finding, it did "not find
it necessary to address Canada's pass-through claims pursuant to Articles 19.1 and 19.4 [of the] SCM
Agreement". (Ibid.)
154United States' appellant's submission, footnote 7 to para. 5 (emphasis added), referring to Panel
Report, paras. 7.94–7.95. Before the Panel, the United States had acknowledged that log sales at arm's length to
sawmills by tenured timber harvesters not owning sawmills, could overstate the aggregate amount of
subsidization of softwood lumber, but argued that the "vast majority of Crown timber enters harvesters' own
sawmills". (Panel Report, para. 7.94) In the Panel's view, it was for the United States to submit information
establishing the insignificance of arm's length transac tions between tenured timber harvesters not processing
logs into lumber, and unrelated sawmills. The Panel found that the United States "did not do so, and point[ed]
to no factual basis in the record for its conclusion th at such [pass-through] analysis was not necessary" and
concluded that "in respect of the upstream log sales at issue, the US acted inconsistently with Article 10 [of the]
SCM [Agreement] and Article VI:3 of GATT 1994". (Ibid., para. 7.95)
155Canada's appellee's submission, paras. 8–12. Canada's responses to questioning at the oral hearing.
See also, paras. 110–112 of Canada's response to Question 11 posed by the Panel at the First Panel Meeting;
Panel Report, pp. A-22–A-23.

128. The United States requests us to reverse the Panel's finding, in paragraph 7.99 of the Panel
Report, that a pass-through analysis is required with respect to sales of logs or lumber by tenured
harvester/sawmills to sawmills or re-manufacturers.
 156 This appeal thus concerns the situations
where: (i) a tenured timber harvester owns a sawmill and processes some of the logs it harvests into
softwood lumber, but at the same time sells at arm's length some of the logs it harvests to unrelated
sawmills for processing into lumber; and (ii) a tenured timber harvester processes logs it harvests into
lumber, and sells at arm's length some, or all, of the lumber it produces to lumber remanufacturers
for further processing.
 157 Having defined the scope of the pass-through issues raised in this appeal,
we start our analysis with a brief account of the arguments submitted by the participants.
C. General Interpretative Analysis of the Pass-Through Issue
129. On appeal, the United States accepts that a pass-through analysis is required where a subsidy
is bestowed indirectly on producers of products subject to the investigation ("subject products").
Thus, if a subsidy is received directly by an entity other than a producer of subject products, and that
entity subsequently sells inputs to producers of subject products, the investigating authority is
required to determine whether at least some of that subsidy is passed through in the sale to the
producers of such products.
 158 In other words, in such a situation, it cannot be assumed that some or
all of the indirect subsidy has passed through. This situation is contrasted with that of stumpage
subsidies received directly by a tenured timber harvester that owns a sawmill, and thus is also a
producer of softwood lumber. According to the United States, a pass-through analysis is not required
in respect of arm's length sales of logs, by such tenured timber harvesters who own sawmills, to
unrelated sawmills.
 159 For the United States, in such a situation, where both entities involved in the
transaction produce products subject to the investigation, pass-through of the subsidy can be
presumed.

157The United States' appeal does not include the situation where a tenured timber harvester not owning
a sawmill sells logs at arm's length to sawmills producing softwood lumber. The Panel made findings on this
situation in paragraph 7.99 of the Panel Report, together with findings on the situations that are at issue in this
appeal.
158United States' response to questioning at the oral hearing.

130. The United States further argues that both primary lumber and remanufactured lumber are
products subject to the investigation, and, therefore, primary lumber is not upstream to subject
products; accordingly, a pass-through analysis is not required in respect of arm's length sales of
lumber by tenured timber harvesters who own sawmills, to unrelated remanufacturers, because both
produce products subject to the investigation. According to the United States, in this situation, pass-
through can also be presumed.
131. The United States finds support in Article 19.3 of the SCM Agreement, which permits
conducting investigations on an aggregate, as opposed to company-specific, basis. According to the
United States, investigations could not be conducted on an aggregate basis if pass-through analyses
were required for every arm's length transaction between different producers of products subject to the
investigation.
 160 The United States submits further that Article VI:3 of the GATT 1994, and
footnote 36 to Article 10 of the SCM Agreement, contain no obligation regarding the methodology
that a Member is to use in calculating the country-wide countervailing duty rate in an aggregate
investigation. 161 Indeed, the United States submits that no obligation can be found anywhere in the
SCM Agreement requiring adjustment of a subsidy found to exist to account for the fact that certain
producers of softwood lumber may not have received the subsidy, because they purchased logs and
lumber inputs at arm's length from other lumber producers. 162
132. Canada submits that, by not appealing the Panel's finding that a pass-through analysis is
required where stumpage subsidies are received by "independent harvesters" of logs who do not own
a sawmill and thus do not produce softwood lumber, the United States has accepted that a pass-
through analysis is required in instances of indirect subsidization. Canada contends that the
requirement for a pass-through analysis applies equally for arm's length sales of both log inputs and
lumber inputs by tenured timber harvesters owning sawmills, to unrelated sawmills or lumber
remanufacturers. In Canada's view, by failing to conduct a pass-through analysis with respect to these
categories of transactions, the United States countervailed subsidies, the existence and amount of
which it presumed, instead of determined.
 163

160United States' response to questioning at the oral hearing.
162Ibid., paras. 31 and 46–47.

133. Canada argues that Article 1.1 of the SCM Agreement requires, also in the case of indirect
subsidization, that investigating authorities establish the existence of both a financial contribution by a
government (albeit indirect), and the conferral of a benefit, in relation to the product on which
countervailing duties are imposed.
 164 Canada notes that Article VI:3 of the GATT 1994, and
Articles 10 and 32.1 of the SCM Agreement, do not permit subsidization to be presumed in respect of
products. Nor do they permit imposing countervailing duties in excess of the subsidy found to exist
for a particular product, even if an investigation is conducted on an aggregate (country-wide) basis, as
contemplated by Article 19.3 of the SCM Agreement.
 165 Thus the requirement to conduct a pass-
through analysis is not avoided simply because there is a right to conduct an investigation on an
aggregate basis. For these reasons, Canada requests us to uphold the Panel's finding that, by failing
to establish that the benefit of the financial contribution was passed through, at least in part, from the
upstream producers of log and lumber inputs, to the downstream producers of the lumber products
subject to the investigation, the United States imposed countervailing duties contravening Articles 10
and 32.1 of the SCM Agreement, and Article VI:3 of the GATT 1994.
 166
134. We now examine the pass-through issue before us. At the outset, we observe that provisions
in both the GATT 1994 and the SCM Agreement are relevant to this dispute. We note the Appellate
Body's earlier ruling that a provision of an agreement included in Annex 1A of the WTO Agreement
(including the SCM Agreement), and a provision of the GATT 1994, that have identical coverage,
both apply, but that the provision of the agreement that "deals specifically, and in detail" with a
question should be examined first.
 167 The Appellate Body has also ruled that "countervailing duties
may only be imposed in accordance with the provisions of Part V of the SCM Agreement and
Article VI of the GATT 1994, taken together" 168, and that "[i]f there is a conflict between the
provisions of the SCM Agreement and Article VI of the GATT 1994 ... the provisions of the
SCM Agreement would prevail as a result of the gene ral interpretative note to Annex 1A." 169 N o
conflict between Articles 10 and 32.1 of the SCM Agreement on the one hand, and Article VI:3 of
the GATT 1994 on the other hand, is alleged in this appeal, nor do we see any such conflict.
Therefore, the requirements of these provisions of the SCM Agreement and the GATT 1994 apply on
a cumulative basis.

164Canada's appellee's submission, para. 68, referring to Article 1.1 of the SCM Agreement.
165Ibid., paras. 9–10 and 77–78.
166Ibid., paras. 55 ff and 80.
167Appellate Body Report, EC – Bananas III, para. 204.
168Appellate Body Report, Brazil – Desiccated Coconut , DSR 1997:I, 167, at 181. (original italics;
underling added)
169Ibid.

135. Article 10 of the SCM Agreement provides that:
Members shall take all necessary steps to ensure that the imposition of
a countervailing duty 36 on any product of the territory of any Member
imported into the territory of another Member is in accordance with
the provisions of Article VI of GATT 1994 and the terms of this
Agreement. Countervailing duties may only be imposed pursuant to
investigations initiated and conducted in accordance with the
provisions of this Agreement and the Agreement on Agriculture.
(footnotes omitted in part)
36 The term "countervailing duty" shall be understood to mean a special
duty levied for the purpose of offsetting any subsidy bestowed directly or
indirectly upon the manufacture, production or export of any merchandise, as
provided for in paragraph 3 of Article VI of GATT 1994.
 170
According to Article 32.1 of the SCM Agreement:
[n]o specific action against a subsidy of another Member can be
taken except in accordance with the provisions of GATT 1994, as
interpreted by this Agreement. (footnote omitted)
Article VI:3 of the GATT 1994 reads:
[n]o countervailing duty shall be levied on any product of the
territory of a Member imported into the territory of another Member
in excess of an amount equal to the estimated bounty or subsidy
determined to have been granted, directly or indirectly, on the
manufacture, production or export of such product in the country of
origin or exportation… The term "countervailing duty" shall be
understood to mean a special duty levied for the purpose of offsetting
any bounty or subsidy bestowed, directly, or indirectly, upon the
manufacture, production or export or any merchandise.
136. According to Canada, the United States acted inconsistently with: (i) Article 10 of the
SCM Agreement, by failing to "take all necessary steps" to determine subsidization in accordance
with the provisions of the SCM Agreement and Article VI:3 of the GATT 1994; (ii) Article 32.1 of
that Agreement, by taking action against a subs idy not in accordance with the provisions of the
GATT 1994, as interpreted by the SCM Agreement ; and (iii) Article VI:3 of the GATT 1994, by
imposing duties without establishing the existence of indirect subsidization and failing to ensure that
countervailing measures are not in excess of the subsidy found to exist.

170We also take note of Article 19.4 of the SCM Agreement, which provides:
No countervailing duty shall be levied on any imported product in excess of
the amount of the subsidy found to exist, calculated in terms of
subsidization per unit of the subsidized and exported product. (footnote
omitted)

137. We observe that, in this case, Canada's claims under Article 10 and footnote 36 thereto 171,
and Article 32.1 of the SCM Agreement, are largely derivative of its claim under Article VI:3 of the
GATT 1994; Canada alleges that a violation by the United States of the requirements in Article VI:3
of the GATT 1994 would necessarily result also in violations of its obligations under Article 10 and
footnote 36 thereto, and Article 32.1 of the SCM Agreement. Therefore, our discussion focuses first
on whether Article VI:3 of the GATT 1994 requires a pass-through analysis, and if so, under what
circumstances.
138. We note that, if we were to find that USDOC's final determination and the imposition of
countervailing duties on Canadian imports of softwood lumber products contravene the requirements
of Article VI:3 of the GATT 1994, the United States necessarily would not have "take[n] all
necessary steps to ensure that the imposition of a countervailing duty … is in accordance with the
provisions of Article VI of GATT 1994", as required by Article 10 of the SCM Agreement. T h e
"specific action against a subsidy" taken by the United States would also not, as required by
Article 32.1 of the SCM Agreement , be "in accordance with the provisions of GATT 1994, as
interpreted by the [SCM] Agreement". Consequently, any inconsistency of the United States'
imposition of countervailing duties on Canadian imports of softwood lumber products with
Article VI:3 of the GATT 1994, would necessarily render this measure inconsistent also with
Articles 10 and 32.1 of the SCM Agreement.
139. The Panel described the pass-through problem as follows: "[w]here the subsidies at issue are
received by someone other than the producer of the investigated product, the question arises whether
there is subsidization in respect of that product."
 172 In addressing this question, we note that
Article VI:3 prohibits levying countervailing duties on an imported product " in excess of an amount
equal to the estimated … subsidy determined to ha ve been granted, directly or indirectly, on the
manufacture, production or export of such product". (emphasis added) According to Article VI:3,
countervailing duties are "levied for the purpose of offsetting … subsid[ies] bestowed, directly or
indirectly, upon the manufacture, production or export of any merchandise". (emphasis added)
The definition of the term "countervailing duties" in footnote 36 to Article 10 of the SCM Agreement
is along the same lines.
140. The phrase "subsid[ies] bestowed ... indirectly", as used in Article VI:3, implies that financial
contributions by the government to the production of inputs used in manufacturing products subject
to an investigation are not, in principle, excl uded from the amount of subsidies that may be offset

171The definition of "countervailing duties" in footnote 36 to Article 10 of the SCM Agreement echoes
the definition of that term in Article VI:3 of the GATT 1994.
172Panel Report, para. 7.85.

through the imposition of countervailing duties on the processed product. Where the producer of the
input is not the same entity as the producer of the processed product, it cannot be presumed, however,
that the subsidy bestowed on the input passes through to the processed product. In such case, it is
necessary to analyze to what extent subsidies on inputs may be included in the determination of the
total amount of subsidies bestowed upon processed products. For it is only the subsidies determined
to have been granted upon the processed products that may be offset by levying countervailing
duties on those products.
141. In our view, it would not be possible to determine whether countervailing duties levied on the
processed product are in excess of the amount of the total subsidy accruing to that product, without
establishing whether, and in what amount, subsidies bestowed on the producer of the input flowed
through, downstream, to the producer of the product processed from that input. Because Article VI:3
permits offsetting, through countervailing duties, no more than the "subsidy determined to have been
granted ... directly or indirectly, on the manufacture [or] production ... of such product", it follows
that Members must not impose duties to offset an amount of the input subsidy that has not passed
through to the countervailed processed products. It is only the amount by which an indirect subsidy
granted to producers of inputs flows through to the processed product, together with the amount of
subsidy bestowed directly on producers of the processed product, that may be offset through the
imposition of countervailing duties. The definition of "countervailing duties" in footnote 36 to
Article 10 of the SCM Agreement supports this interpretation of the requirements of Article VI:3 of
the GATT 1994.
142. This interpretation is also borne out by the general definition of a "subsidy" in Article 1 of the
SCM Agreement. According to that definition, a subsidy shall be deemed to exist only if there is both
a financial contribution by a government within the meaning of Article 1.1(a)(1)
 173, and a benefit is
thereby conferred within the meaning of Article 1.1(b). 174 If countervailing duties are intended to
offset a subsidy granted to the producer of an input product, but the duties are to be imposed on the
processed product (and not the input product), it is not sufficient for an investigating authority to
establish only for the input product the existence of a financial contribution and the conferral of a
benefit to the input producer. In such a case, the cumulative conditions set out in Article 1 must be
established with respect to the processed product, especially when the producers of the input and the
processed product are not the same entity. The investigating authority must establish that a financial
contribution exists; and it must also establish that the benefit resulting from the subsidy has passed

173Or income or price support within the meaning of Article 1.1(a)(2).

through, at least in part, from the input downstream, so as to benefit indirectly the processed product
to be countervailed.
143. In this respect, the Appellate Body's interpretation of the term "benefit" in Canada – Aircraft
is useful:
A "benefit" does not exist in the abstract, but must be received and
enjoyed by a beneficiary or a recipient. Logically, a "benefit" can be
said to arise only if a person, natural or legal, or a group of persons,
has in fact received something. The term "benefit", therefore,
implies that there must be a recipient. 175
Thus, for a potentially countervailable subsidy to exist, there must be a financial contribution by the
government that confers a benefit to a recipient. Where a subsidy is conferred on input products, and
the countervailing duty is imposed on processed products, the initial recipient of the subsidy and the
producer of the eventually countervailed product, may not be the same. In such a case, there is a
direct recipient of the benefit—the producer of the input product. When the input is subsequently
processed, the producer of the processed product is an indirect recipient of the benefit—provided
it can be established that the benefit flowing from the input subsidy is passed through, at least in part,
to the processed product. Where the input producers and producers of the processed products operate
at arm's length, the pass-through of input subsidy benefits from the direct recipients to the indirect
recipients downstream cannot simply be presumed; it must be established by the investigating
authority. In the absence of such analysis, it cannot be shown that the essential elements of the
subsidy definition in Article 1 are present in respect of the processed product. In turn, the right to
impose a countervailing duty on the processed product for the purpose of offsetting an input subsidy,
would not have been established in accordance with Article VI:3 of the GATT 1994, and,
consequently, would also not have been in accordance with Articles 10 and 32.1 of the SCM
Agreement.
144. The panel report, adopted under GATT 1947, in US – Canadian Pork reasoned along the
same lines under Article VI:3. That panel dealt with a situation where Canada had granted subsidies
to swine producers, while the United States imposed countervailing duties on imports of pork
products.
 176 The panel noted that:

176GATT Panel Report, US – Canadian Pork, para. 4.3. The panel noted that swine producers and pork
producers were separate industries operating at arm's leng th and that the subsidies granted to swine producers
could have only indirectly bestowed a subsidy on the production of pork.

Article VI:3 stipulates that a countervailing duty levied on any
product shall not exceed an amount equal to the subsidy granted
directly or indirectly on the production of "such product". According
to this clear wording, the United States may impose a countervailing
duty on pork only if a subsidy has been determined to have been
bestowed on the production of pork; the mere fact that trade in pork
is affected by the subsidies granted to producers of swine is not
sufficient.
 177 (emphasis added)
145. It is also useful to refer to US – Countervailing Measures on Certain EC Products , where
the Appellate Body stated that:
… under Article VI:3 of the GATT 1994, investigating authorities,
before imposing countervailing duties, must ascertain the precise
amount of a subsidy attributed to the imported products under
investigation. In furtherance of this obligation, Article 10 of the
SCM Agreement provides that Members must "ensure" that duties
levied for the purpose of offsetting a subsidy are imposed only "in
accordance with" the provisions of Article VI:3 of the GATT 1994
and the SCM Agreement. Moreover, Article 19.4 of the SCM
Agreement, consistent with the language of Article VI:3 of the
GATT 1994, requires that "[ n]o countervailing duty shall be levied
on any imported product in excess of the amount of the subsidy
found to exist ". ... In sum, these provisions set out the obligation of
Members to limit countervailing duties to the amount and duration of
the subsidy found to exist by the investigating authority. 178 (original
italics; underlining added; footnotes omitted)
146. In the light of the above, GATT/WTO dispute settlement practice is consistent with and
confirms our interpretation that, where countervailing duties are used to offset subsidies granted to
producers of input products, while the duties are to be imposed on processed products, and where
input producers and downstream processors operate at arm's length, the investigating authority must
establish that the benefit conferred by a financial contribution directly on input producers is passed
through, at least in part, to producers of the processed product subject to the investigation. Therefore,
we agree with the Panel that:
If it is not demonstrated that there has been such a pass-through of
subsidies from the subsidy recipient to the producer or exporter of the
product, then it cannot be said that subsidization in respect of that
product, in the sense of Article 10, footnote 36, and Article VI:3 of
GATT 1994, has been found.
 179

177GATT Panel Report, US – Canadian Pork, para. 4.6.
178Appellate Body Report, US – Countervailing Measures on Certain EC Products, para. 139.
179Panel Report, para. 7.91.

147. This would mean that a financial contribution conferring a benefit on tenure-holding
harvesters of timber could be offset by imposing countervailing duties on exports of timber—or, in
other words, logs— without carrying out a pass-through analysis. 180 However, if countervailing
duties on softwood lumber products are meant to offset a financial contribution received by and
conferring a benefit directly on producers of timber/logs, the investigating authority must establish
that those benefits have been passed through, at least in part, from producers of logs to producers of
softwood lumber (and remanufactured lumber), which are the products subject to the investigation.
D. Conduct of the Investigation on an Aggregate Basis
148. Before proceeding further, we address the argument of the United States that Article 19.3 of
the SCM Agreement contemplates the conduct of an investigation on an aggregate basis and that,
therefore, the approach it took in this investiga tion in calculating the total subsidy and the country-
wide countervailing duty rate is consistent with the SCM Agreement and the GATT 1994 .
 The
United States argues that no pass-through analysis was required with respect to arm's length sales of
logs and lumber by tenured timber harvesters owning sawmills, to unrelated sawmills and
remanufacturers, because Article 19.3 recognizes that exporters who are not investigated individually
may nevertheless be subject to countervailing duties; accordingly, it is not necessary, in an aggregate
investigation, to determine whether individual producers or exporters actually received subsidies.
 181
149. The United States submits that no pass-through analysis was required in this aggregate
investigation because the total subsidy from the sawmills' stumpage inputs (that is, the total subsidy
bestowed on logs entering sawmills) is known, and can be used in its entirety as the appropriate
numerator in the calculation of a country-wide ad valorem countervailing duty rate. This numerator
is then spread equally over a denominator, consisting of the total amount of sales of the softwood
lumber products subject to this investigation, produced by both "first" sawmills and
remanufacturers. According to the United States, therefore, Canada's pass-through claims relate,
in fact, to the calculation of the countervailing duty rate on an aggregate basis, rather than to the
existence of the subsidy.
 182 For the United States, an expedited review under Article 19.3 is the
appropriate avenue for exporters that have not been investigated individually to establish that they did
not receive countervailable benefits and thus that the country-wide countervailing duty rate is not
appropriate for that exporter.
 183

180Provided that all the other conditions for using countervailing measures as set forth in Part V of the
SCM Agreement are met.
181United States' appellant's submission, paras. 31 and 45–47.
182United States' response to questioning at the oral hearing.
183United States' appellant's submission, footnote 60 to para. 46.

150. Canada contends that the fact that the investigation at issue was conducted on an aggregate
basis does not excuse USDOC from establishing the existence and amount of the alleged subsidy to
producers of the investigated products, consistently with Article VI:3 of the GATT 1994 and
Articles 10 and 32.1 of the SCM Agreement .
 184 Canada acknowledges that Article 19.3 permits
aggregate investigations, but, in Canada's view, the fact that the investigation at issue was conducted
on an aggregate basis cannot absolve the United States of the requirement to establish the existence of
a subsidy in respect of the products of sawmills and lumber remanufacturers that purchased log and
lumber inputs at arm's length. Finally, Canada points to substantial record evidence demonstrating the
existence of arm's length sales of logs and lumber by tenured timber harvesters/sawmills to unrelated
sawmills not holding stumpage rights and to remanufacturers.
 185
151. In discussing these arguments, we note, at the outset, that information about how USDOC
calculated the total amount of subsidy and the country-wide countervailing duty rate on an aggregate
basis in the investigation at issue may be relevant in deciding the pass-through issues before us.
However, we are mindful that the Panel declined to rule on Canada's claims against certain aspects of
the method applied by USDOC in these calculations, and that these claims are not before us in this
appeal.
 186
152. We agree with the United States that Article 19 of the SCM Agreement authorizes Members
to perform an investigation on an aggregate basis. 187 Article 19.3 requires that countervailing duties
"shall be levied, in the appropriate amounts in each case, on a non-discriminatory basis on imports
of such product from all sources found to be subsidized and causing injury". 188 (emphasis added)
Article 19.3 further provides that "[a]ny exporter whose exports are subject to a definitive

184Canada's appellee's submission, paras. 11 and 78 ff.
185Ibid., para. 61.
186Canada's other appellant's submission, para. 7; United States' appellant's submission, paras. 1–6.
187In response to questioning at the oral hearing, Canada did not contest that Article 19 contemplates
conducting countervailing duty investigations on an aggregate basis. However, Canada maintained that the
aggregate investigation leading to the final determination and imposition of countervailing duties in this case is
inconsistent with the SCM Agreement.
188Article 19.3 of the SCM Agreement reads:
When a countervailing duty is imposed in respect of any product, such
countervailing duty shall be levied, in the appropriate amounts in each case,
on a non-discriminatory basis on imports of such product from all sources
found to be subsidized and causing injury, except as to imports from those
sources which have renounced any subsidies in question or from which
undertakings under the terms of this Agreement have been accepted. Any
exporter whose exports are subject to a definitive countervailing duty but
who was not actually investigated for reasons other than a refusal to
cooperate, shall be entitled to an expedited review in order that the
investigating authorities promptly establish an individual countervailing
duty rate for that exporter.

countervailing duty but who was not actually investigated ... shall be entitled to an expedited
review in order that the investigating authorities promptly establish an individual countervailing
duty rate for that exporter." (emphasis added) Accordingly, countervailing duties shall be imposed,
on a non-discriminatory basis, on all sources found to be subsidized, although no prior
investigation of all individual exporters or producers is required by Article 19. This implies that
countervailing duties may be imposed on imports of products subject to the investigation, even though
specific shipments from exporters or producers that were not investigated individually might not at all
be subsidized, or not subsidized to an extent equal to a countervailing duty rate calculated on an
aggregate (country-wide) basis.
 189
153. We also observe that Article 19.4 requires the calculation of countervailing duties in terms of
"subsidization per unit of the subsidized and exported product". 190 (emphasis added) In our view,
the reference to calculation of countervailing duty rates on a per unit basis under Article 19.4 supports
the interpretation that an investigating authority is permitted to calculate the total amount and the rate
of subsidization on an aggregate basis.
154. We note, however, that country-wide or company-specific countervailing duty rates may be
imposed under Part V of the SCM Agreement only after the investigating authority has determined
the existence of subsidization, injury to the domes tic industry, and a causal link between them. In
other words, the fact that Article 19 permits the imposition of countervailing duties on imports from
producers or exporters not investigated individually, does not exonerate a Member from the obligation
to determine the total amount of subsidy and the countervailing duty rate consistently with the
provisions of the SCM Agreement and Article VI of the GATT 1994. In this respect, as the panel in
US – Countervailing Measures on Certain EC Products correctly stated, the "determination of a
benefit (as a component of subsidization) must be made before countervailing duties can be

189We note, in this respect, as pointed out by the European Communities, that the first sentence of
Article 6.10 of the Anti-Dumping Agreement requires, as a rule, a determination of an individual margin of
dumping for each known producer or exporter of the product under investigation, unless this is rendered
impracticable due to the high number of producers and exporters or of the types of products involved. If that is
the case, the second sentence of Article 6.10 permits investigating authorities to limit the investigation to a
statistically valid sample, or the largest percentage of the volume of exports that can reasonably be investigated.
By contrast, the SCM Agreement does not contain a similar rule requiring Members, in principle, to determine
an individual margin of subsidization for each known producer or exporter of the subsidized good. (European
Communities' third participant's submission, paras. 45–47)
190Article 19.4 of the SCM Agreement provides:
No countervailing duty shall be levied on any imported product in excess of
the amount of the subsidy found to exist, calculated in terms of
subsidization per unit of the subsidized and exported product. (footnote
omitted)

imposed." 191 Therefore, turning to the issue in th is case, before being entitled to impose
countervailing duties on a processed product, for the purpose of offsetting an input subsidy, a Member
must first determine, in accordance with Article 1.1, that a financial contribution exists, and that the
benefit conferred directly on the input producer has been passed through, at least in part, to the
producer of the processed product. We reject, therefore, the argument of the United States that the
pass-through issues arising in this appeal rela te merely to the method used by USDOC, in this
aggregate investigation, in calculating the total amount of subsidy and the countervailing duty rate.
E. Sales of Logs at Arm's Length by Tenure d Timber Harvesters/Sawmills to Unrelated
Lumber Producers
155. Having thus dealt with the participants' arguments relating to Article 19 of the SCM
Agreement, we turn to the question whether a pass-through analysis was required, in the light of our
general interpretation above, with respect to the categories of arm's length transactions at issue in this
appeal. As noted above, this appeal concerns, first, the situation where a tenured timber harvester
owns a sawmill and processes some of the logs it harvests into softwood lumber, but, at the same
time, sells at arm's length some of the logs it harvests to other, unrelated sawmills for processing into
lumber; and, secondly, the situation where a tenured timber harvester owns a sawmill and processes
some of the logs it harvests into softwood lumber, but, at the same time, sells at arm's length some or
all of the lumber it produces to lumber remanufacturers for further processing. We also note that it is
undisputed between the participants that the United States did not carry out any pass-through analyses
in the investigation at issue.
 192
156. In the first situation, the question is whether a pass-through analysis is required with respect
to arm's length sales of logs by harvesters who own sawmills to unrelated sawmills for further
processing. For this category of arm's length transactions, the United States argues that no pass-
through analysis is required, because the tenured harvester/sawmill processes some logs into
softwood lumber in its own sawmill, and is thus a producer of the product subject to the

191Panel Report, US – Countervailing Measures on Certain EC Products, para. 7.44. (emphasis added)
In the same vein, the Appellate Body held in EC – Bed Linen (Article 21.5 – India) that, under the Anti-
Dumping Agreement:
Members have the right to impose and collect anti-dumping duties only
after the completion of an investigation in which it has been established
that the requirements of dumping, injury, and causation " have been
fulfilled ". In other words, the right to impose anti-dumping duties under
Article 9 is a consequence of the prior determination of the existence of
dumping margins, injury, and a causal link. (original italics)
(Appellate Body Report, EC – Bed Linen (Article 21.5 – India), para. 123)
192United States' and Canada's responses to questioning at the oral hearing; Panel Report, para. 7.93.

investigation. 193 We are not persuaded that the fact that the harvester/sawmill processes in-house
some of the logs it harvests into softwood lumber is relevant in determining whether a pass-through
analysis is necessary.
157. As we mentioned above, the United States acknowledges that a pass-through analysis is
required where a tenured "independent" harvester, which does not own a sawmill and thus does not
produce softwood lumber, sells logs at arm's length to unrelated sawmills. We do not see why the
mere fact that a tenured harvesters owns—or does not own—a sawmill, should affect whether a pass-
through analysis is necessary with respect to logs sold at arm's length. We understand the United
States to argue that benefits, initially attached to logs, but retained by a harvester/sawmill when the
logs are sold in arm's length transactions to unrelated buyers, may be used by such a vendor to "cross-
subsidize" its own production of softwood lumber processed in-house from other logs. We agree, in
the abstract, that a transfer of benefits from logs sold in arm's length transactions to lumber produced
in-house from different logs is possible for a harvester that owns a sawmill. But whether, in fact,
this occurs depends on the particular case under examination. In any event, these arm's length sales at
issue concern logs, which are not products subject to the investigation. Accordingly, in cases where
logs are sold by a harvester/sawmill in arm's length transactions to unrelated sawmills, it may not be
assumed that benefits attaching to the logs (non-subject products) automatically pass through to the
lumber (the subject product) produced by the harvester/sawmill. A pass-through analysis is thus
required in such situations.
158. Indeed, we disagree with the proposition that, as long as an enterprise produces products
subject to an investigation, any benefits accruing to the same enterprise from subsidies conferred on
any different products it produces (which are not subject to that investigation), could be included,
without need of a pass-through analysis, in the to tal amount of subsidization found to exist for the
investigated product, and that may be offset by levying countervailing duties on that product.
 194 We
conclude that the pass-through of the benefit cannot be presumed with respect to arm's length sales of
logs by harvesters, who own sawmills, to unrelated sawmills, for further processing.
159. For these reasons, we uphold the Panel's finding, in paragraph 7.99 of the Panel Report, that
USDOC's failure to conduct a pass-through analysis in respect of arm's length sales of logs by
tenured harvesters/sawmills to unrelated sawmills is inconsistent with Articles 10 and 32.1 of the
SCM Agreement, and Article VI:3 of the GATT 1994.

193Canada does not argue that a pass-through analysis is required in respect of logs harvested by a
tenured harvester/sawmill and subsequently processed in-house into softwood lumber.
194United States' responses to questioning at the oral hearing.

F. Sales of Lumber at Arm's Length by Tenured Timber Harvesters/Sawmills to
Unrelated Lumber Remanufacturers
160. We turn now to the second pass-through situation at issue, which concerns tenured timber
harvesters that own or are related to sawmills, process the logs they harvest into softwood lumber, and
sell lumber to unrelated remanufacturers for further processing. The question here is whether a pass-
through analysis is required in respect of these arm's length sales of softwood lumber.
161. In this situation, the products of both the harvesters/sawmills and the remanufacturers are
subject to the investigation. It is uncontested that "certain softwood lumber" includes "primary"
lumber produced by sawmills and "remanufactured" lumber produced by remanufacturers. We also
note that USDOC chose to conduct this investigation on an aggregate basis. Canada accepts that
aggregate investigations are contemplated by Article 19 of the SCM Agreement, but takes issue with
how USDOC calculated the total amount of the s ubsidy and the countervailing duty rate in the
investigation at issue. We have confirmed above that performing investigations on an aggregate basis
is permitted under the SCM Agreement and the GATT 1994, and we have observed that calculation
issues are beyond the scope of this appeal.
162. The Panel reasoned in this respect:
… some portion of any subsidy from stumpage is attributable to the
harvester/sawmill's production of the lumber for re-manufacturing
and some is attributable to the other products (including lumber) that
the harvester/sawmill produces. Here, if the subsidies attributable to
the lumber for re-manufacturing are not passed through to the re-
manufacturer that purchases it, then those subsidies should not be
included in the numerator of the subsidization equation, as in this
situation it is the re-manufactured product, not the upstream lumber
product, that is the subject merchandise under investigation.
 195
163. In our view, the Panel's reasoning confuses pass-through questions that may arise when
individual enterprises are investigated, with questions arising in the calculation of the total amount
and the rate of subsidization on an aggregate basis. The question before us is whether it is necessary
to analyze whether benefits have been passed through from one product subject to the investigation
(primary softwood lumber) to another product subject to that investigation (remanufactured softwood
lumber). Once it has been established that benefits from subsidies received by producers of
non-subject products (that is, inputs) have passed through to producers of subject products (primary
and remanufactured softwood lumber), we do not see why a further pass-through analysis between
producers of subject products should be required in an investigation conducted on an aggregate basis.

195Panel Report, para. 7.97.

In this situation, it is not necessary to calculate precisely how subsidy benefits are divided up between
the producers of subject products in order to calculate, on an aggregate basis, the total amount of
subsidy and the country-wide countervailing duty rate for those subject products.
164. It is true, as pointed out by the Panel, that a particular shipment of remanufactured softwood
lumber entering the United States might not be subsidized at all, especially if the remanufacturer
purchased the primary lumber it processed at arm's length. It is also far from certain that every single
shipment of primary lumber will, in fact, be subsidize d, or, even if it is, that it is subsidized at the
average ad valorem country-wide rate determined in an aggregate investigation. Nevertheless, as
we indicated above, Article 19 of the SCM Agreement contemplates the imposition of a country-wide
countervailing duty rate, even when a specific exporter is not subsidized, or when that country-wide
rate does not match the precise amount of subsidization benefiting a specific shipment. And as
mentioned above, the possibility for an exporter not investigated individually to request, pursuant to
Article 19.3, an expedited review to establish an individual countervailing duty rate for that exporter,
also confirms that a country-wide duty rate may, in principle, be imposed. However, the pass-through
question would not be the same when determining, through the review procedure provided for in
Article 19.3, an individual countervailing duty rate for the exporter that requested the review. In such
a review, it is likely that a pass-through analysis would be required to determine whether input
subsidies on logs, having passed through to the production of softwood lumber inputs, have passed
through also to remanufactured lumber produced from those inputs by the particular exporter.
 196
165. For these reasons, we reverse the Panel's finding, in paragraph 7.99 of the Panel Report, that
USDOC's failure to conduct a pass-through analysis in respect of arm's length sales of lumber by
tenured harvesters/sawmills to unrelated remanufacturers is inconsistent with Articles 10 and 32.1 of
the SCM Agreement and Article VI:3 of the GATT 1994.
166. Finally, we note that the Panel's findings, in paragraph 7.99 of the Panel Report, are
not appealed to the extent that they refer to the Panel's reasoning in paragraphs 7.94–7.95. 197
Accordingly, we do not address the Panel's findin g that USDOC's failure to conduct a pass-through

196In an aggregate investigation, by contrast, the correct calculation of the countervailing duty rate
would depend on matching the elements taken into account in the numerator with the elements taken into
account in the denominator. For example, assuming that the numerator would represent the total amount of
subsidy determined on the basis of logs entering sawmills, this numerator would have to be spread over a
denominator consisting of the total amount of product s processed from those logs in order to accurately
calculate a country-wide ad valorem countervailing duty rate to be imposed on lumber imports.
We note, however, that the Panel declined to rule on Canada's claims regarding USDOC's subsidy
calculation in the investigation underlying this dispute and that these findings are not before us on appeal. (See
supra, para. 151)
197See supra, para. 127.

analysis in respect of sales of logs to unrelated lumber producers by tenured timber harvesters not
owning sawmills, and thus not producing softwood lumber products subject to the investigation, is
inconsistent with Articles 10 and 32.1 of the SCM Agreement and Article VI:3 of the GATT 1994.
VII. Findings and Conclusions
167. For the reasons set out in this Report, the Appellate Body:
(a) upholds the Panel's finding, in paragraph 7.30 of the Panel Report, that USDOC's
"[d]etermination that the Canadian provinces are providing a financial contribution in
the form of the provision of a good by providing standing timber to the timber
harvesters through the stumpage programmes" is not inconsistent with
Article 1.1(a)(1)(iii) of the SCM Agreement;
(b) reverses the Panel's finding, in paragraph 7.64 of the Panel Report, with respect to the
interpretation of Article 14(d) of the SCM Agreement , and finds, instead, that an
investigating authority may use a benchmark other than private prices in the country
of provision, provided that:
(i) the investigating authority has established that private prices of the goods in
question in the country of provision are distorted, because of the predominant
role of the government in the market as a provider of the same or similar
goods; and
(ii) when the investigating authority proceed s in this manner, it ensures that the
alternative benchmark relates or refers to, or is connected with, prevailing
market conditions in the country of provision (including price, quality,
availability, marketability, transportation and other conditions of purchase or
sale);
(c) reverses the Panel's consequential finding, in paragraph 7.65 of the Panel Report, that
the United States acted inconsistently with Articles 10, 14, 14(d) and 32.1 of the
SCM Agreement with respect to USDOC's determination of the existence and amount
of benefit in the underlying countervailing duty investigation;

(d) finds, however, that there is not a sufficient factual basis to complete the analysis as
to whether, under Article 14(d) of the SCM Agreement , USDOC was justified in
using a benchmark other than private prices in Canada, and as to whether such
benchmark relates or refers to, or is connected with, prevailing market conditions in
Canada, (including price, quality, availability, marketability, transportation and other
conditions of purchase or sale), and, therefore, does not make findings on whether
USDOC's determination of the existence and amount of benefit in the underlying
countervailing duty investigation is consistent or inconsistent with Articles 14 and
14(d) of the SCM Agreement, or on whether the imposition of countervailing duties
based on that determination is consistent or inconsistent with Articles 10 and 32. 1 of
the SCM Agreement;
(e) upholds the Panel's finding, in paragraph 7.99 of the Panel Report, that USDOC's
failure to conduct a pass-through analysis in respect of arm's length sales of logs by
tenured harvesters/sawmills to unrelated sawmills is inconsistent with Articles 10
and 32.1 of the SCM Agreement and Article VI:3 of the GATT 1994;
(f) reverses the Panel's finding, in paragraph 7.99 of the Panel Report, that USDOC's
failure to conduct a pass-through analysis in respect of arm's length sales of lumber
by tenured harvesters/sawmills to unrelated remanufacturers is inconsistent with
Articles 10 and 32.1 of the SCM Agreement and Article VI:3 of the GATT 1994.
168. The Appellate Body recommends that the DSB request the United States to bring its
measure, which has been found in this Report, and in the Panel Report as modified by this Report, to
be inconsistent with the SCM Agreement and the GATT 1994, into conformity with its obligations
under those Agreements.

Signed in the original at Geneva this 18th day of December 2003 by:
Luiz Olavo Baptista
Presiding Member
_________________________ _________________________
John Lockhart Giorgio Sacerdoti
Member Member

ANNEX 1

24 October 2003
(03-5606)
Original: English
UNITED STATES – FINAL COUNTERVAILING DUTY DETERMINATION WITH
RESPECT TO CERTAIN SOFTWOOD LUMBER FROM CANADA
Notification of an Appeal by the United States
under paragraph 4 of Article 16 of the Understanding on Rules
and Procedures Governing the Settlement of Disputes (DSU)
The following notification, dated 21 October 2003, sent by the United States to the Dispute
Settlement Body (DSB), is circulated to Members. This notification also constitutes the Notice of
Appeal, filed on the same day with th e Appellate Body, pursuant to the Working Procedures for
Appellate Review.
Pursuant to Article 16 of the Understanding on Rules and Procedures Governing the
Settlement of Disputes ("DSU") and Rule 20 of the Working Procedures for Appellate Review, the
United States hereby notifies its decision to re-file its appeal to the Appellate Body of certain issues of
law covered in the Report of the Panel on United States – Final Countervailing Duty Determination
with Respect to Certain Softwood Lumber from Canada (WT/DS257/R) and certain legal
interpretations developed by the Panel.
1. The United States seeks review by the Appellate Body of the Panel’s legal conclusion that the
determination of the U.S. Department of Co mmerce ("USDOC") of the existence and amount of
benefit to the producers of the subject merchandise was inconsistent with Articles 14 and 14(d) of the
WTO Agreement on Subsidies and Countervailing Measures ("SCM Agreement"), and that therefore
the imposition of countervailing duties on the basis of that determination was inconsistent with
Articles 14, 14(d), 10, and 32.1 of the SCM Agreement. (Panel Report, paras. 7.65 and 8.1(b).)
These findings are in error, and are based on erroneous findings on issues of law and related legal
interpretations, including, for example,
(a) that "market" conditions in the country of provision within the meaning of
Article 14(d) are simply "prevailing" conditions or conditions "as can be found";
therefore, nothing in the text of Article 14(d) justifies disregarding prices in the
country of provision on the grounds that they were distorted or did not reflect the fair
market value of the goods provided;
198

198See e.g., para. 7.51.

(b) that even in cases where the impact of the government’s influence due to its provision
of goods is "substantial or determinative of conditions in the private market," there is
nevertheless a "market" in the sense of Article 14(d) of the SCM Agreement;199
(c) that the use of U.S. prices as the basis for establishing the benchmark for the
determination of benefit on the grounds that private prices in Canada were distorted
by the provincial governments’ financial contributions is inconsistent with
Article 14(d) of the SCM Agreement.200
2. The United States seeks review by the Appellate Body of the Panel’s legal conclusion that the
lack of a "pass-through" analysis with respect to transactions for log and lumber inputs between
producers of the subject merchandise was inconsistent with Article 10 of the SCM Agreement and
Article VI:3 of the General Agreement on Tariffs and Trade 1994 ("GATT 1994"), and that therefore
the U.S. imposition of countervailing duties was inconsistent with Articles 10 and 32.1 of the SCM
Agreement and Article VI:3 of the GATT 1994 (paras. 7.99 and 8.1(c)). These findings are in error,
and are based on erroneous findings on issues of law and related legal interpretations, including, for
example,
(a) that where the lumber producer who receives the subsidy sells logs or lumber to other
lumber producers, a pass-through analysis is required to determine the total subsidy to
production of the subject merchandise;
201
(b) that the USDOC’s failure to conduct a pass-through analysis with respect to
transactions between producers of the subject merchandise was itself inconsistent
with Article 10 and thus Article 32.1 of the SCM Agreement, and with Article VI:3 of
the GATT 1994.202

199See e.g., paras. 7.58 and 7.60.
200See e.g., para. 7.64.
201See e.g., paras. 7.97 and 7.98.
202See e.g., para. 7.99.