Document: WT/DS277/R Page A-1 ANNEX A PARTIES' RESPONSES TO QUESTIONS FROM THE FIRST MEETING Contents Page Annex A-1 Canada's Responses to Questions from the Panel and the United States - First Meeting
Document codes: WT/DS277/R
Complainant: Canada
Respondent: U.S.
Third parties: China, EU, Japan, South Korea
Dispute stage: Mutually Agreed Solution
Agreements cited: Art. VI:6  GATT 1994Art. 1, 3.1, 3.2, 3.3, 3.4, 3.5, 3.7, 3.8, 12, 18.1  Anti-dumpingArt. 10, 15.1, 15.2, 15.3, 15.4, 15.5, 15.7, 15.8, 22, 32.1  Subsidies and Countervailing Measures (SCM)

ANNEX A

PARTIES' RESPONSES TO QUESTIONS
FROM THE FIRST MEETING

Contents Page
Annex A-1 Canada's Responses to Questions from the Panel and the
United States - First Meeting
A-2
Annex A-2 United States Response to Questions from the Panel – First
Meeting
A-21

ANNEX A-1

CANADA'S RESPONSES TO QUESTIONS FROM THE PANEL
AND THE UNITED STATES - FIRST MEETING

To Canada

1. Is Canada of the view that the standard of review under Article 11 of the DSU is stricter
than that under Article 17.6 of the AD Agreemen t? If so, could Canada please provide the
Panel with specific indications of the effect of that difference, in Canada's view, on the Panel's
consideration of the claims in this case.

 In this context, could Canada please co mment on the relevance and effect of the
Declaration of Ministers at Marrakech relating to dispute settlement under the AD and SCM
Agreements.

1. Canada is not saying that the sta ndard of review under Article 11 of the DSU is stricter than
that under Article 17.6 of the Anti-Dumping Agreement but rather that Articles 17.6 and 11
complement each other and should be read t ogether. As the Appellate Body stated in US – Hot-
Rolled Steel,
1 both provisions require that panels make an “objective assessment” of the facts of the
matter.

2. In US – Cotton Yarn , the Appellate Body clarified that an objective assessment of the matter
requires a panel to assess whether the competent authority has evaluated all relevant factors, examined
all pertinent facts and provided a reasoned and ad equate explanation as to how the facts as a whole
support its determination.
2 A panel must also consider whethe r the competent authority’s explanation
addresses fully the nature and complexities of the data and responds to other plausible interpretations
of the data. 3 The United States appears to accept these prin ciples and, in particular, to agree that
under both the Anti-Dumping Agreement and the SCM Agreement, the competent authority must
provide reasoned and adequate explanations of the nature described above.4

3. Canada further notes that the European Commun ities appears to agree with both parties that
the duties of panels under both provisions “do not differ significantly” 5, but “fails to see, on which
legal basis Canada would ask this Panel to determine whether the USIT C has considered all the facts,
including those that should have been before the ITC but were not raised by the interested parties”. 6
Canada would like to clarify that it is not clai ming that the Commission should have obtained certain
additional information that is not in its administ rative record. Canada’s challenge concerns the
Commission’s evaluation of the record that was before it.

1 United States – Anti-Dumping Measures on Certain Hot-Rolled Steel Products from Japan , Report of
the Appellate Body, WT/DS184/AB/R, adopted 23 August 2001, para. 55 (“US – Hot-Rolled Steel”).
2 United States – Transitional Safeguard Measure on Combed Cotton Yarn from Pakistan , Report of
the Appellate Body, WT/DS192/AB/R, adopted 5 November 2001, para. 74 (“US – Cotton Yarn”).
3 Ibid.
4 First Written Submission of the United States, paras. 67-68.
5 Third Party Submission of the European Communities, 22 August 2003, para. 16.

4. Finally, regarding the Declaration of Ministers at Marrakech Relating to Dispute Settlement
Under the AD and SCM Agreements , the Appellate Body has ruled that it “does not prescribe a
standard of review to be applied”.7 In any event, Canada’s interpretation of the applicable standard of
review for this dispute is compatible with the Mi nisters’ recognition of the “need for the consistent
resolution of disputes arising from anti-dumping and countervailing duty measures”.

2. Is Canada of the view that in a case such as this one, involving a single injury
determination with respect to both subsidized and dumped imports, where most of the claims
involve identical or almost identical provisi ons of the AD and SCM Agreements, there might
appropriately be different conclusions under the two Agreements?

5. Yes, there might appropriately be different conclusions under the two Agreements because
certain provisions in the Anti-Dumping Agreement differ from those in the SCM Agreement . For
example, Article 15.7(i) of the SCM Agreement lists as a factor the “nature of the subsidy or subsidies
in question and the trade effects likely to arise therefrom”. There is no similar reference in Article 3.7
of the Anti-Dumping Agreement . Article 3.4 of the Anti-Dumping Agreement lists as a relevant
economic factor “the magnitude of the margin of dumping”. There is no similar reference in
Article 15.4 of the SCM Agreement. Depending on the facts at issue, textual differences such as these
could result in different conclusions under the two Agreements.

3. Could Canada please address what it cons iders is required to demonstrate "special
care" as provided for in Article 3.8 of th e AD Agreement and Article 15.8 of the SCM
Agreement. Canada does not appear to make independent arguments with respect to these
claims, but rather asserts (Canada's first submi ssion at para 65) that the "failure to take
"special care" permeates the entire determinatio n of the [USITC]". Could Canada indicate to
the Panel what it would have expected to see in the determination as a demonstration that
"special care" had, in fact, been taken? In this context, could Canada give any examples, either
from Canadian practice, or any other Member's pr actice, of the elements of "special care" it
would consider appropriate? What elements does Canada consider could demonstrate the
appropriate special care?

6. The “special care” standard found in Article s 3.8 and 15.8 is inextricably linked to the
predictive nature of a “threat of injury” determination and provides an important safeguard against the
dangers inherent in such an exercise.
 8 In this regard, the admonition in Articles 3.7 and 15.7 that a
determination of threat of injury “shall be based on facts and not me rely on allegation, conjecture or
remote possibility”, provides important context for the meaning of the “special care” standard.

7. When threat of injury is at issue, the investigating authorities must undertake a particularly
careful examination of all the required elements in Article 3 of the Anti-Dumping Agreement and
Article 15 of the SCM Agreement .9 The Commission’s errors in th is dispute are such that they
demonstrate that it failed to undertake a review of the nature required by Article 3 of the Anti-

7 United States – Imposition of Countervailing Duties on Certain Hot-Rolled Lead and Bismuth Carbon
Steel Products Originating in the United Kingdom, WT/DS138/AB/R, adopted 7 June 2000, para. 49.
8 The United States recognized this linkage between special care and th e predictive nature of threat
determination in the “Statement of Administrative Action” in Message from the President of the United States
Transmitting the Uruguay Round Agreements, Texts of Agreements Implementing Bill, Statement of
Administrative Action and Required Supporting Statements , H.R. Doc. No. 103-316, vol. 1 (1994), p. 855
(“SAA”) “[b]ecause of the predictive nature of a threat determination, and to avoid speculation and conjecture,
the Commission will continue using special care in making such determinations as provided in the Agreements”.
(Exhibit CDA-22)
9 The examination must reflect the standard of “speci al care”; as stated at paragraph 64 of Canada’s
First Written Submission, “special” means “particularly good; exceptional” and “care” means “serious attention;
heed, caution”.

Dumping Agreement and Article 15 of the SCM Agreement in injury determinations, much less exhibit
the special care with which an investigating authority must analyze the threat of injury.

8. What amounts to “special care” will depend on the facts and circumstances of each
investigation. It is best illustra ted through examples of what does not
 amount to special care. In this
dispute, the Commission concluded that “we find that subject imports from Canada are entering at
prices that are likely to have a significant depr essing or suppressing effect on domestic prices and are
likely to increase demand for further imports” 10 despite lacking sufficient evidence regarding current
prices from which to draw conclusions regarding current price effect, much less future price effect. 11
This is only one of many examples of the Commiss ion’s failure to exercise special care. Other
examples of a lack of special care by the Commissi on are found in Canada’s answers to Questions #6
and #11 of the Panel.

9. Overall, the Commission was required to provide an objective, reasoned and adequate
explanation of how the relevant factors and re cord evidence supported its affirmative threat
determination and why contrary record evidence did not warrant a negative threat determination. The
Commission did not do this and could not do this on the basis of the record before it. Arriving at an
affirmative threat determination notwithstanding th e paucity of analysis and evidence supporting such
a determination clearly falls below the standard of “special care” required in a threat case.

4. Article 3.8 of the AD Agreement and Article 15.8 of the SCM Agreement provide that:

“with respect to cases where injury is threatened by dumped [subsidized]
imports, the application of anti-dumpi ng [countervailing] measures shall be
considered and decided with special care”.
Could Canada address the implications of the phr ase "the application of … measures" in terms
of the timing of the obligations provided for in this provision? Could Canada indicate how, in
its view, the "special care" requirement affects or changes the obligation in Articles 3.1 of the
AD Agreement and 15.1 of the SCM Agreement that a determination of injury "shall be based
on positive evidence and involve an objective examination
…". Is Canada arguing that the
“special care” provision means that there is a stricter, higher standard of review is applicable in
cases of threat than in cases of present material injury? If so, could Canada point to the legal
basis for that argument. Or is Canada arguing that a stricter standard of determination
applies
in threat cases? If so, what, in Canada's view , does such a stricter standard of determination
entail, and how specifically does Canada consid er that the USITC's determination shows the
lack of special care.

10. With respect to the timing of the obligati ons provided for in these provisions, the phrase “the
application of… measures” must be interpreted in its context which includes the phrase “shall be
considered and decided” and its location within the text of Article 3 of the Anti-Dumping Agreement
and Article 15 of the SCM Agreement - both of which are entitled “Determination of Injury” and
contain obligations relating to the exam ination and determination of injury.
12 The “application of …
measures” is “considered and decided” during the injury investigation and determination phase. Thus,

10 Commission Report, p.44. [emphasis added] (Exhibit CDA-1)
11 First Written Submission of Canada, para. 107-112; see also: In the Matter of Certain Softwood
Lumber Products from Canada: Final Affirmative Threat of Injury Determination, Decision of the Panel, Case
No. USA-CDA-2002-1904-07, September 5, 2003 (Can ada-US Free Trade Agreemen t Chapter 19 Binational
Panel Review), available online at http://www.nafta-sec-alena.org, pp. 70-73 (“NAFTA Panel Decision”).
(Exhibit CDA-23)
12 Other Articles govern the imposition and application of anti-dumping and countervailing duties (e.g.,
Articles 7 and 9 of the Anti-Dumping Agreement and Articles 17 and 19 of the SCM Agreement).

the requirement to take special care applies to this phase, in particular to the making of a threat of
injury determination. In this regard, Canada notes the statement of the panel in Mexico – HFCS that,
“Article 3.8 specifies that special care must be used in deciding cases of threat of material injury”. 13
Canada further notes that the United States, when implementing this obligation, clearly linked it to the
determination of threat rather than to the application of measures.
14

11. With respect to whether the special care re quirement affects or changes the obligations in
Article 3.1 of the Anti-Dumping Agreement and Article 15.1 of the SCM Agreement that a
determination of injury “shall be based on positive evidence and involve an objective examination…”,
Canada notes that Articles 3.1 and 15.1 set out overarching requirements that all injury determinations
must meet. However, a threat of injury determination must also meet the “special care” requirement in
Articles 3.8 and 15.8. In this dispute, the Commiss ion’s errors are of such a nature that they are
inconsistent with the requirements under both the provisions of Articles 3.1 and 15.1 and Articles 3.8
and 15.8.

12. As set out in paragraphs 31- 33 of Canada’s First Oral Statem ent, Canada is not arguing that
the “special care” requirement means that a panel
 must adopt a stricter, higher standard of review for
threat analysis than for a present injury analysis. Rather, the special care requirement is imposed
upon investigating authorities , and requires them to undertake a pa rticularly careful examination of
the required elements of Article 3 of the Anti-Dumping Agreement and Article 15 of the SCM
Agreement as a crucial safeguard against the dangers i nherent in the predictive nature of threat
determinations. That a stricter standard of determination applies in threat cases is apparent in the fact
that in addition to the special care requirement, Articles 3.7 and 15.7 impose further requirements on
investigating authorities conducting threat determ inations that do not apply to present injury
determinations – for example, the requirement to base the threat determination on, inter alia, a change
in circumstances that is clearly foreseen and imminent. As the Appellate Body noted in Mexico –
HFCS, this obligation of Article 3.7 (and hence Arti cle 15.7) establishes a “high standard” and that
standard is imposed in the first instance on investigating authorities. 15 What amounts to a failure to
exercise special care on the facts of this case is also discussed in Canada’s answers to Questions #3,
#6 and #11 of th Panel.

5. In paragraph 31-33 of its oral Statemen t, Canada states that the "special care"
obligation requires "an especially careful examinat ion of the required elements" and that the
"standard for determining threat is different, a nd if anything, higher than that for injury.
Could Canada elucidate the basis for this position, in light of the standard for determinations of
injury (including threat) in Articles 3.1 of the AD Agreement and 15.1 of the SCM Agreement?

13. Canada's reference to “standard” in this context is to the substantive obligation ( i.e., the
substantive requirements) impo sed upon investigating authorities
 for establishing threat of injury.
Additional requirements apply to threat of injury determinations that do not apply to present injury
determinations, namely the requireme nts in Articles 3.7 and 3.8 of the Anti-Dumping Agreement and
Articles 15.7 and 15.8 of the SCM Agreement , as described above. The substantive standard for
establishing threat of injury is, in this sense, different and, if anything, higher than the standard for
establishing present injury, because i nvestigating authorities must comp ly with additional substantive
obligations. As noted above, the Appellate Body’s statement in Mexico – HFCS that Article 3.7

13 Mexico – Anti-Dumping Investigation of High-Fruct ose Corn Syrup (HFCS) from the United States ,
Report of the Panel, WT/DS132/R, adopted 24 February 2000, para. 7.119 ( “Mexico – HFCS Panel Report”).
[emphasis added]
14 SAA, p. 855. (Exhibit CDA-22)
15 Mexico – Anti-Dumping Investigation of High Fructose Corn Syrup (HFCS) from the United States:
Recourse to Article 21.5 of the DSU by the United States , Report of the Appellate Body, WT/DS132/AB/RW,
adopted 21 November 2001, para 100 (“Mexico – HFCS AB Report”).

imposes a “high standard” strongly suggests that it has already endorsed this interpretation. The
application of the obligations in Articles 3.8 and 15.8 and their relation to Articles 3.1 and 15.1 are
discussed in Canada's answers to Questions #3 and #4 of the Panel.

6. Could Canada discuss whether its claims under Article 3.1 of the AD Agreement and
Article 15.1 of the SCM Agreement are dependent on the Panel's resolution of Canada's claims
of violation of Articles 3.2, 3.4, and 3.7 of the AD Agreement and 15.2, 15.4, and 15.7 of the SCM
Agreement? If not, could Cana da please indicate to the Panel the arguments in support of
independent claims of violation?

14. Canada’s claims under Article 3.1 of the Anti-Dumping Agreement and Article 15.1 of the
SCM Agreement are closely related to its claims under Articles 3.2, 3.4, 3.5 and 3.7 of the Anti-
Dumping Agreement and Articles 15.2, 15.4, 15.5 and 15.7 of the SCM Agreement. However, they
are not dependent on those claims. On the facts of this dispute, the Commission’s investigation and
determination give rise to violations of the overarc hing obligations in Articles 3.1 and 15.1 and, at the
same time, the specific obligations in the other Ar ticles that Canada has invoked in its challenge.
Given substantive differences in the obligations in Articles 3.1 and 15.1 compared to these other
Articles, certain factual scenarios could give rise to violations of Articles 3.1 and 15.1 without
violating the provisions of the other Articles. Howe ver, Canada is not raising such facts in this
dispute. The same facts give rise to violations under the overarching provisions as well as the specific
provisions Canada has invoked in this dispute.

15. Articles 3.1 and 15.1 contain substantive a nd overarching obligations that must be observed
by investigating authorities in making injury dete rminations. These obligations inform the more
detailed obligations in the re mainder of Articles 3 and 15.
16 As noted by the Appellate Body in
Mexico – HFCS, “There is . . . a close relationship between the various paragraphs of Article 3 of the
Anti-Dumping Agreement”. 17 Articles 3.1 and 15.1 provide that an injury determination must be
made on the basis of “positive evidence” and involve an “objective examination” of:

 - the volume of the dumped or subsidized imports;

 - the effect of the dumped or subsidized imports on prices in the domestic market for
the like products; and

 - the consequent impact of these imports on domestic producers of such products

16. In a threat context, Articles 3.1 and 15.1 require an objective examination of the likely

“volume”, “price effect” and “impact” of the subject imports. Articles 3.2, 3.4, 3.5, and 3.7 of the
Anti-Dumping Agreement and Articles 15.2, 15.4, 15.5 and 15.7 of the SCM Agreement expand on
these requirements as well as enumerate factors relate d to the investigating authority’s examination of
these issues. 18 Thus, the examination that an investig ating authority must undertake under these
provisions must also be “objective” and based on positive evidence. If it is not, there will be a
violation of overarching obligation in Articles 3.1 and 15.1.

18 In the context of the relationship between Articles 3.1 and 3.4 of the Anti-Dumping Agreement, the
panel in Mexico – HFCS Panel Report , stated that “Article 3.1 requires that a determination of ‘injury’, which
includes threat of material injury, involve an examination of the impact of imports, while Article 3.4 sets forth
factors relevant to that examination”, para. 7.127.

17. With respect to the failure of the Commission to base its determination of threat of injury on
“positive evidence”, the evidence on the Commission’s record does not support an affirmative threat
finding. For example, there is no positive evidence:

 - of “a significant rate of increase of [dumpe d or subsidized] imports” given that first,
the evidence showed only a 2.8 percent in crease over the Commission’s period of
investigation and second, that the Commission concluded, in light of its finding that
subject imports had not had a significant price effect and the small increase in their
market share, that subject imports did not have a significant impact on the domestic
industry
19, and then made a finding of no present injury;

 - of “sufficient freely disposable, or an i mminent, substantial increase in, capacity of
the exporter indicating the likelihood of substantially increased dumped [subsidized]
exports to the importing Member’s market, taking into account the availability of
other export markets to absorb any additi onal exports” given the projections of the
Canadian exporters showing that exports to the United States were expected to
increase only slightly in absolute terms from the non-injurious levels of 2001 and to
decrease as a percentage of total Canadian exports20; and

 - that “imports are entering at prices that will have a significant depressing or
suppressing effect on domestic prices and would likely increase demand for further
imports” given that the Commission was unabl e to draw conclusions regarding the
current effect of current prices of subject imports during the period of investigation.

18. With respect to the Commissi on’s failure to conduct an objective examination, a key issue in
this dispute is whether the Commission provided a reasoned and adequate explanation of how the
relevant facts supported its affirmative threat of injury determination.

19. This interpretation of the requirement for an “objective examination” finds support in the
meaning of “objective assessment” under Article 11 of the DSU. An “objective
 assessment” has been
interpreted by the Appellate Body to mean:

[P]anels must examine whether the compet ent authority has evaluated all relevant
factors; they must assess whether the competent authority has examined all the
pertinent facts and assessed whether an ade quate explanation has been provided as to
how those facts support the determination; and they must also consider whether the
competent authority’s explanation addresses fu lly the nature and complexities of the
data and responds to other plausible interpretations of the data.
21
20. As discussed in Canada’s First Written Subm ission and First Oral Statement, the Commission
did not provide such explanations in this dispute.

7. Could Canada discuss whether its claims under Article 12.2.2 of the AD Agreement and
Article 22.5 of the SCM Agreement are dependent on the Panel's resolution of Canada's claims
of violation of Articles 3.2, 3.4, and 3.7 of the AD Agreement and 15.2, 15.4, and 15.7 of the SCM
Agreement? If not, could Cana da please indicate to the Panel the arguments in support of
independent claims of violation?

19 Commission Report, p. 36. (Exhibit CDA-1)
20 Ibid., Table VII-2
21 US – Cotton Yarn, para. 74.

21. Canada wishes to make two distinct but re lated points to clarify the relationship between
Canada’s claims under Article 12.2.2 of the Anti-Dumping Agreement and Article 22.5 of the SCM
Agreement and the rest of Canada’s claims under these Agreements.

22. First, Canada’s claims with respect to Ar ticles 12.2.2 and Article 22.5 are best understood as
procedural claims, in the sense that these Articles set out specific obligations regarding the content
 of
the public notice or separate report rega rding an affirmative determination, i.e., in the context of this
case, what must be in the Commission’s Report or reasons. These requirements include providing, in
sufficient detail, all relevant information on the ma tters of fact and law as well as the reasons that
have led to the imposition of final measures, incl uding reasons for the acceptance or rejection of
relevant arguments or claims made by the exporters and importers. Canada’s point is that the Report
in question here simply does not contain what it is required to contain under Articles 12.2.2 and 22.5.
Canada’s claims under the other provisions are substantive in nature and address how the
Commission’s determination itself falls short of th e obligations set out in Articles 3 and 15 of the
Anti-Dumping Agreement and SCM Agreement, respectively.

23. Canada’s second point is that Articles 12.2.2 and 22.5 do not require an investigating
authority to provide a “reasoned and adequate expl anation” of its decision. Rather, as discussed
above and in Canada’s previous submissions, this obligation flows from the substantive obligations in
Articles 3 and 15 viewed in the light of the standard of review under Article 11 of the DSU and
Article 17.6(i) of the Anti-Dumping Agreement . Furthermore, Article 3.1 of the Anti-Dumping
Agreement and Article 15.1 of the SCM Agreement also place related requirements on investigating
authorities, for example, the need to base an injury determination on an “objective examination”.
Therefore, the US assertion, in its closing statement at the first meeting of the Panel, that the
“‘reasoned explanation’ obligation Canada has identified apparently flows from certain provisions in
Article 12.2 of the Anti-Dumping Agreement and Artic le 22.5 of the Subsidies Agreement”, is clearly
incorrect.
22

24. Finally, as a practical matter, Canada rec ognizes that it would be unusual for an injury
determination to either satisfy th e obligations in Articles 3 and 15 but not Articles 12.2.2 and 22.5, or
vice versa. However, this possibility does not arise here since the Commission’s determination fails
under all these provisions.

8. Is it Canada's view that all of the Articl e 3.4/Article 15.4 factors must be considered a
second
 time in the context of a determination of threat of material injury? If so, what would
Canada argue such consideration must en tail? How would Canada reconcile such a
requirement with the views of the Panel in Mexico – Corn Syrup? Could Canada indicate to the
Panel where in the text of the Agreements it fi nds an obligation for such a second consideration
of these factors?

25. In the context of a determination of threat of injury under the provisions of the Anti-Dumping
Agreement and the SCM Agreement , the required analysis of the “relevant economic factors and
indices having a bearing on the state of the industr y” as set out in Article s 3.4 and 15.4 cannot be
limited to the impact of the dumped or subsidized imports on the domestic industry in the past or the
present. In order to evaluate the likely impact of further dumped/subsidized imports on the domestic
industry, the competent authority must undertake an an alysis of how any of the relevant factors listed
in Article 3.4 and Article 15.4 will change in the future. The task is to examine threat not as
conjecture or speculation, and therefore also not as simple extrapolation, in taking into account
relevant factors that could have a bearing on the stat e of the domestic industry in the future. Thus, in
the context of a threat of injury determination, an evaluation of the impact of the projected increased
subject imports in relation to the relevant factors in Articles 3.4 and 15.4 is required. It is not a

22 US Closing Statement at First Panel Meeting, para. 4.

“second” examination of the Articles 3.4 and 15.4 factors in the sense that examination of them in the
threat context duplicates the examination in the current injury context. Examination of the Article 3.4
and 15.4 factors in the threat of injury analysis is the first time that the investigating authority
examines them in this predictive context.

26. Canada is not suggesting that the examina tion of these factors in the two contexts are
unrelated. To the contrary, the threat analysis mu st take into account, and be consistent with, the
current injury analysis. That means, for example, that the Commission must find a change in
circumstances from the conditions prevailing during the period of investigation so that the non-
injurious status quo would change and injury from dumping or subsidy would occur.

27. In the absence of an evaluation of the relevant economic factors in the future, it is impossible
for the competent authorities to determine whethe r likely increased dumped/subsidized imports would
adversely affect the domestic industry in such a manner as to cause injury. In other words, that
imports are likely to increase does not necessarily mean that they will account for an increased market
share, have an adverse effect on domestic production, sales and output, or adversely affect the profits
of domestic producers, etc. in such a way that inju ry would occur. It is only through an examination
of the likely impact of the dumped imports on the do mestic industry concerned in the future that a
reasoned determination that injury would likely occur can be made.

28. This interpretation of Articles 3.4 and 15.4 in the context of threat of injury flows from the
views of the panel in Mexico – HFCS. For example, at paragraph 7.141 of its report the panel stated
the following:

Merely that dumped imports will increase, and will have adverse price effects, does
not, ipso facto, lead to the conclusion that the dom estic industry will be injured – if
the industry is in very good condition, or if there are other factors at play, dumped
imports may not threaten injury . Such a conclusion thus requires the investigating
authority to analyze, based on the informati on before it, the likely impact of further
dumped imports on the domestic industry . SECOFI concluded that imports were
likely to increase, based on the increases durin g the period of investigation, and the
available capacity of the exporting producers, but there is no meaningful analysis,
based on facts, concerning the likely impact of further dumped imports on the
domestic industry in the final determination , e.g., whether such increased imports are
likely to account for an increased share of the growing Mexican market, have an
effect on production or sales of sugar, or aff ect the profits of the domestic producers,
etc, in such a manner as to constitute material injury.23
29. Similarly, in this dispute, there is no meaningful analysis, based on facts, concerning the
likely impact of further dumped imports on the domestic industry in the final determination of the
Commission. The Commission’s failure to assess the impact of the subject imports on the domestic
industry in the future
, constitutes a violation by the United Stat es of its obligations in Articles 3.4 and
15.4.

9. Is Canada of the view that Article 3.7 of the AD Agreement and Article 15.7 of the SCM
Agreement require the identification of a specific ev ent or turning-point in time as a "change in
circumstances" in order to justify an affirmative determination of threat of material injury? If
so, could Canada please comment of the import of the footnote to this provision, which sets out
as an example " that there is convincing reason to believe that there will be, in the near future,
substantially increased importation of the product at dumped prices." In addition, could Canada
comment on the view that the "change in ci rcumstances" could be understood to encompass

23 Mexico – HFCS Panel Report, paras. 7.141 [emphasis added].

developments in the situation of the industry, and/or the dumped or subsidized imports, which
lead to the conclusion that injury which ha s not yet occurred can be predicted to occur
imminently, and need not refer to any specific even t. Canada argues at paragraph 9 of its oral
statement that "to establish threat, some im minent and foreseeable change from the non-
injurious present must be identified" but that "a" specific change need not be shown. Could
Canada expand on this assertion – what might cons titute the relevant change if not an event,
and how must it be shown? Could Canada indicate what is the legal basis for its assertion that
the change in circumstances must be explicitly identified?

30. Article 3.7 of the Anti-Dumping Agreement and Article 15.7 of the SCM Agreement require
that in order to justify an affirm ative determination of threat of injury, an investigating authority
identify “[t]he change in circumstances whic h would create a situation in which the dumping
[subsidy] would cause injury”. This interpretation is confirmed by the following statement of the
Appellate Body in Mexico – HFCS:

We note that Article 3.7 of the Anti-Dumping Agreement provides that a
determination of a threat of injury must be based on a change in circumstances that
must be ‘clearly foreseen and imminent’.
24
31. The change in circumstances need not be e xplicitly identified in the determination as “a
specific event or turning point”, but some “clearly foreseen and imminent” change must be identified
that would “create a situation in which the dumping [subsidy] would cause injury”. As observed by
the European Communities 25, the phrase at issue does not require a determination of the precise
moment in time when the change occurs, but rather an analysis of the factors that would create a
change in circumstances.

32. The factors listed in Article 3.7 of the Anti-Dumping Agreement and Article 15.7 of the SCM
Agreement provide the context in which an investiga ting authority should analyse whether such a
clearly foreseen and imminent change in circ umstances can be identified. Footnote 10 to the Anti-
Dumping Agreement provides an example of such a change – i.e., that there is a convincing reason to
believe that there will be, in the near future, substantially increased importation of the product at
dumped prices. We note, however, that the exam ple in footnote 10 of substantially increased
importation is not, in itself, a sufficient basis for a finding of threat of injury. The investigating
authority still has to conduct proper causation and non-attribution analyses in order to determine
whether the change in circumstances would create a situation in which the dumping (subsidy) would
cause injury.

33. With respect to a change in circumstances en compassing developments in the situation of the
domestic industry, we note again that the change in circumstances contemplated by Articles 3.7 and
15.7 has to create a situation in which the dumping [subsidy]
 would cause injury. Therefore, a
deterioration of the condition of the domestic i ndustry to the point where the industry would be
injured cannot amount to the required change in circumstances if the deterioration is not caused by the
dumping [subsidy].

34. The legal obligation to exp licitly identify the “change in circumstances” arises from the
above-noted language of Articles 3.7 and 15.7 in the li ght of the applicable standard of review as well
as from the requirement to undertake an objective examination under Articles 3.1 and 15.1. In the
circumstances of this dispute, such an examination could not be achieved without identifying the
change in circumstances from the non-injurious status quo.

25 Third Party Submission of the European Communities, 22 August 2003, para. 41.

10. Are the elements identified in the bullet points at paragraph 23 of its oral statement
those Canada considers necessary for a threat determination?

35. The elements identified in the bullet points at paragraph 23 of Canada’s First Oral Statement
are those contained in Articles 3.1 and 15.1 and re flect the overarching requirements to be met by
determinations of injury – whether based on a finding of current injury or threat of injury. As stated
above in response to Question #6, these Articles re quire that injury determinations be based on
positive evidence and an objective examination of th e volume, price effect and impact of subject
imports. In the threat context, due to its inherently predictive nature, the likely volume, price effect
and impact of subject imports form the focus of th e relevant examination. These elements contained
in Articles 3.1 and 15.1 are expanded upon by the re quirements set out in subsequent provisions in
Articles 3 and 15. 26 In other words, they are necessary, but not exclusive, elements for a threat
determination.

11. Canada argues at paragraph 153 of its fi rst submission that the USITC "failed to
examine and evaluate all evidence before it rel evant to the demonstration of the necessary
causal relationship". Could Canada indicate what it would have expected to find in an
adequate determination regarding causal relationship?

36. The causal relationship between the subj ect dumped and subsidized imports and the
threatened injury is an essential requirement of Article 3.7 of the Anti-Dumping Agreement and
Article 15.7 of the SCM Agreement, which require an investigating authority to identify “the change
in circumstances which would create a s ituation in which the dumping [subsidy]
 would cause injury ”
[emphasis added]. As elaborated upon in Ar ticles 3.5 and 15.5 of those Agreements, the
“demonstration of a causal relationship between the dumped [subsidized] imports and the injury to the
domestic industry shall be based on an examination of all relevant evidence before the authorities”. In
addition, the authorities “shall also examine any known factors other than the dumped [subsidized]
imports which at the same time are injuring the domestic industry, and the injuries caused by these
other factors must not be attributed to the dumped [subsidized] imports”. To ensure compliance with
this non-attribution requirement, investigating author ities must separate and distinguish the effects of
the other known factors from those attributed to th e subject imports. Finally, the Commission had to
provide a reasoned and adequate e xplanation of how the relevant facts pertaining to these causation
issues supported its affirmative threat determination. To be “adequate”, the Commission’s affirmative
threat determination and its causation finding had to comply with all of these requirements. It did not
do so.

37. The Commission’s investigation and determina tion falls short of the applicable requirements
for several reasons:

 - It failed to take into account its own finding that the United States was not self-
sufficient in lumber and that a significant volume of imports was needed to fulfil
demand.
27 This finding, together with the Commission’s prediction of strong and

26 As discussed at paragraphs 58-59 of Canada’s First Written Submission, the Appellate Body has
recognized that these oblig ations inform the more detailed obligatio ns in succeeding paragraphs, including
Articles 3.2, 3.4, 3.5, 3.7 and 3.8 of the Anti-dumping Agreement and Articles 15.2, 15.4, 15.5, 15.7 and 15.8 of
the SCM Agreement.
27 The Commission recognized that “[a]pparent domestic consumption exceeds domestic production
capabilities. As a result some imports are required in th e US market to satisfy demand.” (Commission Report,
pp. 24-25). (Exhibit CDA-1) What is meant by “some” can be ascertained by examining the data appended to
the Commission Report. Even assuming that US producers could operate their mills at 100 percent capacity on a
sustained basis and that they could obtain the necessary ti mber supply to feed that capacity (both unrealistic
assumptions), for 2001 the total US production capacity of 40.0 billion board feet (Table III-6, Commission
Report, p. III-11 (Exhibit CDA-1)) falls almost 14 billion board feet short of total apparent consumption of

improving demand in the US market, suggests that any increase in Canadian imports
would continue serving demand that the US industry could not meet, indicating an
absence of the necessary causal relationship.

 - It failed to take into account the likely mark et share of Canadian imports in the future.
In its present injury analysis, the stable ma rket share held by Canadian imports was
pivotal to its findings that subject imports did not have a significant price effect and
did not have a significant impact on the domestic industry.
28 The necessary causal
relationship for threat of injury could not be ascertained without reference to this
crucial factor. Without a finding of a significant increase in subject import market
share in the future, the Commission could not conclude that an increase in subject
imports would have a significant impact on pricing and therefore a significant impact
on the domestic industry.

 - It failed to take into account the implica tions of its finding that the subject imports
were “at least moderately substitutable” with the like domestic product.
29 Inherent in
this finding is the realization that competition between subject imports and the like
domestic product was attenuated to some exte nt. Even if substitutability is high for
some products, it is limited for others, and products for which su bstitutability is only
moderate constitute a significant portion of s ubject imports and US production. As a
result, the Commission should have consider ed whether the projected increase in
subject imports would occur in those typ es of lumber for which substitutability is
more limited and competition is therefore a ttenuated. For example, what portion of
the Commission’s projected increase in subject imports would serve end uses for
which US species such as Southern Yellow Pine are not well suited, or would supply
demand that US producers could not meet or could meet only to a limited extent?
The Commission did not even consider this important causal question.

 - It failed to address the significance of its own acknowledgement that there had been
“substantial and increasing integration in the North American lumber market”.
30 This
increasing integration is likely to affect the impact of the subject imports on the
domestic industry in the future and, therefore, whether or not the necessary causal
relationship exists.

 - It failed to take into account its finding that US domestic producers were responsible
for purchasing or importing a “sizeable volume” of the subject imports.
31 Did this
mean that US producers needed to fill out their product lines with products they could

softwood lumber in the US market (53.9 billion board feet: Table IV-2, Commission Report, p. IV-4 (Exhibit
CDA-1)). This means that under these unrealistic assumptions, the US industry could supply only 74 per cent of
US demand. At 92 percent capacity utilization, the hi ghest utilization achieved over the seven-year period
shown in Table III-6, the shortfall is just over 17 billio n board feet and at the average capacity utilization over
the seven-year period (88.7 per cent), the shortfall is well over 18 billion board feet.
28 Commission Report, pp. 35-36. (Exhibit CDA-1)
29 The finding of at least moderate substitutability is grounded in part in the conclusions of the
Commission Staff that “[f]or a given end use, softwood lumber of different species or from different regions is
generally interchangeable. However, for some uses, a specific species is frequently preferred because of its
particular characteristics…” [emphasis added] and “a relatively hi gh degree of substitution between domestic
softwood lumber and subject imports from Canada for a given species and/or a particular set of preferred lumber
characteristics. However, differences in physical characteris tics among available specie s in each country, as
well as customer preferences for particular species , may limit overall substitutability” [emphasis added],
Commission Report, pp. I-15 and II-5. (Exhibit CDA-1)
30 Commission Report, p. 27. (Exhibit CDA-1)
31 Ibid.

not produce themselves in order to meet US consumer demand? Did the fact that US
producers were selling a sizeable volume of these imports in their own domestic
market reduce the price threat of Canadian imports in that market? These important
questions regarding the existence of th e necessary causal relationship, which the
Commission itself acknowledged to be “pertinent” and “relevant” to its analysis, were
not even considered, let alone explained.

38. With respect to non-attribution, the Commissi on fails to even acknowledge the requirement to
separate and distinguish the effects of other factors, such as the role of the US domestic industry, from
the effects of the subject imports. Pursua nt to the Appellate Body’s statements in US– Hot-Rolled
Steel, the absence of such an analys is means that in this case, the Commission had no rational basis to
conclude that softwood lumber from Canada is th reatening to cause inju ry to the US domestic
industry.
32 Furthermore, the examination the Commission failed to conduct should have, at the very
least, included:

 - An examination of the contribution of the US industry to any future injury. The
Commission acknowledged the US industry’s own contribution to the oversupply that
led to the price declines during the period of investigation.
33 What was the likely
response of the US industry to the Commi ssion’s projected increase in demand?
Clearly, an analysis of the likely response was relevant to ascertaining the cause of
any threatened injury in the future – ju st as it was critical to the Commission’s
analysis of current injury.

 - Other factors that also should have been examined include: the future role of non-
subject imports, changes in patterns of cons umption, the growth of engineered wood
products, constraints on domestic producti on and timber supplies in the US, and the
cyclical nature of the softwood lumber industry.

 - Once examined, moreover, the effects of those other known factors should have been
separated and distinguished from those attributed to subject imports.

39. What would Canada have expected to find in an adequate determination regarding causal
relationship? At the very least, the foregoing deficiencies ought to have been addressed.

12. At paragraph 52 of its oral statement, Canada argues that "the subsidies at issue did not
and would not have injurious trade effects". Is Canada of the view that in the absence of a
finding that the nature of the subsidies is such that they will have injurious trade effects, an
affirmative determination of threat of materi al injury is precluded in a countervailing duty
investigation?

40. No, Canada is not saying this . Canada recognizes that Articles 3.7 and 15.7 both state that no
one of the enumerated factors can necessarily give decisive guidance. However, this does not mean
that a factor cannot give decisive guidance in the circumstances of a particular case . Where an
investigating authority concludes that a subsidy woul d have no effect on trade this conclusion can be
central to a finding that the domestic industry in quest ion was not threatened by injury and thus there
would be no basis for the application of countervailing duties.

41. This analysis applies in th is case because of the nature of the stumpage subsidy at issue.
Standing timber, like other inputs that are in situ natural resources, exists within a rent market and as
the Nordhaus study showed by applying standard principles of Ricardian rent theory, the amount of

32 US – Hot-Rolled Steel, pp. 222-223.
33 Commission Report, n217.

the fee or charge for the input, unless they are out side the normal range, has no impact on marginal
cost, price or quantity of the downstream product that the input goes into. Here, the economic rent for
standing timber is derived from the demand for lumber , and the output of lumber is not determined by
stumpage charges in the normal range. No matter how low the stumpage charge is – as long as it is
positive and in this case it is agreed that charges were positive – then the quantity of logs produced
will be no greater, and their prices will be no lower, than they would be in a competitive market. In
such circumstances, there will be no trade effect from the subsidy in question.

42. Thus, an objective examination of the eviden ce regarding the nature of the subsidy and its
likely trade effects should have led the Commission to conclude that the stumpage charges levied by
Canadian provinces would not lead to an increase in imports beyond the non-injurious level observed
in the period of investigation. As such, the Comm ission’s finding that imports were likely to increase
substantially and cause injury could not be based on positive evidence or an objective examination
and, therefore, should have led the Commission to make a negative threat of injury determination.

13. In its oral statement, Canada states that the Agreements "require" a likelihood of
substantially increase dumped and subsidised ex ports (paragraph 62) and that the USITC "did
not find the requisite imminent, substantial increase " in capacity. Is Canada of the view that in
the absence of affirmative findings or conclusions on these factors, an affirmative determination
of threat of material injury is precluded?

43. Article 3.7(ii) and 15.7(iii) re quire that when an investigating authority considers “sufficient
freely disposable, or an imminent, substantial incr ease in, capacity of the exporter”, it do so in the
context of whether this capacity indicates a like lihood of substantially increased dumped [subsidized]
exports. That is what Canada meant when it referred, at paragraph 62 of its First Oral Statement, to
“the likelihood of substantially increased dumped and subsidized exports to the United States that the
Agreements require”.

44. To find that an imminent, substantial in crease in capacity indicated a likelihood of
substantially increased imports, the Commission would have had to first find an imminent, substantial
increase in capacity. But the Commission did not and could not on the basis of the evidence on the
record find that “requisite” imminent, substantial increase in capacity. Indeed, the data on the record
indicated either a slight decline in capacity over th e 2002-2003 period or a slight increase of less than
one percent annually.
34

45. With respect to disposable capacity, the Un ited States did not address whether the Canadian
producers’ disposable capacity indicated substantially increased exports. In fact, the evidence on the
record indicated that the projections of Canadian producers were for only a slight increase in exports.

46. Therefore, the Commission could not rely on Articles 3.7(ii) and 15.7(iii) to support its
finding of a likely substantial increase in imports.

47. The fact that an investigating authority cannot rely on Articles 3.7(ii) and 15.7(iii) is not, in
itself, fatal to an investigating aut hority’s threat of injury finding. In the present case, what is fatal to
the Commission’s threat of injury finding is that it is not supported by any of the factors enumerated
in Articles 3.7 and 15.7 and the Commission’s analysis of the other factors it cites in support of its
finding was similarly flawed.

14. The Panel understands that Canada is not arguing that a combined analysis of injury
caused by dumped and subsidized imports is per se inconsistent with the cited Agreements. As
Canada is not challenging combined analysis per se, could Canada please explain in detail what

34 First Written Submission of Canada, para. 103.

violation is being alleged in this regard? Is Cana da referring to the violations it has otherwise
asserted, in which case it would appear that this claim is dependent on the Panel's findings on
those other claims? Is Canada of the view that, in the event the Panel finds a violation of any
other provision of the relevant Agreements, the injury determination as a whole should be
deemed inconsistent with both the AD and SC M Agreements? At paragraph 122 of its oral
statement, Canada asserts that the USITC failed to explain why it was appropriate to conduct a
combined analysis in this case. Could Canada indicate to the Panel where in the Agreements it
finds an obligation to provide such an explanatio n? Could Canada address, in this context, the
relevance of the discussion in the USITC determination (Exhibit USA-1) at pages 29-31?

48. As Canada explained in its First Written Subm ission, the obligation the United States failed to
fulfil in cross-cumulating was the requirement to satisfy the specific requirements of each of the
Agreements at issue. The violations that flow from this claim are consequential to the finding of
violations under the specific requirements of the Anti-Dumping Agreement and separately under the
SCM Agreement. Although most of the threat factors iden tified in Articles 3 and 15 are the same in
subsidy and dumping cases, the requirement in Article 15.7(i) of the SCM Agreement that an
investigating authority consider the nature of the s ubsidy and its likely trade effects (addressed in the
answers to Questions 12 and 15) has no counterpart in Article 3. If the Panel finds a violation of any
of the common provisions in Articles 3 and 15, the injury determination as a whole should be found to
be inconsistent with both the Anti-Dumping and SCM Agreements, and the Panel should recommend
that the United States bring itself into conformity with its WTO obligations.

49. Canada has also submitted that the Unite d States has failed to provide a reasoned and
adequate explanation of why it conducted a combined injury analysis in the circumstances of this
case. As Canada has explained in response to Ques tion #1 above and in its previous submissions, the
obligation to provide a reasoned a nd adequate explanation flows from the substantive obligations of
Articles 3 and 15 when viewed in the light of the standard of review under Articles 11 of the DSU and
17.6(i) of the Anti-Dumping Agreement. In the circumstances of this case, i.e., the incomplete overlap
between dumped and subsidized exports and the fact that the nature of the subsidy involved and the
lack of trade effects from this subsidy was a central issue in the investigation, the Commission should
have provided a reasoned and adequa te explanation of its decision to conduct a combined analysis of
both dumped and subsidized imports. The Commission did not provide such an explanation.

50. The discussion at pages 29-31 of the Commi ssion’s Report addresses two US law arguments
that Canada advanced before the Commission as to why the Commission is precluded from cross-
cumulating subsidized and dumped imports from the sa me country under US law. Canada notes that
in the NAFTA proceeding, the Commission ac knowledged that the reason it gave for cross-
cumulating, i.e., that it was mandated to do so under US law – was incorrect and that in fact it had
discretion to decide whether to cross-cumulate or not. The NAFTA Panel accordingly held that the
Commission’s decision to cross-cumulate was contrary to law and ordered the Commission to
reconsider its decision and provide a “reasoned conclusion” on the issue.
35 In this case, Canada has
advanced different arguments based on the United States’ obligations under the WTO Agreements it
has cited.

15. Could Canada please address why it consid ers that the USITC acted inconsistently in
declining to rely on the Nordhaus study, with pa rticular reference to the information set out in
Exhibit USA-5 at pages D-22-27?

51. The nature and trade effects of a subsidy is a factor listed in paragra ph (i) of Article 15.7 of
the SCM Agreement that should be considered in threat of injury determinations (in this regard see
Canada' answers to Questions 12 and 35). That th is factor was relevant to the Commission's

35 NAFTA Panel Decision, pp. 40-41. (Exhibit CDA-23)

determination is confirmed by the considerable argument and evidence on this point that was
presented to the Commission during its investiga tion and by the Commission's failed attempt to
address this factor in its Final Determination.

52. The Commission’s treatment of this factor is inconsistent with the SCM Agreement because
the Commission failed to examine all pertinent facts re lated to this factor and to provide a reasoned
and adequate explanation as to how those facts s upported its determination. In particular, the
Commission failed to address fully the nature and comple xities of the data related to this factor and to
respond to the interpretations of this evidence a dvanced by the Canadian parties. Since one
interpretation, that the subsidies at issue had no trad e effects, detracted from an affirmative threat of
injury finding from subsidized imports, it was par ticularly important that the Commission adequately
evaluate and examine this factor. It did not do so.

53. The Commission’s limited discussion of the Nordhaus study did not satisfy these
requirements because the Commission (a) mischaracterized the economic principles underlying the
study, and (b) incorrectly stated that the record evidence it cited conflicted with Dr. Nordhaus’
analysis when that evidence was either irrelevant or actually supported his analysis.

54. Each of the three statements that the Co mmission used to justify its assertion that “the
economic theory presented by CLTA is not clearly a pplicable in this market” is not only conclusory
and superficial but incorrect:

• The Commission’s entire discussion is based on the premise that “Ricardian rent
theory relies on the assumption of fixed supply.” As explained in Exhibit CDA-25,
the Nordhaus study did not assume a fixed supply of harvestable timber. Consistent
with economic theory, the Nordhaus study recognized that stumpage charges outside
the normal range may affect timber supply, and demonstrated that stumpage charges
in the normal range do not affect such supply, as the Canadian parties expressly
explained to the Commission.

• The Commission’s proposition that “lumber supply is not necessarily fixed” was not
disputed. That lumber supply varies is i rrelevant to Dr. Nordhaus’ study, which
addressed whether timber supply was affected by Canadian stumpage charges. In any
event, as explained in Exhibit CDA-25, ne ither of the two pieces of record evidence
cited by the Commission contradicts Dr. Nordhaus’ analysis of timber supply.

• The Commission stated that “the record also contains several other studies that have
reached different conclusions regarding the effects of stumpage fees on output”. As
explained in Exhibit CDA-25, none of the four studies discussed in the cited page of
Exhibit USA-5 undermines the analysis in the Nordhaus study that stumpage charges
in the normal range do not affect the supply of logs or lumber.

55. Given the implications of the position that the subsidies did not have any trade effects for the
Commission’s threat of injury finding, its failure to provide a reasoned and adequate explanation for
rejecting the arguments of the Canadian exporters falls far short of the above-noted requirements and
of the requirement to take “special care” under Artic les 3.8 and 15.8. The Commission’s finding that
the record contained conflicting evidence about the nature and trade effects of the subsidy should have
been the beginning, not the end, of the Commission’s analysis.

To both parties

33. Could the parties please address the distinct ions they see, if any, between "finding",
"evaluation" and "consideration" in the context of analysis of factors in a determination under
Article 3 of the AD Agreement and/or Article 15 of the SCM Agreement.

56. Canada’s position is that there is a distin ction between a “finding”, on the one hand, and
“evaluation” and “consideration”, on the other. In the context of an investigation involving a
determination of threat of injury pursuant to Article 3.7 of the Anti-Dumping Agreement and 15.7 of
the SCM Agreement , an investigating authority is required to make a finding on whether “further
[dumped or subsidized] exports are imminent and that, unless protective action is taken, material
injury would occur”.

57. As stated at paragraph 24 of Canada’s First Or al Statement at the first substantive meeting of
the Panel, Article 3.7 of the Anti-Dumping Agreement and 15.7 of the SCM Agreement provide that an
investigating authority should “consider” certain factors. The term “consider” requires that it must be
apparent in the relevant documents in the record th at the investigating authority has given attention to
and taken into account the factors re quired to be considered. This re quires an examination of factors
that goes beyond a mere recitation of factors in th e abstract without putting the facts into context
36,
but does not necessarily require an explicit “finding” or determination by the investigating authorities
on each relevant factor. However, Articles 3.7 an d 15.7 require that the “totality of the factors
considered must lead to the conclusion that furthe r [dumped or subsidized] exports are imminent and
that, unless protective action is taken, material injury would occur”.

58. It is also important to note that pursuant to th e applicable standard of review under Article 11
of the DSU and Article 17.6(i) of the Anti-Dumping Agreement, it is the duty of the Panel to assess
whether the investigating authority has evaluated all relevant factors, whether it has examined all the
pertinent facts, and whether it provided an adequa te explanation as to how those facts support its
determination.
37 In effect, this standard defines when an investigating authority can be considered to
have acted consistently with the Anti-Dumping Agreement and the SCM Agreement in the course of its
“consideration” of the relevant f actors under Articles 3.7 and 15.7. In this light, an investigating
authority’s “consideration” of relevant factors mu st include an examination or evaluation of such
factors.

59. As discussed at paragraph 146 of Canada’s First Written Su bmission, an “evaluation” has
been interpreted to mean “a process of analysis and assessment requiring the exercise of judgement on
the part of the investigating authority” and “not simply a matter of form”. The investigating authority
must “assess the role, relevance and relative weight of each factor in the particular investigation”.
Moreover, an “evaluation” implies the analysis of data through placing it in context in terms of the
particular evolution of the data pertaining to each factor individually, as well as in relation to other
factors examined. Thus, an investigating author ity’s findings on whether “further [dumped or
subsidized] exports are imminent and that, unless pr otective action is taken, material injury would
occur” must be the result of a proper “consideration” and “evaluation” of relevant factors.

60. It is Canada’s position that the Commission’ s examination of relevant factors under each of
the relevant provision in Articles 3 a nd 15 and, consequently, its determin ation of threat of injury fall
short of these requirements in this dispute. As Canada demonstrates in its rebuttal submission, the
totality of the factors that were considered by the Commission could not lead to the conclusion that

36 Canada’s First Oral Statement, paras. 24-27.
37 See also: Canada’s response to Question 1 of the Panel and the report of the Appellate Body in US –
Cotton Yarn, para. 74.

further dumped or subsidized exports are imminent and that, unless protective action is taken, injury
would occur.

34. The Panel notes that Article 3.7 of the AD Agreement and Article 15.7 of the SCM
Agreement provide that "In making a determinat ion regarding the existence of a threat of
material injury, the authorities should
 consider, inter alia, such factors as:.." (emphasis added).
In this context, could the parties comment on the view that consideration of all the listed factors
is not mandatory, and that the fa ilure to consider at all, or to adequately consider, one of the
listed factors, is not fatal to the determination at issue before a Panel?

61. While the factors listed in Articles 3.7 and 15.7 are not mandatory in the sense that the
Agreements require that all enumerated factors must be considered in each case, the WTO Members
clearly thought them to be of such importance to a threat determination that they set them out
explicitly.
38 In any event, this issue does not arise in th e case before this Panel since the Commission
itself thought that the factors were relevant as seen by its attempt to address each of them.

62. Whether a failure to consider at all, or to adequately consider, one of these factors constitutes
a violation of Articles 3.7 and 15.7 will depend on the facts of the particular case. Ultimately, an
investigating authority must be able to demonstrate that the totality of the factors considered leads to
the conclusion that further dumped [subsidized] imports are imminent and that, unless protective
action is taken, injury would occur. In the c ase at issue, the Commission has clearly failed to
demonstrate and explain how the factors it did consid er led to its conclusion and as a result, failed to
comply with the obligations of 3.7 and 15.7.

35. Could the parties please address what, in their view, is required to demonstrate
consideration of the "trade effects" arising from subsidies under Article 15.7(i)? What do the
parties consider would be relevant trade effects that should be taken into account?

63. As the Appellate Body has stated, Article 3. 1 and 15.1 are overarching provisions that set out
a Member’s fundamental substantive obligations in making an injury determination. These provisions
require that a determination involve consideration of the volume of imports, the effect of imports on
prices and the consequent impact of imports on the domestic producers in question. It follows that
consideration of “trade effects” under Article 15.7(i) of the SCM Agreement address whether the
subsidy in question is affecting volume and prices of the imports at issue.

64. Moreover, in cases where participants have a dvanced fundamental arguments about the nature
of the trade effects of the subsidies involved, and in particular that these subsidies have had no impact
on the volume and price of imports, i.e., have no trade effect, an investigating authority must show
that it has come to a view on this evidence and prov ided a reasoned and adequate explanation of what
role that view plays in the final decision to which it came.

65. This is particularly true in this case because of the nature of the stumpage subsidy at issue.
As discussed in answer to Question #12 and in Cana da’s previous submissions, standing timber, like
other inputs that are in situ natural resources, exis ts within a rent market and as the Nordhaus study
showed applying standard principles of Ricardian rent theory, the amount of the fee or charge for the
input, unless they are outside the normal range, has no impact on marginal cost, price or quantity of
the downstream product that the input goes into. Here, the economic rent for standing timber is
derived from the demand for lumber, and the output of lumber is not determined by stumpage charges
in the normal range. No matter how low the stumpage charge is – as long as it is positive and in this

38 The importance the United States itself confers upon these factors is reflected in the fact that they are
mandatory under US legislation. Tariff Act of 1930, Subtitle IV – Countervailing and Anti-Dumping Duties, 19
U.S.C. § 1677(7)(F)(i). (Exhibit CDA-24)

case it is agreed that charges were positive – then the quantity of logs produced will be no greater, and
their prices will be no lower, than they would be in a competitive market. In such circumstances,
there will be no trade effect from the subsidy in question.

66. Because this evidence represented a powerful de monstration of how stumpage would not lead
to an increase in imports beyond the non-injuriou s level observed in the POI, the Commission should
have addressed it, particularly if it was going to make an affirmative determination of threat of injury.

36. Could the parties please discuss, in detail, their interpretation of the phrase "clearly
foreseen and imminent" as used in Article 3.7 of the AD Agreement and Article 15.7 of the SCM
Agreement, with specific reference to what th ey consider to be the relevant time frames
involved? Would the parties discuss, in addition , what precisely they consider should be found
to be clearly foreseen and imminent.

67. As discussed at paragraphs 76-77 of Cana da’s First Written Submission, the change in
circumstances which would create the situation in which the dumping or the subsidy would cause
injury must be clearly anticipated and on the bri nk of happening. The rele vant timeframe involved
will vary depending on the facts and circumstances of each case but certainly will be in the near term
and not in the medium to long term. In this in stance, the Commission examined projections for the
eighteen months after its vote in May 2002. Ther e was no evidence before th e Commission for this
period that demonstrated a “change in circumstan ces” which would create a situation in which the
dumping or the subsidy would cause injury. It is that “change in circumstances” that must be clearly
foreseen and imminent. Canada addresses what am ounts to such a change in circumstances in its
response to Question # 9 of the Panel.

Questions posed by the United States to Canada

1. At paragraph 120 of its 4 September 2003, oral statement, Canada states that “the
United States simply does not understand Ca nada’s argument” regarding combined
investigations. Canada then goes on to contend, at paragraph 122, that the United States failed
to comply with what Canada refers to as “the specific requirements of the Anti-Dumping
Agreement and the SCM Agreement , as well as Article VI of the GATT 1994.” However, the
alleged specific requirements that Canada lists, with the exception of the nature of the subsidies,
are not distinct but rather are co mmon to both covered Agreements. In light of this fact, the
United States asks that Canada clarify its position on combined investigations.

68. Canada’s response to this qu estion is provided by Canada’s Oral Statement and by our answer
to Question #14 of the Panel.

2. At paragraph 25 of its 4 September 2003 oral statement, Canada refers to the discussion
of the term “considered” in the Thailand- H-Beams panel report. Following the statement
quoted by Canada, the panel in that report stat ed: “We therefore do not read the textual term
‘consider’ in Article 3.2 to require an explicit ‘finding’ or ‘determination’ by the investigating
authorities . . .” (Thailand- H-Beam, Panel Report, para. 7.161) At the first substantive meeting
of the Panel in the present dispute, Canada stat ed that it agreed with the interpretation of the
panel in Thailand-H-Beams that the obligation to “consider” does not require an investigating
authority to make an explicit “finding.” Please confirm that this is Canada’s position.

69. Yes. This is Canada’s position. However, it must be apparent from the record that the
investigating authority has given attention to and ta ken into account the factors to be considered. The
investigating authority must go beyond simply reciting f acts. It must put the factors into context. See
paragraph 83 of Ca nada’s First Written Submission and para graphs 22-29 of Canada’s First Oral
Statement.

ANNEX A-2

UNITED STATES RESPONSE TO QUESTIONS
FROM THE PANEL – FIRST MEETING

24 September 2003

Q16: Could the United States please address its understanding of the "special care"
requirement in Article 3.8 of the AD Agreement and Article 15.8 of the SCM Agreement? What
elements does the United States consider could demonstrate the appropriate special care?
Could the United States indicate to the Panel where, in its view, the USITC determination
demonstrates the requisite special care?

1. The covered Agreements do not state what constitutes “special care”, nor has any panel
explicitly addressed this provision . The covered Agreements do not support Canada’s attempt to
interpret “special care” as a special review standard fo r either the Panel or the investigating authority.
The United States understands the “ special care” langua ge to be a recognition that projections about
the future must be based on present and past facts. While a threat analys is is a future-oriented
analysis, it cannot be based on allegation, conjecture or remote possibility; rather it must be based on
the facts.
1

2. Article 3.8 of the Anti-Dumping Agreemen t and Article 15.8 of the SCM Agreement are
exhortations to be mindful of the future-oriented nature of a threat analysis as the evidence is
reviewed. A threat determination necessarily uses facts from the present and the past to form a
conclusion about the future. 2 Projections necessarily are based on extrapolations from existing data. 3

1 Article 3.7 of the Agreement on Implementation of Article VI of the General Agreement on Tariffs
and Trade 1994 (the Anti-Dumping Agreement) and Article 15.7 of the Agreement on Subsidies and
Countervailing Measures (the SCM Agreement).
 2 See United States-Safeguard Measures on Imports of Fresh, Chilled or Frozen Lamb Meat from New
Zealand and Australia , Appellate Body Report, WT/DS177/AB/R, WT/DS178/AB/R, adopted 16 May 2001,
para. 136 (“ US-Lamb Meat ”); United States-Transitional Safeguard Measure on Combed Cotton Yarn from
Pakistan, Appellate Body Report, WT/DS192/AB/R, adopted 5 November 2001, para. 77, n.50 (“ US-Cotton
Yarn”). Specifically, the Appellate Body in US-Lamb Meat stated:

As facts, by their very nature, pertain to th e present and the past, the occurrence of future
events can never be definitely proven by facts. There is, therefore, a tension between a
future-oriented “threat” analysis, which, ultim ately, calls for a degree of “conjecture” about
the likelihood of a future event, and the need for a fact-based determination. Unavoidably,
this tension must be resolved through the use of facts from the present and the past to justify
the conclusion about the future, namely that se rious injury is “clearly imminent”. Thus, a
fact-based evaluation, under Article 4.2(a) of the Agreement on Safeguards, must provide the
basis for a projection that there is a high degree of likelihood of serious injury to the domestic
industry in the very near future.
 3 See Mexico - Anti-Dumping Investigation of High Fruc tose Corn Syrup (Mexico - HFCS) from the
United States , Appellate Body Report, WT/DS132/AB/R, adopted 21 November 2001, paras. 83 and 85
(“Mexico - HFCS” ); US - Cotton Yarn , AB Report, para. 77; US - Lamb Meat , AB Report, para. 136;
United States - Definitive Safeguard Measures on Imports of Certain Steel Products , WT/DS248/R,
WT/DS249/R, WT/DS251/R, WT/DS252/R, WT/DS253/R , WT/DS254/R, WT/DS258/R, WT/DS259/R, Panel
Report, circulated 11 July 2003, para. 10.173, n. 5032 (“US - Steel Safeguards”).

Indeed, Article 3.7 requires that projections be based on facts . Article 3.8 simply reinforces this point
by describing the approach to be taken in reviewing the facts.

3. It is evident in the ITC’s Report that the Commission based it threat determination on
consideration of all of the facts. The ITC based its prospective analysis on objective facts and
rejected assertions and opinions not based on sufficient factual evidence.
4 The Commission’s reliance
on a thorough factual record and its careful analysis of that record demonstrate its compliance with
the special care language in the covered Agreements . Canada, on the other hand, has urged that the
ITC should have based its findings on assertions and opinion, which are favourable to Canada’s
interests, but are not sufficiently supported by the evidence.5

4. The special care taken by the ITC is demonstr ated in the detailed analysis and extensive
documentation – including past and present data – provided to support each finding throughout the
ITC’s opinion, from its conditions of competition section on pages 21- 27 of the ITC Report to the
present injury analysis on pages 31-37 of the ITC Re port to the threat of injury analysis on pages
37-44 of the ITC Report.

Q17. Article 3.8 of the AD Agreement and Arti cle 15.8 of the SCM Agreement provide that:

“with respect to cases where injury is threatened by dumped [subsidized]
imports, the application of anti-dumpi ng [countervailing] measures shall be
considered and decided with special care”.
Could the United States address the implications of the phrase "the application of … measures"
in terms of the timing of the obligations provided for in this provision? Is the United States of
the view that the "special care" requirement affe cts or changes the obligation in Articles 3.1 of
the AD Agreement and 15.1 of the SCM Agreement that a determination of injury "shall be
based on positive evidence and involve an objective examination …". If so, how?

5. The “special care” language in Article 3.8 of the Anti-Dumping Agreement and Article 15.8
of the SCM Agreement supplement rather than alte r or modify the obligations in Article 3.1 and
Article 15.1 of the respective Agreements that a de termination of injury “shall be based on positive
evidence and involve an objective examination".
6 As discussed in response to question 16,
projections about future events involve extrapolations from existing data. Article 3.8 and Article 15.8
reinforce in the threat context th e requirement in Article 3.1 and Ar ticle 15.1 to base determinations
on positive evidence. For example, a threat of injury determination must be based on positive
evidence tending to show a likelihood to import at injuri ous levels. Special care refers to the analysis

 4 See US - Lamb Meat, Panel Report, para. 7.129:

. . . the requirement to base a threat determination on objective facts, and the rejection of “assertions”,
“opinions” and “conclusions” that are not based on suffi cient factual evidence, it is possible to draw at least
some inferences on how to conduct a threat analysis. These elements suggest (i) th at a threat determination
needs to be based on an analysis which takes objective and verifiable data from the recent past . . . as a
starting-point so as to avoid basing a determination on allegation, conjecture, or remote possibility. . . ..
5 See, e.g., Canada’s First Written Submission, paras. 7, 8, and 120.
 6 The Appellate Body in Thailand - H-Beams provided some guidance on the relationship between
Article 3.1 of the Antidumping Agreement and considera tion of the evidence for f actors listed in the threat
provision, Article 3.7. The Appellate Body stated:

107. . . . An injury determination conducted pursuant to the provisions of Article 3 of the
Anti-Dumping Agreement must be based on the totality of that evidence. . . .

involved in making projections about future ev ents. Moreover, basing the future-oriented
determination on facts rather than allegation, conject ure or remote possibility is in accord with the
requirement that the investigating authority conduct an “objective examination.” In the context of a
threat analysis, an objective examination would invo lve taking “objective and verifiable data from the
recent past . . . as a starting-point so as to avoid b asing a determination on a llegation, conjecture, or
remote possibility” and evaluating it in an unbiased manner.7

6. The Panel’s question concerning timing suggests an interpretation of Article 3.8 of the Anti-
Dumping Agreement (and Article 15.8 of the SCM Ag reement) whereby the provision may pertain to
actions taken by a Member after its investigating authority has determ ined that injury is threatened by
dumped (or subsidized) imports. According to that interpretation, the provision presumes an
affirmative threat determination and governs what happens afterwards, in light of that determination.
Under an alternative interpretation – the one the United States understands Canada to be assuming in
this case8 – ADA Article 3.8 and SCMA Article 15.8 may pertain to the process of making a threat
determination itself.

7. The United States is of the view that the Pane l need not decide whether either interpretation
or both are permissible, because, under either interpretation, Canada’s claim must fail. If ADA
Article 3.8 and SCMA Article 15.8 pertain to actions taken after an investigating authority makes an
affirmative threat determination, then Canada’s clai m is beyond the terms of re ference of this Panel.
As the title of this dispute indicates, Canada has ask ed the Panel to consider the investigation of the
US International Trade Commission, not the actions of other US Government agencies following that
investigation.
9

8. If, on the other hand, the provisions at i ssue pertain to the process of making a threat
determination, Canada’s claim must fail, because Canada has failed to make a prima facie showing of
any violation. In arguing that the United States violated ADA Article 3.8 and SCMA Article 15.8,
Canada simply reiterates its allegations of other violations of the covered agreements. 10 Canada has
indicated in vague terms that a failure to ta ke “special care” involves whether cautiousness of
approach is exemplified. Yet, Canada fails to demonstrate an absence of cautiousness. Accordingly,
under this interpretation of ADA Article 3.8 and SCMA Article 15.8, Canada’s claim must fail.

9. Because Canada’s claim must fail under either interpretation of the relevant provisions, the
Panel should refrain from deciding which interp retation is permissible or whether both are
permissible. If the Panel nevertheless chooses to deci de this interpretative question, the United States
would draw to the Panel’s attention certain contextual elements. While the words “the application of
. . . measures” might suggest the first interpretati on above (i.e., that the provisions pertain after
 a
threat determination has been made), on the other hand, the inclusion of the paragraph in Article 3 and
Article 15 may provide support for the second interpre tation (i.e., that the provisions pertain to how a
threat determination is made).

Q18. Could the United States clarify its view regarding consideration of the Article 3.4/
Article 15.4 factors in the context of a determinat ion of threat of material injury? Specifically,

7 See US - Lamb Meat, Panel Report, para. 7.129.
8 See Canada First Written Submission, para. 64 (“Thus, when threat of material injury is at issue, the
investigating authorities must undertake an especially meticulous examination of all the required elements in
Article 3 of the Anti-Dumping Agreement and Article 15 of the SCM Agreement.”).
9 See Canada First Written Submission, para. 169 (Canada basing its claim under ADA Article 3.8 and
SCMA Article 15.8 on what it alleges to be “shortcomings of the Commission’s determination”).
10 See Canada First Written Submissi on, para. 168 (Canada basing its claim under ADA Article 3.8
and SCMA Article 15.8 on allegations “as discussed above with respect to the violations of Article 3 of the
Anti-Dumping Agreement and Article 15 fo the SCM Agreement”).

could the United States address whether it is ne cessary to consider the likely impact of dumped
and/or subsidized imports on the condition of th e industry in the future, with reference to the
Article 3.4/Article 15.4 factors, in the context of a determination of threat of material injury?
If so, what would the United States envision argue such consideration must entail?

10. In making a threat of material injury de termination, the investigating authority should
consider the evidence regarding the factors listed in Article 3.7 of the Anti-Dumping Agreement and
Article 15.7 of the SCM Agreement, as well as th e present and past evidence regarding the factors
listed in Articles 3.2 and 3.4 of the Anti-Dumpi ng Agreement and Articles 15.2 and 15.4 of the SCM
Agreement. Consideration of these factors estab lishes a background against which the investigating
authority can evaluate whether dumped and subs idized imports will likely increase substantially,
likely will have price effects, and consequently w ill affect the industry’s condition in such a manner
that material injury would occur in the absence of protective action.

11. Where the investigating authority has consider ed the Article 3.4 and Article 15.4 factors one
time, it need not consider them a second time. Canada’s contention that there is a requirement that the
factors in Article 3.4 of Anti-Dumping Agreem ent and Article 15.4 of the SCM Agreement be
considered a second time in the context of a threat analysis has no basis in the covered Agreements.
Neither the Appellate Body nor any Panel has found such a requirement. Moreover, it is not clear
what Canada contemplates would be involved in such a second analysis of the Article 3.4 and
Article 15.4 factors that would not involve specula tion and conjecture. Significantly, Canada has
failed to explain why it considers a second analys is of these factors required under the covered
Agreements, when Canada itself does not conduct such an additional analysis in its own trade remedy
proceedings.
11 Canada’s argument seems to be tied to its overarching failure to recognize that threat
of injury generally involves a continuation of a dverse conditions, and thus the threat and present
material injury analyses necessarily are intertwined rather than entirely separate.

12. The Panel in Mexico-HFCS specifically recogni zed that consideration of the factors relating
to the impact of imports on the domestic i ndustry “establish a background against which the
investigating authority can evaluate whether i mminent further dumped imports will affect the
industry’s condition in such a manner that material injury would occur in the absence of protective
action, as required by Article 3.7". 12 The Mexico-HFCS panel did not find that two separate analyses
of Article 3.4 factors were required. It was concer ned that those factors did not appear to have been
considered at all. 13 Moreover, as discussed in the US first written submission, two very important

11 See, e.g., The Dumping of Leather Footwear with Metal Toe Caps, Originating in or Exported from
the People’s Republic of China, Excluding Waterproof Footwear Subject to the Finding Made by the Canadian
International Trade Tribunal in Inquiry No. NQ-2000-004 , Inquiry No. 2001-003 at 11-20 (CITT,
27 Dec. 2001) (USA-26).
12 Mexico-HFCS, Panel Report, para. 7.132. The Panel stated:

 With respect to the question of threat of material injury, we believe an investigating authority cannot
come to a reasoned conclusion, based on an unbias ed and objective evaluation of the facts, without
taking into account the Article 3.4 factors relating to the impact of imports on the domestic industry.
These factors all relate to an evaluation of th e general condition and operations of the domestic
industry. . . . Consideration of these factors is, in our view, necessary in order to establish a background
against which the investigating authority can evaluate whether imminent further dumped imports will
affect the industry’s condition in such a manner that material injury would occur in the absence of
protective action, as required by Article 3.7.
13 The Panel in Mexico-HFCS, Panel Report, para. 7.140 (emphasis added), states:

 The final determination reflects no meaningful analys is of a number of the Article 3.4 factors: the
Mexican sugar industry’s profits, output, productiv ity, utilization of capacity, employment, wages,
growth, or ability to raise capital. Moreover, there is no analysis of the condition of the Mexican sugar

facts distinguish this case from Mexico-HFCS: first, it is possible, by reading the Commission’s final
determination here, where it was not in Mexico -HFCS, to understand the overall condition of the
domestic industry with respect to the Article 3. 4 factors; and second, in this case, the domestic
industry was currently experiencing substantial decl ines in its condition, particularly its financial
performance, which was not the case in Mexico-HFCS.

13. It is evident in the Views of the Commissi on that the ITC properly conducted a “meaningful
evaluation” of all of the relevant factors liste d in Article 3.4 of Anti-Dumping Agreement and
Article 15.4 of the SCM Agreement and that its fi ndings are supported by positive evidence. Canada
fails to recognize that a finding of vulnerability by its nature is a finding about the future, i.e., an
assessment of industry’s suscep tibility to future injury. 14 In brief, the ITC’s evaluation of the
evidence regarding relevant factors resulted in findings that the condition of the domestic industry had
deteriorated primarily as a result of declining prices and that the industry was in a vulnerable state.
Consideration of these factors constituted positive evidence justifying the ITC’s determination that the
domestic industry was on the verge of material injury by reason of the continued dumped and
subsidized softwood lumber imports from Canada.

Q19. Could the United States elucidate the basis fo r the conclusion that the likely increase in
imports would be "substantial"? What percentage or volume of increase would be necessary in order
to support that conclusion, and could the United Stat es indicate where in the USITC determination or
report such a projected increase can be found or derived?

14. The Commission’s consideration in the context of its threat of injury analysis of likely
substantial increases in subject imports begins with subject import volumes both in absolute terms and
relative to consumption already at significant le vels. The Commission found that the volume of
subject imports from Canada increased by 2.8 per cent from 1999 to 2001.
15 As a share of apparent
domestic consumption, subject imports from Canada increased from 33.2 per cent in 1999 to 34.3 per
cent in 2001.16 Conversely, subject imports by value declined by 16 per cent. 17 The evidence shows
increases even with the restraining effect of the SLA in place, and substantial increases during periods
without trade restraints.

15. Of course, a threat analysis looks at whethe r these imports, which in this case already were at
injurious levels, are likely to be injurious in th e imminent future. The evidence demonstrates that
subject imports will continue to enter the US market at this significant level and are projected to

industry during the period of investigation, or projected for the near future. It is therefore not possible,
by reading the final determination, to understand the overall condition of the domestic industry with
respect to the Article 3.4 factors. Yet without an understanding of the condition of the industry, it is
not possible, in our view, for SECOFI to have come to a reasoned conclusion, based on an objective
evaluation of the facts, concerning the likely impact of dumped imports. Such a conclusion must, in
our view, reflect the projected impact of further imports on the particular domestic industry, in light of
its condition. In order to conclude that there is a threat of material injury to a domestic industry that is
apparently not currently injured, despite the effects of dumped imports during the period of
investigation, it is necessary to have an understanding of the current condition of the industry as
background.
14 The ordinary meaning of the term “vulnerable” is “able to be wounded;” or “liable to damage or
harm”. The New Shorter Oxford English Dictionary , 1993 (Oxford: Clarendon Press, p. 3605) (USA-21).
15 The volume of imports of softwood lumber from Canada increased from 17,983 mmbf in 1999 to
18,483 mmbf in 2001. USITC Report at Tables IV-1 and C-1.
16 ITC Report at Table IV-2 and C-1.
17 The value of subject imports decreased from $7.1 billion in 1999 to $6.0 billion in 2001. ITC Report
at Tables IV-1 and C-1.

increase. Canada acknowledges that imports at this level would continue and even increase
18, and that
Canada is “a much smaller market with abundant timber resources".19

16. The Commission based its conclusion of likely substantial increases in subject imports on six
subsidiary findings: 20 (1) Canadian producers’ excess capacity and projected increases in capacity,
capacity utilization, and production 21; (2) the export orientation of Canadian producers to the US
market22; (3) the increase in subject imports over the pe riod of investigation; (4) the effects of
expiration of the SLA; (5) subject import tre nds during periods when there were no import
restraints23; and (6) forecasts of strong and improving demand in the US market.24

17. The second part of this question suggests that there is an absolute amount or percentage
change in import volumes that would necessarily be “s ubstantial” in all or most cases. Determination
of threat of injury is by its nature industry specific and dependent on the particular industry’s
circumstances. As part of this analysis, the cove red Agreements direct the investigating authority to
consider whether the evidence indicates the likelihood of substantially increased imports but does not
direct the investigating authority to find that impor ts will increase by a certain amount or to project
the increase level. 25 The Appellate Body has recognized that ultimately a threat analysis calls for
projections about the likelihood that the threat wi ll ascend to injury and as such can never be
definitely proven.26 As the Appellate Body in Mexico-HFCS recognized

the “establishment” of facts by investig ating authorities includes both affirmative
findings of events that took place during the period of investigation as well as

19 Canada’s Opening Statement at First Panel Meeting (Sept. 4, 2003) at para. 4.
20 Each of these findings is discussed in detail in the ITC Report at 40-43 and in the US First Written
Submission at paras. 117-184. Each of the six subsidiary factors considered and discussed by the Commission
related directly to threat factors regarding a signif icant rate of increase in imports and sufficient freely
disposable production capacity set forth in the covered Agreements.
21 The Canadian producers had excess capacity and proj ected increases in capacity and production, and
improvements in capacity utilization in 2002 and 2003. Thus, despite the excess capacity already available in
2001 as capacity utilization declined to 84 per cent from 90 per cent in 1999, the evidence demonstrated that
Canadian producers expected to further increase their ability to supply the US softwood lumber market. In
particular, capacity utilization was projected to increase to 90 per cent in 2003, as capacity also was projected to
increase.
22 Canadian producers rely on sales in the US mark et for about two-thirds of their production, which
means that their success, and probably survival, is tied to the importing market. Moreover, Canadian producers
had incentives such as mandatory cut requirements to produce more softwood lumber and export it to the US
market. Canada has offered no positive evidence to refu te the ITC’s reasonable conclusion, discounting export
projections, that production increases would be distributed according to historic proportions. The fact is, the US
market had been very important to Canadian producers and was expected to continue to be.
23 The facts demonstrate that without restraints impor ts have increased. Increases stopped when the
SLA was imposed; substantial increases (ranging from 9.2 per cent to 12.3 per cent) in imports occurred when
the SLA expired; and increases in imports stopped when preliminary CVD duties were imposed. This evidence
provides a clear indicator of how subject imports have entered, and would enter, the US market in the imminent
future if not subject to trade restraints and supports th e ITC’s finding of likely substantial increases in subject
imports. Canada offers nothing but speculation about other reasons why imports were not restrained during
those periods.
24 Canada has not refuted the ITC’s findin gs regarding forecasts for US demand, i.e., that the US
market would continue to be a very attractive, and necessary, one for Canadian imports (a market that consumes
about 65 per cent of Canadian production); that subject imports would continue to play an important role in the
US market; and even that there would likely be increases in such imports.
25 See, e.g., US - Lamb Meat, AB Report, para. 125.
26 See US - Lamb Meat , AB Report, para. 136; see also Mexico-HFCS , AB Report, paras. 85;
US-Cotton Yarn, AB Report, para. 77; US-Steel Safeguards, Panel Report, para. 10.173, n. 5032.

assumptions relating to such events made by those authorities in the course of their
analyses. In determining the existence of a threat of material injury, the
investigating authorities will necessarily have to make assumptions relating to
the “occurrence of future events” since such future events “can never be
definitively proven by facts ”. Notwithstanding this intrinsic uncertainty, a “proper
establishment” of facts in a determination of threat of material injury must be based
on events that, although they have not ye t occurred, must be “clearly foreseen and
imminent”, in accordance with Article 3.7 of the Anti-Dumping Agreement.27
In Mexico - HFCS and other disputes, the Appellate Body has recognized that a threat of injury
determination does not require projecting by a certa in amount levels of increases or absolute volume
in order to make a finding of a likelihood of substantially increased imports.

Questions 20, 21, and 22:

20. The United States asserts that "an evolutio n of adverse trade trends can cause a threat
of injury to ripen into actual injury". Woul d the United States agree that there must be some
identification of that evolution, in terms of "change in circumstances" under
Article 3.7/Article 15.7, in an investigating authority's determination? Could the United States
indicate where, in its determination, the USITC addressed the question of "change in
circumstances"?

21. Could the United States indicate whether the USITC considered that there was a
likelihood of substantially increased importation as a "change in circumstances"?

22. Could the United States indicate whether the USITC considered that the projected
attribution of oversupply to Canadian lumber as a "change in circumstances"?

18. Since questions 20, 21, and 22 all involve th e “change in circumstances” issue, we have
responded to them together to avoid duplication in our responses.

19. The Anti-Dumping Agreement and the SCM Ag reement recognize that injury to a domestic
industry need not, and frequently does not, occur su ddenly, but rather often involves a progression of
injurious effects ascending from a threat of material injury, and if not prevented, to present material
injury. Therefore, a determinati on that an industry is threatened with material injury would be
warranted when conditions of trade clearly indicate that material injury likely will occur imminently if
demonstrable trends in trade adverse to the dom estic industry progress, or if clearly foreseeable
adverse events occur. Threat of in jury is an anticipation of material injury that must be on the verge
of occurring, i.e., clearly foreseen and imminent.

20. Article 3.7 of the Anti-Dumping Agreement and Article 15.7 of the SCM Agreement provide
in relevant part: “A determination of a threat of ma terial injury shall be based on facts and not merely
on allegation, conjecture or remote possibility. The change in circumstances which would create a
situation in which the dumping would cause injury must be clearly foreseen and imminent”. The
Anti-Dumping Agreement provides as an example of the change in circumstances “that there is
convincing reason to believe that there will be, in the near future, substantially increased importation
of the product at dumped [or subsidized] prices".
28

27 Mexico - HFCS, AB Report, para. 85 (emphasis added).
28 Article 3.7 and n. 10 of the Anti-Dumping Agreement. The text of the covered Agreements also uses
the plural “circumstances” which reinforces that it contem plates a sequence of projected events rather than “a”
single event.

21. While the text provides a clear example in whic h the change in circumstances is a sequence of
projected events, it sets no requirement to explicitly “identify” that change in circumstances, as
Canada alleges.
29 Nor has any WTO or GATT dispute settleme nt panel interpreted the Agreements to
require such explicit “identification.” Nor does the negotiating history of the Agreements support
such an interpretation.30

22. Consistent with all of its actual obliga tions under the covered Agreements, including
Articles 3.7 and 15.7, the Commission provided a de tailed explanation of how the totality of the
evidence supported its conclusion that there will be in the near future substantially increased
importation of softwood lumber from Canada at dumpe d and subsidized prices. In doing so, the ITC
addressed the likely events and facts that were clear ly foreseen for dumped and subsidized imports in
the imminent future which would affect the US ma rket and would cause material injury to the US
industry to occur.

23. The United States has provided a detailed accounting of the facts and likely events
demonstrating the progression or change in circumstances which would create a situation in which the
dumped and subsidized imports would cause material injury in its second submission at paragraph 18.
This progression of injurious effects was addresse d by the Commission throughout its analysis.
31
Briefly, the facts demonstrating a progression of injurious effects justifying the Commission’s
determination that subject imports constitute a threat of material injury to the domestic industry in the
United States include: the volume of subject imports already was significant; subject imports had
increased during the period of investigation even w ith the restraining effect of the Softwood Lumber
Agreement (SLA); imports had some adverse pri ce effects on domestic prices; and the condition of
the domestic industry had deteriorated, primarily as a result of substantial declines in prices, and thus
was in a vulnerable state. These findings in the pres ent injury analysis foresh adow injury and clearly
support the existence of a threat of material injury . The ITC’s affirmative threat determination is

29 Canada repeatedly alleges that the ITC failed to comply with this nonexistent “obligation to
identify.” See Canada’s Opening Statement at First Panel Meeting, paras. 35, 36, 41, and 45.
 30 The GATT Committee on Anti-Dumping Practi ces adopted “Recommendation concerning
Determination of Threat of Material Injury” on 21 October 1985, which provided the same example of the
change in circumstances now includ ed in note 10 of the WTO Anti-Dumping Agreement. Moreover, the
recommendation provided the following further clarification on the change in circumstances and the progression
from threat to injury:

3. The change in circumstances of which [GATT] Article 3.6 speaks may also occur during an
anti-dumping investigation. Even where the basis for the initiation of an anti-dumping investigation
was sufficient evidence of threat of material injury (as well as dumping and causal link), actual material
injury may have occurred by the end of the investigation, when the final determination concerning
injury is made.

4. On the other hand the change in circumstances during an anti-dumping investigation may also lead
to a situation of neither threat of injury nor material injury.

5. It is important to domestic producers that anti-dumping procedures and anti-dumping relief be
available in cases where dumping and threat of mate rial injury are present but before injury has
actually materialized, as Article VI of the Ge neral Agreement recognizes . However, as the
Anti-Dumping Code provides, anti-dumping relief based on the threat of injury must be confined to
those cases where the conditions of trade clearly indi cate that material injury will occur imminently if
demonstrable trends in trade adverse to domestic industry continue, or if cl early foreseeable adverse
events occur.

GATT Doc. No. ADP/25, BISD 32/182-183.
31 See ITC Report at pages 31-44.

based on the following evidence: (1) six factors showing a likelihood of substantial increases in
subject imports based on evidence regarding, in ter alia, Canadian producers’ excess production
capacity and projected increases in capacity, capacity utilization and production, the export
orientation of Canadian producers to the US mark et and subject import trends during periods when
there were no import restraints, such as the SLA.; (2) likely price pressure resulting from the excess
supply in the US market caused by these increases in imports, particularly with evidence that prices
declined substantially at the end of the period of investigation; and 3) the consequent threat of
material injury to a domestic industry, which alr eady was in a vulnerable state, resulting from the
likely increases in imports and price effects. For the foregoing reasons, the Commission determined
that an industry in the United St ates was threatened with material injury by reason of imports of
softwood lumber from Canada that are subsidized by the Government of Canada and sold in the
United States at less than fair value.

24. Specifically, in response to Panel question 21, we note that the ITC c onsidered the evidence
regarding the six findings demonstrating the lik elihood of substantially increased importation as
elements of the progression of circumstances, i.e., the change in circumstances, which would create a
situation in which the dumping and subsidies woul d cause injury. In response to Panel question 22,
we note that the ITC considered that the likely subs tantial increases in subject imports would result in
excess supply to the US market. Evidence regardi ng likely excess supply, which generally caused the
substantial price declines in 2000 that led to the deterioration in the condition of the domestic
industry, indicated that US producers had curbed their production, but that overproduction “remains a
problem in Canada".
32 Therefore, the Commission reasonably found that the additional subject
imports, which it concluded were likely, would further increase th e excess supply in the market,
putting further downward pressure on prices, and as su ch were elements of the progression, i.e., the
change in circumstances, which would create a situ ation in which the dumped and subsidized imports
would cause injury to the US industry.

Q23: Could the United States point to the specifi c passages in the USITC determination and
report that, in its view, demonstrate the "consid eration" of each of the relevant factors in its
decision, as distinct from the recitation of facts?

25. The ITC’s consideration of the relevant fact ors that it relied on in making its determinations
are set forth on pages 21-27 and 31-44 of the ITC Report. 33 It is evident in the ITC Report that the
Commission appropriately considered the relevant factors and did not provide a mere recitation of
facts, as Canada has asserted. In addressing whet her an investigating authority had considered
factors, the Panel in Thailand-H-Beam explained th at when investigating authorities put figures into
context, they went beyond a mere recitation of trends in the abstract. 34 The following excerpt from
the Views of the Commission regarding excess Cana dian production capacity is illustrative of the
ITC’s consideration of relevant factors and demonstrates that the ITC did not merely recite facts. The
ITC stated:

32 See, e.g., ITC Report at 35, n. 217 citing Petitioners’ Posthearing Brief at 2 and Appendix H, Exh. 2
at 11 (Bank of America, “Wood & Building Products Quarterly,” at 11 (Nov. 2001)). (USA-5).
33 Specifically, the ITC considered and addressed the volume of imports and likely substantial increases
in imports on pages 31 and 40-43 of the ITC Report, price effects and likely price effects on pages 32-35 and
43-44, nature of the subsidies on page 39, other threat factors on page 44, the vulnerable condition of the
domestic industry on pages 36-39, and possible other causal factors on pages 21-27.
34 Thailand - H-Beams, Panel Report, para. 7.170 (“the authorities did consider the ‘significance’ of the
increase in imports. We note in particular in this re gard that the authorities went beyond a mere recitation of
trends in the abstract and put the im port figures into context. For exampl e, the statement that ‘imports from
Poland increased continuously’ indicates that the increase had persisted over some period.”).

Canadian producers’ capacity increased from 32,100 mmbf in 1999 to 32,800 mmbf
in 2001, following a steady increase from 1995 to 1999.
35 Canadian production
capacity in 2001 was 10.4 per cent higher than in 1995. Canadian production
declined from 29,041 mmbf in 1999 to 27,457 mmbf in 2001.
36 Nevertheless,
Canadian production in 2001 was 5.2 per cen t higher than that of 1995; Canadian
capacity utilization peaked in 1999 at 90.5 per cent, and was 88.9 per cent in 2000
and decreased again to 83.7 per cent in 2001. 37 In the three years prior to the period
of investigation, also while under the SLA, Canadian capacity utilization had been at
a relatively stable level ranging from 87.3 pe r cent to 87.7 per cent. In 2001, excess
Canadian capacity was 5,343 mmbf, 10 pe r cent of US apparent consumption. 38
Furthermore, in their questionnaire responses, Canadian producers projected
additional capacity increases, improvements in capacity utilization, and additional
production in 2002 and 2003.39 Thus, despite the excess capacity already available in
2001 as capacity utilization declined to 83.7 per cent 40, Canadian producers expect to
further increase their ability to supply the US softwood lumber markets41,42

Q24: Would the United States agree that, in ord er to make an affirmative determination of
threat of material injury, it is necessary to undertake an assessment of the condition of the
domestic industry in light of the impact of fu ture dumped or subsidized imports? Could the
United States indicate where, in its determination, the USITC discussed the projected impact of
future imports on the domestic industry?

26. The Commission assessed the condition of th e domestic industry and found that it “is
vulnerable to injury in light of declines in its performance over the period of investigation,
particularly its financial performance".
43 The Commission’s analysis of the vulnerable condition of
the domestic industry is on pages 37-39 of the ITC Re port. In brief, the record reflects that many
performance indicators declined significantly from 1999 to 2000, and then declined slightly or
stabilized from 2000 to 2001. 44 With respect to the domestic industry’s financial performance in
particular, the evidence also generally shows dec lines during the period of investigation, with a
dramatic drop from 1999 to 2000, as prices declined.45

27. Moreover, the ITC considered the consequent impact of the likely substantial increases in
imports and likely price effects. The evidence demons trates that subject imports already at significant
levels will continue to enter the US market at significant levels and are projected to increase

35 ITC Report at Table VII-1. Canadian producers’ questionnaire responses (covering nearly 80 per
cent of production in Canada) followed similar trends with production declining from 22,452 in 1999 to
21,770 mmbf in 2001. Reported capacity in Canada was 24,871 mmbf in 1999 and 25,804 mmbf in 2001, and
reported capacity utilization was 90.3 per cent in 1999, 88.8 per cent in 2000, and 84.4 per cent in 2001. ITC
Report at Table VII-2.
36 ITC Report at Table VII-1.
37 ITC Report at Table VII-1.
38 ITC Report at Table VII-1.
39 ITC Report at Table VII-2. Canadian produc ers projected capacity incr eases to 26,206 mmbf,
production increases to 23,698 mmbf, and capacity utilization increases to 90.4 perc ent in 2003. Id.
40 The reported capacity utilization in questionnaire responses was similar at 84.4 per cent. ITC Report
at Table VII-2.
41 The reported capacity utilization in questionnaire responses was similar at 84.4 per cent. ITC Report
at Table VII-2.
42 ITC Report at 40.
43 ITC Report at 37.
44 See ITC Report at 37-38.
45 See ITC Report at 37-38.

substantially. The Commission found that the add itional subject imports would increase the excess
supply in the market, putting further downward pressur e on prices. Prices at the end of the period of
investigation in the third and fourth quarters of 2001 had substantially declined to levels as low as
they had been in 2000. Evidence regarding likely excess supply, which generally caused the
substantial price declines in 2000 that led to the deterioration in the condition of the domestic
industry, indicated that US producers had curbed their production, but that overproduction “remains a
problem in Canada".46 The Commission reasonably found that subject imports were likely to increase
substantially and were entering at prices that ar e likely to have a significant depressing or suppressing
effect on domestic prices, and are likely to increase demand for further imports. Moreover, the
additional subject imports, which it concluded were likely, would further increase the excess supply in
the market, putting further downward pressure on prices, thereby adversely impacting the US
industry. The Commission’s assessment of the impact of future imports on the domestic industry is
primarily on pages 43 and 44 of the ITC Report.

28. Where the investigating authority has consider ed the Article 3.4 and Article 15.4 factors once,
it is not required to undertake a separate, second eval uation, as part of an entirely distinct threat
analysis. This does not mean that additional an alysis appropriate for assessing whether further
dumped and subsidized exports w ould have a consequent adverse impact on the domestic industry
may not be required depending on the facts. Fo r example, in a case where the domestic industry is
healthy and profitable during the period of investig ation, it may be appropriate to provide a more
detailed discussion of how its condition would likely be affected by further imminent dumped and
subsidized imports. Such discussion would show how the condition would deteriorate and material
injury would occur. On the other hand, in a case, as the one before this Panel, where the domestic
industry is already in a vulnerable state and wher e the condition has deteriorated significantly during
the period of investigation, resulting primarily from declines in prices caused by excess supply, the
focus is on the likely substantial increases in imports and likely effects of declining prices rather than
whether the condition of the industry is deteriorating.

Q25: Could the United States indicate where in its determination the USITC concluded that
the elements asserted by Canada to be "known factors other than the dumped imports which at
the same time are injuring the domestic industry" were not, in fact, such known factors injuring
the domestic industry?

29. In assessing the conditions of competition pertinent to the softwood lumber industry, the
Commission considered and assessed whether other f actors were potentially causing injury to the
domestic industry. This assessment is primarily on pages 21-27 of the ITC Report. For a more
detailed discussion of this issue, please see the United States’s response to question 26.

Q26: At paragraph 29 of its oral statement, the United States argues that the USITC
specifically considered other fact ors potentially causing injury, referring to domestic supply,
nonsubject imports, cyclical demand and hous ing construction cycles, North American
integration, and other product substitutes. Is it the United States' argument that these factors
were not other known causal factors or were did no t constitute a cause of injury at the same
time as the subject imports? Could the United States indicate where in the USITC's
determination such a conclusion is to be found? Could the United States indicate whether the
USITC addressed these other factors in the context of its analysis of causation with respect to
threat of material injury? Could the United St ates indicate where that discussion is to be
found?

30. The ITC considered all of these factors allege dly causing injury to the domestic industry. The
ITC found that the alleged other factors – nons ubject imports, cyclical demand and housing

46 See, e.g., ITC Report at 35, n. 217.

construction cycles, North American integration and other product substitutes – are not other known
causal factors. The Commission considered and assessed these alleged other factors on pages 21-27
of the ITC Report. While the ITC did not explic itly state that these alleged other factors are not
known other factors, it is clear from the analysis that none of them rise to the level of “other known
factors injuring the domestic industry”.
47 For example, the ITC’s conclusion that the evidence did not
support finding that substitute produc ts are other causal factors is apparent in the Commission’s
finding that “While these substitute products have increased in importance over the last few years,
they still account for a small share of the ma rket traditionally utilizing softwood lumber". 48
Furthermore, in making this statement the Commi ssion relied on evidence provided by Canadian
exporters and stated that “[f]or example, while EWPs are perceived to have a fairly significant share
of the market for structural framing applications , CLTA [i.e., exporters’ co alition] estimated that
EWPs accounted for only 5 per cent of the US market". 49 The Commission considered alleged other
factors in a manner similar to other substitute products and found each not to be an other known factor
causing injury to the domestic industry.

31. Moreover, the ITC found that the evidence dem onstrates that domestic supply would not be a
known causal factor in the imminent future, as it had been in the 1999-2000 period
50, when likely
substantial increases in subject imports with likely price depressing effects would cause injury to the
domestic industry. The Commission considered dom estic supply on pages 24-25, 34-35, 37-38, and
43-44 of the ITC Report. Specifically, the ITC examined constraints on domestic producers’ ability to
meet demand and took into consideration domest ic producers ’ past contribution to oversupply
conditions. The evidence cited by the ITC indicat ed that the domestic producers had curbed their
production, but that “overproduction remains a problem in Canada.” Thus, while domestic
overproduction had contributed to adverse price effects in 2000, the evidence demonstrated that it was
no longer contributing to excess supply, while Canadi an imports continued to oversupply. Moreover,
the evidence demonstrated that domestic producti on capacity was fairly level during the period of
investigation, following a small but steady incr ease between 1995 and 1999, as apparent consumption
increased.51 Domestic capacity utilization was 87.4 per cent in 2001. With the exception of a peak in
1999 at 92 per cent, it had consiste ntly held this level from 1995-2001. 52 In contrast, Canadian
capacity utilization had declined in 2001 to 83.7 per cen t, a rate substantially lower than that reported

47 The Panel in Thailand - H-Beams recognized that the absence of an explicit finding in the final
determination regarding the significance of the volume of imports and price effects would not make them
inconsistent with the requirements of the appropriate prov isions if consideration is apparent from the relevant
documents in the record. Thailand - H-Beams, Panel Report, paras. 7.161, 7.170-7.171, and 7.179-7.180.
48 ITC Report at 24 and n.145, and II-4.
49 ITC Report at II-4 and n.15. Moreover, Petitioners maintained that it was only in residential housing
floor applications, which make up less than 6.5 per cent of softwood lumber consumption, that substitute
products hold anything more than a minimal share. Pe titioners’ Prehearing Brief at 40-44 (USA-8); Petitioners’
Posthearing Brief at Appendix A-28 - A-33 (USA-5).
50 The Commission had found in its present material injury analysis that excess domestic supply was an
other known factor that contributed in conjunction with excess import supply to the decline in prices and the
injury to the domestic industry, particularly in the 1999-2000 period.
51 ITC Report at Table III-6 and C-1 (public data). Domestic producers based on public data reported
production capacity of 39,800 mmbf in 1999, 40,100 mmbf in 2000, and 40040 mmbf in 2001. Id. Domestic
producers ’ questionnaire responses reported production capacity of 22,847 mmbf in 1999, 24,233 mmbf in
2000, and 24,709 mmbf in 2001, although the industry c overage is not necessarily comparable to the public
data. Id. at Table III-7 and C-1.
52 ITC Report at Tables III-6 and C-1 (public data). Domestic capacity utilization based on public data
was 86.1 per cent in 1995, 87.6 per cent in 1996, 89.9 per cent in 1997, 88.5 per cent in 1998, 92.0 per cent in
1999, 89.7 per cent in 2000 and 87.4 per cent in 2001. Id. Domestic producers’ questionnaire responses
reported similar capacity utilization rates: 92.8 per cent in 1999, 88.5 per cent in 2000, and 86.1 per cent in
2001. Id. at Tables III-7 and C-1.

for any other year in the 1995-2001 period. 53 As discussed above, in spite of this decline in capacity
utilization rates, Canadian producers projected s light increases in capacity, increases in production,
and a return of capacity utilization to 90.4 per cent in 2003. 54 On the other hand, domestic production
of softwood lumber had declined by 4.4 per cent from 1999 to 2001. 55 These facts concerning
domestic supply reinforce the ITC’s affirmative threat determinations.

32. It is important to understand that consideration and explanation of a factor in any section of
the ITC Report does not limit its application to that section of the report. The report must be viewed
as a whole, with analysis conducted in any particul ar section potentially having a bearing on analysis
in other sections. Moreover, if it is evident that an alleged other factor is not a known other factor at
all and respondents offer no positive evidence, only speculative theories about the future, duplicative
analyses of the same alleged other factors woul d serve no purpose. One example where evidence
demonstrates that an alleged other factor is not a “known” other factor is nonsubject imports. The
Commission found that “[w]hile nonsubject imports were present in the US market during the period
of investigation, they never exceeded 3 pe r cent of apparent domestic consumption".
56 T h e
Commission recognized that the volume of nonsubject imports (from Brazil, Chile, New Zealand,
Germany, Sweden, Austria, and other countries) increased from 937 mmbf in 1999 to 1,378 mmbf in
2001, and that as share of apparent domestic consum ption, nonsubject imports increased from 1.7 per
cent in 1999 to 2.6 per cent in 2001. 57 The incremental increase in subject import volume in mmbf
between 1999 and 2001 was approximately the same as the increase in nonsubject import volume.
However, this comparison must be placed in pers pective: subject imports are responsible for an
enormous volume of imports during the period of investigation, accounting for 33.2 per cent to
34.3 per cent of US apparent c onsumption in the 1999-2001 period 58, compared with nonsubject
imports, which “never exceeded 3 per cent of apparent domestic consumption". 59 Moreover, subject
imports were subject to import restraints for most of the period of investigation; nonsubject imports
were not restrained.

33. Canada’s speculative theories have failed to explain how an imminent increase in such a
small total volume of nonsubject imports relative to apparent consumption and Canada ’s substantial
share of apparent consumption, might rise to the level of causing injury to the domestic industry. This
conclusion is particularly apt wh en Canada acknowledges that its exports to the US market will
continue at, and even increase above, the signi ficant level of imports during the period of
investigation. Moreover, nonsubject imports were not even alleged to increase, let alone to significant
levels, unless trade remedies were imposed against Canadian imports. 60 The Commission
appropriately considered nonsubject imports and found them not to be an other known factor causing
injury to the domestic industry.

53 ITC Report at Tables VII-1 (public data). Canadian capacity utilization based on public data was
87.8 per cent in 1995, 87.7 per cent in 1996, 87.4 per cent in 1997, 87.3 per cent in 1998, 90.5 per cent in 1999,
88.9 per cent in 2000 and 83.7 per cent in 2001. Id. Canadian producers ’ questionnaire responses reported
similar capacity utilization rates: 90.3 per cent in 1999, 88.8 per cent in 2000, 84.4 per cent in 2001 and
projections of 88.5 per cent in 2002, and 90.4 per cent in 2003. Id. at Table VII-2.
54 ITC Report at Table VII-2.
55 ITC Report at Tables III-6 and C-1 (public data).
56 ITC Report at 25.
57 USITC Report at 25 n.152.
58 USITC Report at 32.
59 USITC Report at 25.
60 The ITC Report reported that: “Some importers stated that any restrictions on the supply of Canadian
softwood lumber to the US market would result in an increased supply of imports from other sources,
particularly European sources, to meet US demand for softwood lumber.” ITC Report at II-3. The evidence
also shows the share of US imports held in 2001 by the following European countries: Germany, 1.0 per cent;
Sweden, 0.8 per cent, Austria, 0.5 per cent. All nonsubject imports accounted for 6.9 per cent of the overall
quantity of softwood lumber imports into the US market in 2001. Id. at II-7, n. 23.

Q27. In paragraph 94 of its first written submission, Canada asserts that the USITC's
discussion of certain evidence presented by Canadi an parties during the investigation contains
"fundamental errors". Could the United States respond specifically to this argument?

34. Canada’s claim of “fundamental error” in pa ragraph 94 of its first written submission is based
on the erroneous premise that the Canadian produ cers’ economic theory was the only “information”
before the ITC and that this theory was uncontest ed and proven fact. But Canada has provided the
Panel with a one-sided analysis of this issue a nd ignored the conflicting evidence presented to the
Commission regarding the applicability of the econom ic models and their alleged effects. The
domestic producers presented the ITC with argumen ts, economic analysis and economic studies to
refute the economic theory provided by Canadian parties. Indeed, evidence presented to the ITC
during its investigation squarely placed in question whether the Ricardian rent theory was applicable
to the timber and lumber markets, whether the th eory’s underlying premise regarding supply was
correct, and whether the results regarding the effects of the stumpage fees on output were very
different. In any event, theory is not fact. While an alytically useful in appropriate contexts, it is still
distinguishable from hard statistical information.

35. One issue on which the Commission had conflic ting evidence from the parties was whether
the lumber/timber market is a “rent” market, th at is a market in which the quantity supplied
 does not
vary with price over a relevant range. As the context of the ITC's discussion, and the sources
referenced, make clear, the Commission's use of the term "fixed supply" refers to the lack of variation
in the quantity supplied, not to any assumption that timber supply is somehow exogenously fixed. 61
The fact is the Canadian parties used a similar shorthand formulation (i.e., characterizing factors as
“fixed”) in their own submissions.
62 As for the Commission’s use of the term "lumber supply" rather
than "timber supply," it may have been more preci se to use the term “lumber and timber supply,”
since the discussion involved the raw material of ti mber for the subject product, lumber. The cited
materials clearly relate to the raw material for lumber, i.e., the elasticity of timber supply.

36. The Commission’s consideration and discussi on of the economic theories presented by the
parties is not undermined by alleged “fundamental e rrors.” Canada’s allegations should be rejected
when it is clear, as it is here, that although the IT C’s terminology might have been more precise, the
Commission appropriately understood and cons idered the conflicting evidence regarding the
economic theories that had been presented to it.

37. Moreover, the ITC found that, despite all the evidence of record, the uncertainties regarding
these competing economic theories provided by the parties were such as to preclude reasoned and
adequate conclusions. Therefore, the ITC approp riately considered the parties’ arguments and
provided a reasoned explanation but found it coul d not reach a finding on the competing economic
theories. As evident in the View s of the Commission, its considera tion of the nature of the subsidy
threat factor was not a reason that led to its dete rminations and thus, it neither supported nor detracted
from those determinations that the domestic industry w as threatened with material injury by reason of
the subject imports.

Q28. Could the United States please explain th e basis for the USITC's conclusion regarding
significant price effects in this case, in light of the finding of moderate substitutability of US
domestic and imported Canadian lumber?

61 ITC Report at 39, n. 245. See also Hearing Transcript at 41-45 (testimony of landowner that quantity
supplied was reduced when price fell); Petitioners' Posthearing Brief at Appendix D-24 (nominal annual
allowable cut in Canadian provinces do not effectively constrain supply).
62 See e.g., CLTA Posthearing Brief, vol. 2, Tab T, at 4 n.11 ("Some goods or productive factors are
completely fixed in amount regardless of price.").

38. Given its finding of likely significant increases in subject import volumes, its finding of at
least moderate substitutability, its finding that prices of a particular species affect the prices of other
species, and its present finding that the substan tial volume of subject imports had some adverse
effects on prices for the domestic product, the Comm ission concluded that subject imports were likely
to have a significant price-depressing effect on domestic prices in the immediate future, and are likely
to increase demand for further imports. The evidence at the end of the period of investigation showed
substantial declines in prices in the third and f ourth quarters of 2001, to levels as low as 2000.
Moreover, the evidence regarding supply, whic h generally was considered the cause for the
substantial price declines in 2000 that led to the deterioration in the condition of the domestic
industry, indicated that US producers had curbed their production, but that overproduction “remains a
problem in Canada”. Therefore, the ITC reasonably found that the additional subject imports, which
it concluded were likely, would further increase the excess supply in the market, putting further
downward pressure on prices. Moreover, the evidence demonstrated that pressure would come from
excess Canadian supply rather than a combination of import and domestic supply, thereby resulting in
a threat of material injury to the US industry.

39. These findings by the Commission are not affected by the Commission’s finding of moderate
substitutability between domestic a nd imported softwood lumber. Despite the differences in many of
the imported and domestic species of softwood lumber , the moderate substitutability finding must be
considered in the context of the Commission’s finding that the evidence demonstrated that prices of a
particular species will affect the prices of other species, particularly those that are used in the same or
similar applications.
63 As discussed in the US first written submission and the ITC Report, the
evidence provided by purchasers and home builders showed that subject imports and domestic species
of softwood lumber are used in the same appli cations and that regional preferences merely reflect
availability of species.64

40. In particular, the Annual Builders Survey by the National Association of Home Builders
Research Center (NAHBRC) provide d clear evidence that SPF, SYP, and Douglas fir/hem fir are all
used in such same construction applications as lumb er joists, light frame exterior walls, roof trusses,
and roof rafters.65 The Commission recognized that while regional preferences existed – species often
were used in close proximity to where they are m illed – these preferences seemed to reflect in large
part availability of species, which is affected by transportation costs. 66 This was demonstrated in

63 See, e.g. , Random Lengths (“Competition from Canadian S-P- F prevented ES-LP narrows from
rallying from $5 drops early in the week.” at 9, 26 Oct. 2001; “Warmer weather, a drop in interest rates, and an
abrupt rise in S-P-F prices all got credit for boosting buyer interest in Southern Pine.” at 4, 20 Apr. 2001; “As
SPF prices climbed and supplies tightened in Canada, more buyers turned to US produced Hem-Fir and ES-LP”
at 4, 13 Apr. 2001; “Western and Eastern S-P-F were the leaders, pulling other dry species along.” at 4, 2 Feb.
2001); Wickes (“Species switching by many long-term purchasers of S-P-F forced most North of the border to
finally return prices to a more realistic level as th e need to move wood into the inventory pipeline became
evident.” 5 Sept. 2001; “Producers in the US secured most of the available business from buyers who had no
qualms in switching species to take advantage of the pricing discrepancies. Truss manufacturers started the
charge as they switched from S-P-F MSR to alternative #2 grade SYP helping mills in the South post increases
across the board”. 21 Aug. 2001). Petitioners’ Prehearing Brief at 13 and Appendix C (USA-8).
64 See ITC Report at 25-27, 33, and 43; US First Written Submission at paras. 36-37, 203-206, and
269-278. A majority of purchasers (36 of 51) responding to the Commission questionnaire reported that US and
Canadian softwood lumber can be used in the same general applications, recognizing that performance
characteristics and customer preferences place some limitations on interchangeability among species. ITC
Report at II-6, II-8, and Table II-5; Petitioners’ Prehearing Brief, Vol. II at Exhibit 85 (USA-5).
65 Dealers/Builders’ Posthearing Brief at Exhibit 3 at 5, 10, and 15 (USA-10).
66 ITC Report at II-7-8, V-2 - V-4.

evidence provided by builders and pur chasers at the Commission’s hearing.
67 Thus, these regional
preferences do not reflect a lack of substitutab ility but simply a predisposition toward locally-milled
species. As the Commission has r ecognized in prior investigations, Canadian softwood lumber and
the domestic like product generally are interchang eable, notwithstanding differences in species and
preferences.68

41. The ITC based its findings on consideration of the totality of the facts, including the evidence
provided by purchasers and home builders, that there are other products that both countries produce
that compete with each other; Canadian softwood lumber and the domestic like product generally are
interchangeable; subject imports and domestic species are used in the same applications; regional
preferences exist, but do not reflect a lack of substitutability, but instead simply reflect a
predisposition toward locally-milled species; and evid ence demonstrated that prices of different
species have an effect on other species’ prices, particul arly those that are used in the same or similar
applications.

42. It is evident that imported and domestic softwood lumber, notwithstanding differences in
species, are interchangeable and compete with each ot her. Thus, the Commission’s finding of at least
moderate substitutability, in conjunction with the evid ence that different species are used in the same
applications and the evidence regarding the effect of prices of one species on those of another species,
fully supports the Commission’s conclusion of likely price effects.

Q29. Could the United States explain the ba sis for the USITC's conclusion regarding
significant price effects in this case, in light of the absence of any conclusions regarding
underselling?

43. Article 3.7(iii) of the Anti-Dumping Agreemen t and Article 15.7 (iv) of the SCM Agreement
state that an investigating authority “should consider , inter alia . . . whether imports are entering at
prices that will have a significant depressing or suppressing effect on domestic prices, and would
likely increase demand for further imports”. Thus, th e listed factors for a threat analysis in the
covered Agreements do not include required consideration of underselling. Article 3.2 of the Anti-
Dumping Agreement and Article 15.2 of the SCM Agreement, on the other hand, state that an
investigating authority “shall consider” whether th ere has been a significant price under cutting “or”
significant price depression or suppression. Articles 3.2 and 15.2 use the disjun ctive “or” rather than
the conjunctive “and” in setting forth the applicable obligation.
69 This shows a recognition that price
depression or suppression may occur whether or not there is price undercutting. Thus, the fact that the
Commission determined, as agreed to by all parties to the proceeding 70, that making direct

67 Hearing Transcript at 185-190 and 204-209 (USA-11 and USA-23) (Florida: floor joists - SYP,
wall/framing - SPF, headers - SYP, trusses - SYP, Id. at 185-190, 204; Texas: floor joists - SYP, wall/framing -
SYP, headers - SYP, trusses - SYP, Id. at 205; Indiana and West: floor joists - SPF, wall/framing - SPF, headers
- SPF, trusses - SPF, Id . at 205-207; Massachusetts: floor joists - SPF, wall/framing - SPF, headers - SYP,
trusses - SYP, Id . at 206); ITC Report at II-8 ( e.g., purchasers’ comments on species preferences); and
Dealers/Builders’ Prehearing Brief at Exhs. 2, 3, 4, 6, 8, 9, 11, 13, 14 15, 16, 17, 21, and 23 (USA-12);
Petitioners’ Posthearing Brief at 5-6 (USA-5).
68 See, e.g., Softwood Lumber III , USITC Pub. 2530 at 28-29, and 34 (USA-24), aff’d in part, In the
Matter of Softwood Lumber from Canada , USA-92-1904-02, Decision of the Panel Reviewing the Final
Determination of the US International Trade Commission , at 25-28 (26 July 1993)
69 See Article 3.2 of the Antidumping Agreement and Article 15.2 of the SCM Agreement. See also
Thailand-H-Beams, Panel Report, para. 7.171 (regarding “or” contained in Article 3.2 for consideration of
volume of imports, Panel considered it sufficient for authority to consider absolute volume rather than both it
and relative.)
70 The Commission noted that it had encountered similar problems obtaining useful pricing data for
assessing underselling in prior Softwood Lumber cases. The parties agreed that, in this industry, accurate price

cross-species price comparisons in order to asse ss underselling was inappropriate, does not have a
bearing on the ITC’s conclusion regarding significant pri ce effects at all and particularly in its threat
analysis.71,72

44. As discussed in the US first written submissi on, the fact that the differences in species of
softwood lumber did not lend itself to direct price comparisons did not preclude a price trends
analysis to consider whether there was a corre lation between the prices that indicated price
suppression or depression.73 First, the Commission found that the evidence indicated that prices of a
particular species will affect the prices of other species, particularly those that are used in the same or
similar applications, as discussed in response to question 28. 74 Moreover, both the questionnaire and
public data on the record permitted an analysis of price trends. In particular, the Commission
considered pricing information for so ftwood lumber published in Random Lengths
, which is the
source the industry most cited throughout this investigation as a pricing guide. 75 The Commission
reasonably found, based on the price trends analysis discussed in its opinion 76, that subject imports
were likely to have a significant depressing effect on domestic prices.

Q30. At page 40 of the USITC determination (Exhibit USA-1), the USITC states "We find
that subject imports are likely to increase substantially based on several factors: …". Could the
United States clarify whether each of the factors listed in the remainder of that sentence was
considered to support the conclusion set out, or whether the listed facto rs are those which were
considered, and that some of them supported the finding of likely increased imports while
others did not?

comparisons are difficult to compile. See, e.g. , Transcript at 93, 269-273 (USA-11); Dealers/Builders’
Posthearing Brief at 12-14 (USA-10).
 71 ITC Report at 34-34. The Commissi on found that because of the nature of this market, direct price
comparisons between domestic products and subject imports are highly problematic whether based on
questionnaire or public data. While the Commission collected pricing data for six specific softwood lumber
products from purchasers, the Commission placed little we ight on this informatio n because the reported
quantities of softwood lumber involved in the deliver ed price comparisons are very limited. The Commission
concluded that it could not draw any conclusions rega rding underselling from the questionnaire data in these
investigations.
While there are a number of different sources of public pricing information regarding softwood lumber
products (including Random Lengths , Crow’s, Madison’s, and the Southern Pine Bulletin ), these data series do
not yield improved comparisons, despite their much broader coverage. Although prices of one species affect
those of others, absolute price levels differ, making direct cross-species comparisons inappropriate for purposes
of an underselling analysis. Thus, the Commission concluded that it could not determine, based on this record,
whether there has been significant underselling by subject imports. ITC Report at V-3 - V-5.
72 In conducting a price underselling analysis, the Commission makes direct comparisons of prices for a
comparable product, i.e. , same model, same size and grade of a speci es of lumber, etc., and calculates a margin
of underselling or overselling for the import prices relative to the domestic prices.
73 See US First Written Submission, paras. 201-202 an d 241. A price suppression or depression
analysis considers trends for import and domestic prices to determine certain specific correlations between them.
The pricing trend data is not necessarily limited to a size/grade or model. Using this trends analysis and other
evidence, the Commission determines whether imports have prevented increases in prices for domestic products
that otherwise would have occurred (suppression) or whether imports in the market have exerted downward
pressure on domestic prices (depression).
74 ITC Report at 26-27, 32-35, and 43.
75 ITC Report at V-4-5. Random Lengths, Inc. collects weekly price data from suppliers and
purchasers and calculates weighted-average prices based on such factors as the size of the transaction and the
quality of the lumber. Random Lengths publishes these data in its weekly and annual publications. Id.
76 ITC Report at 32-35 and 43.

45. The Commission found that subject imports are likely to increase substantially based on
evidence regarding each of the six factors listed on page 40, and discussed in detail on pages 40-43, of
the ITC Report. The ITC found that each of the six factors supported its conclusion.

Q31. Could the United States please indicate the facts that form the basis for the USITC's
conclusion that there would be an imminent substantial increase in imports?

46. The United States refers the Panel to its res ponse to question 19, the substance of which also
responds to question 31.

Q32. The Panel understands that Canada is not arguing that a combined analysis of injury
caused by dumped and subsidized imports is pe r se inconsistent with the cited Agreements.
Could the United States comment on the view that , in the event the Panel finds a violation of
any other provision of the relevant Agreements, the injury determination as a whole should be
deemed inconsistent with both the AD and SCM Agreements?

47. The ITC’s determinations are consistent with all US obligations under both covered
Agreements. With the exception of consideration of the record evidence rega rding the “nature of the
subsidies” factor pursuant to Article 15.7(i) of the SCM Agreement, the ITC’s analysis of injury by
reason of dumped and subsidized im ports involved factors, evidence, analysis, and findings common
to both Agreements. Thus, if the Panel were to find a violation, it necessarily would involve a
provision (with the one noted exception) common to both the Anti-Dumping Agreement and the SCM
Agreement. Canada’s attempts to raise the same claims it has made regarding specific provisions
under Article 3 of the Anti-Dumping Agreement an d Article 15 of the SCM Agreement as a separate
alleged violation on the basis of a combined inve stigation or cross-cumulation violation should be
rejected. As Canada concedes, none of its cl aims relate to cross-cumulation or combined
investigations at all, but rather are attempts to establish duplicative violations based on the same
claims. Its arguments under the head ing of “Combined Investigations” are simply restatements of its
arguments concerning particular provisions of the covered Agreements. The Panel should reject these
combined investigation arguments fo r the same reasons it should reject the particular arguments, as
discussed in this and other US submissions.

Q33. Could the parties please address the distin ctions they see, if any, between "finding",
"evaluation" and "consideration" in the context of analysis of factors in a determination under
Article 3 of the AD Agreement and/or Article 15 of the SCM Agreement.

48. There is a clear distinction between “findi ng,” on the one hand, and both “evaluation” and
“consideration”, on the other, in the context of analyzing factors in making a determination under
Article 3 of the Anti-Dumping Agreement and Article 15 of the SCM Agreement. Simply, “finding”
involves a conclusion whereas “evaluation” and “cons ideration” involve the process of assessment
and do not require that a finding be made at all. Any distinction between “evaluation” and
“consideration” is less clear and seems to have more to do with the provision in which the term is
used than with a marked difference in the meaning of the term in the abstract.
77

49. The term “consider” is used in Articles 3.2 and 3.7 of the Anti-Dumping Agreement and
Articles 15.2 and 15.7 of the SCM Agreement regard ing the analysis of listed factors involving the
volume and price effects of dumped and subsidized im ports, and the existence of a threat of material
injury. The term “evaluation” is used in Artic le 3.4 and Article 15.4 of the covered Agreements
regarding the examination of the impact of th e dumped and subsidized imports on the domestic

77 In a review of dispute settlement reports, it seem s that the terms are used interchangeably when the
term “evaluation” has been interpreted, but that reference to “evaluation” is less frequent, if at all, when the term
“consideration” has been interpreted.

industry. The covered Agreements require the Commissi on to consider or evaluate the listed factors.
They do not require the Commission to make findings on each factor.

50. As discussed in paras. 111-116 of the US fi rst written submission, the term “consider” has
been interpreted to mean, “inter alia: ‘contem plate mentally, especially in order to reach a
conclusion;’ ‘give attention to’; an d ‘reckon with; take into account.’".
78 Accordingly, the term
“consider” has not been read to require an explicit “finding” by the investigating authority.79 Rather it
is sufficient, if it is apparent in the relevant docum ents in the record, that the ITC has given attention
to and taken the factor into account.

51. While Canada conceded that “consider” do es not mean “make a finding” during the first
Panel meeting, its characterization of what constitutes consideration in conjunction with its concept of
an adequate and reasoned explanation is not noticeably different from making a finding.

52. The term “evaluation” of evidence has been interpreted to mean “the act of analysis,
judgement, or assessment".
80 Particularly, in the context of Article 3.4, it has been stated that “for an
investigating authority to ‘evaluate’ evidence concerning a given factor in the sense of Article 3.4, it
must not only gather data, but it must analyze and interpret those data".81

53. In its recent report in EC-Pipe, the Appellate Body stated that an obligation to evaluate all
fifteen economic factors, pursuant to Article 3.4 of the Anti-Dumping Agreement, is distinct from the
manner in which the evaluation is to be set out in the published document.82 In fact, it recognized that

 78 Thailand - H-Beams, Panel Report, para. 7.161. While this dispute involves an analysis of the term
“shall consider” pursuant to Article 3.2 of the Antidumping Agreement, the conclusion that “consider” does not
mean “make a finding” would equally apply to the less stringent term “should consider”, contained in
Article 3.7 of the Anti-Dumping Agreement and Artic le 15.7 of the SCM Agreement. The Panel in Thailand -
H-Beams stated:

 We examine the nature of the obligation in Article 3.2. We note that the text of Article 3.2
requires that the investigating authorities “conside r whether there has been a significant increase in
dumped imports.” The Concise Oxford Dictionary defines “consider” as, inter alia: “contemplate
mentally, especially in order to reach a conclusion ;” “give attention to”; and “reckon with; take
into account.” We therefore do not read the textual term “consider” in Article 3.2 to require an
explicit “finding” or “determination” by the investigating authorities as to whether the increase in
dumped imports is “significant.” While it would ce rtainly be preferable for a Member explicitly to
characterize whether any increase in imports as “significant,” and to give a reasoned explanation of that
characterization, we believe that th e word “significant” does not necessarily need to appear in the text
of the relevant document in order for the requirements of this provision to be fulfilled. Nevertheless,
we consider that it must be apparent in the relevant documents in the record that the investigating
authorities have given attention to and taken into account whether there has been a significant
increase in dumped imports, in absolute or relative terms.

Id. (emphasis added).
79 See Thailand - H-Beams, Panel Report, para. 7.161.
80 Egypt - Definitive Anti-Dumping Measures on Steel Rebar from Turkey, Panel Report, WT/DS211/R,
81 Egypt - Rebar , Panel Report, para. 7.44; see also Thailand - H-Beams , Panel Report, paras.
7.236-7.237 (“evaluation of the mandatory factors must be apparent in the documents forming the basis of our
review”).
82 While the language in Article 3.4 of the Anti-Dumping Agreement is “shall evaluate,” this analysis
would equally apply to the less restrictive “should consider” pursuant to Article 3.7 of the Anti-Dumping
Agreement and Article 15.7 of the SCM Agreement.

an authority’s evaluation of a factor may be implicit in the analyses of other factors.
83 What is
important, the Appellate Body explained, is that the investigating authority’s decisional path be
reasonably discernible, not that there be a discussion of each factor.

54. Moreover, the Appellate Body’s analysis in EC -Pipe is consistent with the recognition in the
covered Agreements that: “No one of these factors by itself can necessarily give decisive guidance but
the totality of the factors considered must lead to the conclusion that further dumped [subsidized]
exports are imminent and that, unless protective action is taken, material injury would occur".
84

Q34. The Panel notes that Article 3.7 of the AD Agreement and Article 15.7 of the SCM
Agreement provide that "In making a determinat ion regarding the existence of a threat of
material injury, the authorities should consider, in ter alia, such factors as:.." (emphasis added).
In this context, could the parties comment on the view that consideration of all the listed factors
is not mandatory, and that the fa ilure to consider at all, or to adequately consider, one of the
listed factors, is not fatal to the determination at issue before a Panel?

55. First, it is evident in the ITC Report that th e Commission considered all the factors listed in
Article 3.7 of the Anti-Dumping Agreement and Ar ticle 15.7 of the SCM Agreement. Nonetheless,
the text of this threat provision, “should consid er, inter alia, such factors”, specifically uses the
permissive term “should consider ” rather than the mandatory te rm “shall consider”. This
distinguishes these provisions from Article 3.2 and Article 15.2 of the covered Agreements. Thus, the
text of the threat provision could be interpreted as not requiring the consideration of all listed factors.
Further, inclusion of the term “inter alia”, or among others, in this provision appears to recognize that
factors other than those listed may be considered, to the extent they are relevant to a particular
industry and case. The Commission found it appropriate to do so in this case.

56. Article 3.7 of the Anti-Dumping Agreement and Article 15.7 of the SCM Agreement also
conclude with the following language:

No one of these factors by itself can necessarily give decisive guidance but the
totality of the factors considered must l ead to the conclusion that further dumped
(subsidized) exports are imminent and that, unless protective action is taken, material
injury will occur.
The threat provision recognizes that not all, and pe rhaps none, of the listed factors will necessarily be
relevant to or dispositive of, the facts and circum stances of each case. Accordingly, if one of the
listed factors was not considered at all, or not adequately considered
85, it would not be fatal to the
determination at issue, particularly since it is “the totality of the factors” and not any one in particular
that must lead to the conclusion.

Q35. Could the parties please address what, in their view, is required to demonstrate
consideration of the "trade effects" arising from subsidies under Article 15.7(i)? What do the
parties consider would be relevant trade effects that should be taken into account?

83 European Communities – Anti-Dumping Duties on Malleable Cast Iron Tube or Pipe Fittings from
Brazil, Appellate Body Report, WT/DS219/AB/R, circulated 22 July 2003, para. 160-161 (“EC-Pipe”).
84 Article 3.7 of the Anti-Dumping Agreement and Article 15.7 of the SCM Agreement.
85 As discussed in response to question 33, consideration of a factor has been interpreted in other
dispute settlement proceedings to be adequate if its “apparent in the relevant documents in the record that the
investigating authorities have given attentio n to and taken [it] into account. . . .” Thailand - H-Beams , Panel
Report, para. 7.161.

57. Article 15.7(i) of the SCM Agreement states that an investigating authority should consider:
“the nature of the subsidy or subsidies in question and the trade effects likely to arise therefrom”.

58. An interpretative question of this nature should be considered in the context of the facts of a
particular case. The Commission considered the “natur e of the subsidy and trade effect” factor in its
threat of material injury analysis, as evident in the Views of the Commission. Specifically, the
Commission examined the information presented to it by the US Department of Commerce regarding
11 programmes that Commerce found conferred counter vailable subsidies to Canadian producers and
exporters of softwood lumber.
86 While Commerce provided the Commission information regarding
the nature of the subsidies, Commerce explicitl y made no findings regarding the effects of the
subsidies.87

59. In considering this information, the Co mmission recognized that none of the subsidies
identified by Commerce are subsidies described in Article 3 or 6.1 of the SCM Agreement. 88 Thus,
this case did not involve any export subsidies. Ho wever, when export subsidies are involved, the
Commission has considered the relevant trade effects that may result from such subsidies.

60. In this case, parties to the underlying proceedings presented the Commission competing
economic theories about the nature and effects of the countervailable subsidies. It is evident in the
Views of the Commission that the ITC fully consider ed all of the evidence presented on this issue by
the parties.89 However, it declined to adopt the positions of any of the parties due to the conflicting
evidence and economic theories specifically regarding the effects of stumpage fees on lumber
output.
90

61. The Commission consideration in this case of wh ether there were trade effects likely to arise
from the subsidies is consistent with US obligations under Article 15.7(i) of the SCM Agreement.

Q36. Could the parties please discuss, in deta il, their interpretation of the phrase "clearly
foreseen and imminent" as used in Article 3.7 of the AD Agreement and Article 15.7 of the SCM
Agreement, with specific reference to what th ey consider to be the relevant time frames
involved? Would the parties discuss, in addition , what precisely they consider should be found
to be clearly foreseen and imminent.

62. Threat of material injury is material injury that has not yet occurred, but remains a future
event whose actual materialization cannot, in fact, be assured with absolute certainty but with clear
likelihood.
91 The term “imminent,” in the context of a threat of injury analysis under the Safeguards
Agreement, has been found to relate “to the mo ment in time when the ‘threat’ is likely to

86 ITC Report at 39 (USA-1).
87 Canadian exporters had requested that Commerce consider whether Canadian Provincial stumpage
charges have trade- or market-distorting effects, but Commerce specifically made no finding regarding the
“effects” of the subsidies. Issues and Decision Memo randum from Bernard T. Carreau to Faryar Shirzad (Mar.
21, 2002) (appended to final Commerce CVD determination) (USA-2). Under US law, antidumping and
countervailing duty investigations involve a bifurcated system with certain responsibilities assigned to
Commerce and others assigned to the ITC. Specifically related to this issue, Commerce investigates whether the
government of a country is providing, directly or indirectly, a countervailable subsidy. 19 U.S.C. § 1671(a).
Thus, Commerce collects information en abling it to determine the existence of a countervailable subsidy and
information needed for it to determine the net countervailable subsidy; the Commission on the other hand has no
authority to collect such information or look behind Commerce’s findings. See 19 U.S.C. §§ 1677(5)(A),
1677(5)(B), 1677(5)(E), 1677(5A), 1677(5B), and 1677(6).
88 USITC Report at 39, n.249.
89 USITC Report at 39.
90 ITC Report at 39, n. 245 (USA-1).
91 US - Lamb Meat, AB Report, para. 125:

materialize".
92 Threat of injury, thus, is an anticipation of material injury that must be on the verge of
occurring, i.e., clearly foreseen and imminent, which will differ from case to case. The term “clearly
foreseen” relates to the “likelihood” that the injury will materialize. While there is a recognition that
“future events ‘can never be definitively proven by facts,’” projections based on the past and present
facts permit an assessment of whether there is a hi gh degree of likelihood of injury in the very near
future.93,94

63. The relevant time frames for consideration of whether dumped and subsidized imports would
cause injury, i.e., would be clearly foreseen and i mminent, should be evaluated in light of the facts
and circumstances of each industry, product, and ma rketplace. There is no bright-line test to
determine when injury is “imminent”, nor do es the term necessarily mean “immediate”. The
“imminent” time frame applicable to a threat of injury analysis will vary from case-to-case. In this
case, the Commission found it appropriate to the f acts and circumstances of the softwood lumber
industry and market to consider evidence for a one-to- two year period in the future in its threat of
injury analysis, i.e., 2002 and 2003.

92 US-Lamb Meat, AB Report, para. 125.
93 See Mexico-HFCS , AB Report, paras. 83 and 85; US-Lamb Meat, AB Report, paras. 125 (“To us,
the word ‘clearly’ relates also the factual demonstration of the existence of the ‘threat.’”) and 136.
94 The GATT Committee on Anti-Dumping Practi ces adopted “Recommendation concerning
Determination of Threat of Material Injury” on 21 October 1985, which provides some further clarification on
the phrase “clearly foreseen and imminent:”