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

Report of the Panel

(Continued)  

V. ARGUMENTS OF THE THIRD PARTIES

5.1 The arguments of the third parties, the European Communities, India, and Japan, are set out in their written submissions and oral statements, and are summarized in this section. Third parties' answers to questions are annexed in full to this report (see List of Annexes, page v).

A. THIRD PARTY WRITTEN SUBMISSION OF THE EUROPEAN COMMUNITIES

1. Claims Relating to the Existence of a Subsidy within the meaning of Article 1 of the SCM Agreement

(a) Financial contribution

5.2 The European Communities agrees with the United States that the term �goods� includes any economically valuable right. The ordinary meaning of the word �good� is commonly defined as, inter alia, �property or possessions; esp. movable property, saleable commodities, merchandise, wares�²⁶ or �tangible or moveable personal property, other than money; esp., articles of trade or items of merchandise�.²⁷ Accordingly, the French text of the SCM Agreement uses the term �biens�, which is defined, inter alia, as �domaine, possession, propri�te�.²⁸ Finally, the Spanish version uses the word "bienes", which encompasses �inmobiliario" as well as "mobiliario.²⁹ From the ordinary meaning of the word �goods� it follows, therefore, that this term not only applies to �movable� but also to �immovable� goods, including �land�.

5.3 This understanding is further corroborated by the immediate context in Article 1.1(a)(1)(iii) of the SCM Agreement, which refers to

(�) goods or services other than general infrastructure (�)� (emphasis added)

5.4 According to this wording infrastructure such as streets, railways or channels � which are all immovable objects � are to be considered as a �good� to the extent that they are not �general�. It follows a contrario that any �individual� immovable object that is provided by the government may also be covered by Article 1.1(a)(1)(iii) of the SCM Agreement.

5.5 The European Communities notes that the Panel in US � Softwood Lumber III confirmed that the phrase �goods or services other than general infrastructure�

is intended to ensure that the term financial contribution is not interpreted to mean only a money-transferring action but encompasses as well an in-kind transfer of resources, with the exception of general infrastructure.³⁰

5.6 The European Communities considers that this clarifies that the term �goods and services� can also refer to immovable property or any other property right such as, e.g., intellectual property rights. Such interpretation is also supported by the purpose of Article 1.1(a)(1) of the SCM Agreement which is intended to cover a wide variety of financial contributions made by governments, which �will also exist if the government does not collect revenue which it is entitled to or when it gives something or does something for an enterprise or purchases something from an enterprise or a group of enterprises�.³¹

5.7 Indeed, subsidies may take the form of very complex bundles of rights combining, e.g., rights to a movable or immovable good (e.g., land) a service (scientific or technical research) or intellectual property (patents, copyrights). Depending on the combination of different elements and the modes of supply, such transfers of economic resources, may involve the provision of �goods or services�, or the foregoing of �government revenue�. If such complex economic transactions were not covered by the disciplines of the SCM Agreement, there would be considerable scope for circumvention.

5.8 Regarding the specific question of whether stumpage is covered by Article 1.1(a)(1)(iii) of the SCM Agreement, the EC does not consider it necessary to comment separately on the different forms of stumpage rights (profit � prendre, servitudes, timber harvesting licenses, and similar rights), because they all involve economically valuable harvesting rights and USDOC explained in its final determination why such rights are goods or at least services within the meaning of Article 1.1(a)(1)(iii) of the SCM Agreement.

5.9 In short, the European Communities agrees with the United States that the stumpage programmes are financial contributions within the meaning of Article 1.1(a)(iii) of the SCM Agreement.

(b) Benefit

5.10 The key legal issue in this dispute is whether the United States has violated Articles 1 and 14 of the SCM Agreement by applying a �cross-border� methodology to establish and measure a benefit.

5.11 The European Communities considers that the determination of the correct market benchmark requires considerable care and would offer the following comments:

5.12 First, contrary to what the United States argues, the text of Article 14(d) of the SCM Agreement does not refer to �fair market value� or �true market prices� that are �independent of the distortions caused by the government�s action�.³² Such analysis would contradict the explicit wording of Article 14(d) which requires the analysis of �prevailing market conditions in the country of provision� (emphasis added).

5.13 The adjective �prevailing�, which means �as they exist�³³ clarifies that the investigating authorities have to base their benefit determinations on existing reference prices that the producer would have had to pay if it had to buy the goods (now provided by the government) from a different and independent seller in the country of provision, including imports.³⁴

5.14 Read contextually with the term �market conditions� in Article 14(d) of the SCM Agreement (and other paragraphs of Article 14) the treaty language clarifies that only in situations where there are no market conditions, i.e., prices determined by independent operators following the principle of supply and demand, the in-country benchmark set out by Article 14(d), second sentence of the SCM Agreement does not apply. Only in such rare situations, the adequacy of the remuneration may be determined following a reasonable method according to Article 14(d), first sentence of the SCM Agreement, including, where necessary, world market prices.

5.15 Thus, as the Panel confirmed in US � Softwood Lumber III, Article 14(d) does not permit investigating authorities to dismiss actual in-country prices merely because they might be affected by the financial contribution.³⁵

5.16 Second, the European Communities does not consider the reference by the United States to recent amendments of its Regulation (EC) 2026/97 relevant for the resolution of this dispute.³⁶ As noted by the United States, these amendments concern a situation where �no such prevailing market terms and conditions� exist and where, consistently with Article 14(d) of the SCM Agreement, investigating authorities may, therefore, apply an alternative benchmark.

5.17 By contrast, under its methodology as applied in the final determination on softwood lumber, the United States continues to consider itself entitled to dismiss existing alternative reference prices in the country of provision and to use petitioner�s prices simply on the basis that in-country prices �were significantly affected by the financial contribution itself�.³⁷ This is different from establishing that there are no market conditions in the country of provision.

5.18 Thus, the problem with the �cross-border� methodology attacked by Canada is not that it eventually allows consideration of world market prices, but under which conditions recourse may be had to alternative benchmarks. The European Communities fully agrees with the panel US � Softwood Lumber III where it dismisses the �hypothetical undistorted market� methodology as contradictory with the text of Article 14(d) of the SCM Agreement. However, the European Communities would respectfully ask this Panel to clarify that there is no absolute rule prohibiting recourse to world market prices to determine the adequacy of the remuneration, if it can be established in exceptional cases that there are no prevailing market conditions within the meaning of Article 14(d) second sentence of the SCM Agreement, so that that rule cannot be applied in order to establish the existence of a benefit.

5.19 Finally, as to the correct application of the above rules to the final determination in this case, the European Communities as a third party is obviously not in a position to comment on the availability of independent market-driven prices for non-governmental stumpage (be it from private Canadian land or imported). However, the European Communities notes that USDOC itself acknowledged that private stumpage markets have a share between 2-17 per cent in Canada.³⁸ The sole rational for rejecting them in the final determination is the mere assertion that such prices are driven by the stumpage prices on Crown land, i.e., the flawed �hypothetical undistorted market� methodology.

5.20 The European Communities also notes that USDOC has recognised �extensive record evidence that Canadian lumber producers had actual imports of US logs and purchased US stumpage during the POI�.³⁹ This finding in itself contradicts USDOC rejection of a competitive timber/and or lumber market in Canada.⁴⁰

(c) Failure to Examine and Determine the Existence of a Benefit to all Producers of the Subject Product (�Pass Through�)

5.21 The European Communities agrees with Canada that the final countervailing duty determination is flawed because it assumes that the alleged financial contribution to timber harvesters through the stumpage rights conferred a benefit on the downstream producers of softwood lumber, although a significant portion of harvesting is done by entities operating at arm�s-length from the lumber producers. Instead of conducting a �pass-through� analysis, USDOC applied an irrefutable presumption that the alleged benefit received by stumpage holders has passed through to all lumber producers harvesters.⁴¹

5.22 The United States does not contest that some producers of the subject merchandise operate at arm�s-length, but defends itself by arguing that the final CVD determination was made on an aggregate basis under Article 19.1 and 19.3 of the SCM Agreement, thereby exempting the competent authority from making a �pass-through� analysis.⁴²

5.23 The European Communities considers that the panel in US � Softwood Lumber III correctly found that neither Article 19 nor any other provision of the SCM Agreement authorises investigating authorities to depart from the requirement to correctly establish the amount of subsidisation if they chose to conduct the investigation on an aggregate basis.⁴³ As already clarified by the Appellate Body in US � Lead and Bismuth II, and confirmed by the panel in US � Softwood Lumber III⁴⁴, an authority may not assume that a subsidy provided to producers of the �upstream� input product automatically benefits unrelated producers of downstream products, especially if there is evidence on the record of arm�s-length transactions between the two.⁴⁵ Thus, USDOC was �required to examine whether, in certain transactions covered by the investigation, some or all of the alleged benefit to the tenure holders from the stumpage programmes was passed through to the producers of the subject merchandise exported to the US�.⁴⁶

5.24 The Panel also correctly clarified that conducting the investigation on an aggregate basis versus a company-by-company basis is �irrelevant� to this issue and cannot dispense USDOC from its obligation to carry out a pass-through analysis so as to correctly establish the amount of the subsidy benefiting the producers of the subject merchandise, (i.e. the numerator).⁴⁷

2. Conclusion

5.25 In short, the European Communities considers that the final determination now before this Panel correctly established the existence of a financial contribution within the meaning of Article 1.1(a)((1)(iii) of the SCM Agreement by interpreting the term �goods and services� so as to include any economically valuable right, in casu, the right to a good (whether that good is movable or immovable).

5.26 However, the measure before the Panel is inconsistent with Articles 1.1(b), 10 and 14 of the SCM Agreement because USDOC applied a flawed �hypothetical undistorted market� methodology to establish the alleged benefit and did not conduct a proper �pass-through� analysis to demonstrate that all producers of the subject merchandise received the alleged benefit.

B. THIRD PARTY ORAL STATEMENT OF THE EUROPEAN COMMUNITIES

1. Financial contribution

5.27 The European Communities has already explained why it considers that the United States correctly established that the granting of stumpage rights is a financial contribution within the meaning of Article 1.1(a)(1)(iii) of the SCM Agreement, because that provision covers any economically valuable right.

5.28 This is in line with the ruling by the panel in US � Lumber III confirming that the phrase �goods or services other than general infrastructure�

(�) encompasses as well an in-kind transfer of resources, with the exception of general infrastructure.⁴⁸

5.29 The European Communities would like to reiterate that the term �goods and services� can also refer to immovable property or any other property right such as, e.g., intellectual property rights. Subsidies may take the form of very complex bundles of rights combining, e.g., rights to a movable or immovable good (e.g., land) a service (scientific or technical research) or intellectual property (patents, copyrights). Depending on the combination of different elements and the modes of supply, such transfers of economic resources, may involve the provision of �goods or services�, or the foregoing of �government revenue�. If such complex economic transactions were not covered by the disciplines of the SCM Agreement, there would be considerable scope for circumvention.

2. Benefit

5.30 The key legal issue in this dispute is whether the United States has violated Articles 1 and 14 of the SCM Agreement by applying a �cross-border� methodology, i.e., US prices as benchmark for the determination of a benefit.⁴⁹

5.31 The European Communities agrees with Canada and the panel in US � Lumber III⁵⁰ that the US determination of benefit violated Article 14(d) of the SCM Agreement because the United States dismisses existing in-country prices merely because they might be affected by the financial contribution. However the European Communities is concerned that some of the findings of that panel might be misunderstood as an absolute rule prohibiting recourse to world market prices to determine the adequacy of the remuneration even if it can be established in exceptional cases that there are no prevailing market conditions within the meaning of Article 14(d) second sentence of the SCM Agreement.

5.32 The problem with the �cross-border� methodology attacked by Canada is not that it eventually allows consideration of world market prices, but under which conditions recourse may be had to alternative benchmarks. Article 14 (d), second sentence, does not apply, where there simply is no market. In such rare situations which must be properly established by the investigating authorities, the adequacy of the remuneration may be determined following a reasonable method according to Article 14(d), first sentence of the SCM Agreement, including, where necessary, world market prices.

3. Specificity

5.33 Canada also challenges the US finding that the stumpage programmes are de facto limited to �pulp and paper mills and the same mills and remanufacturers which are producing the subject merchandise� and therefore de facto specific subsidies.⁵¹ The European Communities considers that because this finding is based on the flawed determination of the beneficiaries of the alleged financial determination it cannot be upheld. However, in case the Panel were to consider the issue of specificity, the European Communities would like to note the following.

5.34 In essence, Article 2.1 of the SCM Agreement requires an investigating authority to determine that a subsidy is specific because its availability is either limited by law to certain enterprises (Article 2.1(a and b)), or the same limiting effect can be established on the basis of evidence concerning the use of the subsidy (Article 2.1(c)). The European Communities notes that USDOC did not make a de jure specificity determination although certain stumpage programmes were restricted to certain enterprises owning saw mills.⁵²

5.35 Canada challenges the USDOC determination because it applies a general availability test, i.e., whether the use of the subsidy is limited to certain groups of industries as opposed to a subsidy that is �broadly available and widely used throughout an economy�.⁵³

5.36 The European Communities considers that the ordinary meaning of the terms �certain enterprises� in Article 2.1 of the SCM Agreement read in light of their context and their object and purpose, in essence, requires a �general availability� determination, that is a determination of whether a subsidy selectively benefits certain industrial sectors or certain enterprises, or is rather a broad economic policy measure, such as the reduction of corporate taxes.

5.37 The broad definition of �certain enterprises� in Article 2.1 of the SCM Agreement as �an enterprise or industry or group of enterprises or industries� indicates that the specificity determination must not precisely identify separate industries and sub-industries as required for the injury determination under Article 16. It is sufficient to show that the subsidy is made available or used only by a limited number of industries as opposed to the overall economy. The immediate context in Article 2.2 of the SCM Agreement confirms the �general availability� test by clarifying that the �setting or change of generally applicable tax rates� shall not be deemed to be a specific subsidy.

5.38 Canada also claims that consideration must be given to the fact that the limitation of users is due to the inherent characteristics of the good rather than any deliberate government favouritism.⁵⁴

5.39 The European Communities fails to see any basis in the SCM Agreement for Canada�s contention that Article 2.1 of the SCM Agreement excludes a specificity finding if the limitation of the use is due to the inherent characteristics of the good. Such an interpretation would lead to circumvention of the subsidy disciplines. Subsidy programmes could be tailored so as to benefit only certain industries that can use certain goods or services. Obviously stumpage rights are useless for the computer industry while the provision of research for computer chip materials would not be of interest for the softwood lumber producers.

4. Violation of Article 12.3 and 12.8

5.40 Turning now to the alleged violations of procedural due process rights, the European Communities would like to offer the following comments on the legal interpretations of Articles 12.3 and 12.8 of the SCM Agreement.

(a) Violation of Article 12.3 of the SCM Agreement

5.41 Canada claims that USDOC has not given timely opportunity to the respondents to see a report on the quality categories for logs in Maine and to rebut counter-reports prepared by the petitioners.⁵⁵

5.42 The United States admits that only two months after it received the Maine report, that document was placed on the record and parties were given 10 days to comment after the record had already been closed.⁵⁶ In defence, the United States invokes the practicability clause in Article 12.3 of the SCM Agreement arguing that �it was simply not practical� to give Quebec an earlier opportunity to see the report in time to be able to also rebut the petitioners� counter reports.⁵⁷

5.43 The terms �whenever practicable� in Article 12.3 of the SCM Agreement do not address the question of �whether� the investigating authority must grant access to the file, but exclusively the question of �when� to do so.

5.44 The term �timely� means �occurring, or made at an appropriate or suitable time; opportune; Occurring or appearing in good time, early�.⁵⁸ A contextual reading clarifies that the time must be sufficient not only to see the information but also to prepare presentations on the basis of this information. The plural �presentations� supports that there must be possibility for at least one rebuttal.

5.45 Article 12.8 makes clear that, although the investigating authority is not required to make the file permanently accessible to the public, and to exchange in an endless cycle of comments and sur-rebuttals, it must grant access to the file as early as practicable, rather than, for example, once at the end of the investigation thereby excluding the possibility of making at least one counter-rebuttal.

5.46 A Member claiming that timely access to the record and sufficient time to make presentations is not practicable faces a heavy burden. The instances where a Member could refuse legitimately the possibility of timely access to the file would be �exceptional�. The European Communities notes that the precise circumstances of the disclosure of the Maine report are still being clarified between the parties and is therefore not in a position to comment on whether there were such exceptional circumstances. However, merely claiming non-practicability is certainly not sufficient.

(b) Violation of Article 12.8 of the SCM Agreement

5.47 The second procedural violation concerns the disclosure of essential facts. Canada complains that USDOC switched from Montana stumpage prices, which it had used as benchmark for two Canadian provinces in the preliminary determination to Minnesota prices on which it based its final determination. Both parties agree that these stumpage prices are essential facts.⁵⁹ However, the United States appears to argue that the respondents were aware of the essential facts through the preliminary determination and that because the respondents �prevailed on this points� causing USDOC to switch to Minnesota prices, they cannot �credibly claim surprise�⁶⁰

5.48 Article 12.8 of the SCM Agreement imposes upon the investigating authorities a duty �to inform� the interested parties. The ordinary meaning of that term (�to give knowledge of something�, to tell�, to acquaint with�)⁶¹ demands a positive action from the investigating authorities. The EC agrees with the United States⁶², that Article 12.8 does not prescribe any particular method of disclosure. Thus, for instance, the investigating authority may choose to make the disclosure in a written document sent to the parties (the usual practice in the EC) or in any other form. However, Article 12.8 of the SCM Agreement, requires a certain result: the interested parties must be informed of the facts �which form the basis for the decision whether to apply definitive measures�. The Panel in Argentina �Ceramic Tiles, in interpreting the analogue provision in the Anti-Dumping Agreement clarified that the disclosure must contain

the essential facts which, being under consideration, are anticipated by the authorities as being those which will form the basis for the decision whether to apply definitive measures. (emphasis added)⁶³

5.49 Indeed, the relative clause �which form the basis for the decision whether to apply definitive measures� qualifying the phrase �essential facts under consideration� is of crucial importance for the correct interpretation of Article 12.8. The use of the term �form� indicates that the investigating authority is required to identify which facts will be relied upon in the final decision whether to impose measures.

5.50 Disclosure of the �essential facts� forming the basis of a preliminary determination is clearly inadequate in circumstances where the factual basis of the provisional measure is significantly different from the factual basis of the definitive measure. This was confirmed by the Panel ruling in Guatemala � Cement II clarifying that disclosure of the

�essential facts� forming the basis of a preliminary determination is clearly inadequate in circumstances where the factual basis of the provisional measure is significantly different from the factual basis of the definitive measure.⁶⁴

5.51 The European Communities considers that the United States cannot escape from its obligation by claiming that the switch between benchmarks is less significant than the switch between threat and actual injury in the Guatemala cement case. Decisive is only that the facts are �essential� to the final determination and whether the respondents knew that the Minnesota stumpage prices would form the basis of the final determination. That the facts relating to Minnesota were on the record does not change that appreciation. The respondents could not know that they would be �essential� for the final determination, as they had advocated other alternative benchmarks.

5.52 Finally, the United States cannot defend itself by invoking practicability concerns⁶⁵. While Article 12.3 contains a �whenever practicable� exception, the obligation to disclose the essential facts under Article 12.8 is without qualification.

C. THIRD PARTY ORAL STATEMENT OF INDIA

5.53 This is one of half a dozen disputes raised by Canada on the same merchandise/product, viz., softwood lumber. As in other disputes, India has systemic interest in this dispute as well. In an earlier dispute, US � Softwood Lumber III, India expressed concerns on application by the US of �cross-border� methodology to determine existence of benefit under Articles 1 and 14 of the SCM Agreement. We have similar concerns in this dispute as well.

5.54 More importantly, India has systemic concern about the Panel�s decision to accept amicus curiae briefs and consider their arguments to the extent that such arguments raised by the parties and third parties to the dispute.

5.55 India considers that the WTO panels and the Appellate Body do not have a right to accept and consider any briefs or arguments submitted by anyone other than the parties or third parties to the dispute. WTO panels, however, under Article 13 of the DSU, could seek information or technical advice or opinion of any individual or body on certain aspects of the matter or factual issues concerning scientific or technical matter raised in a dispute. We do not consider that �arguments� of uninvited bodies or individuals would fall into such category.

5.56 India is aware of the Appellate Body�s view on amicus curiae briefs and the so-called �case law� developed by it. India does not agree with the Appellate Body�s view that whatever is not prohibited by the DSU or other covered agreements is permissible and, therefore, the Appellate Body and the panels have authority to accept amicus briefs. There is no textual or other legal basis for such assertions. Therefore, India requests the panel refrain from accepting or considering the unsolicited amicus curiae briefs submitted to it.

D. THIRD PARTY WRITTEN SUBMISSION OF JAPAN

1. Introduction

5.57 The Government of Japan welcomes this opportunity to present its view in this proceeding on United States - Final Countervailing Duty Determination with Respect to Certain Softwood Lumber from Canada. This dispute concerns the countervailing duties imposed by the United States on certain Canadian softwood lumber products. Japan decided to participate in the current proceedings as a third party in view of the systemic importance of the dispute. The Canadian government has control in administration of wood production in Canada through the stumpage programme of public-owned forest, which covers most of forests in Canada, and Canada is the world largest wood exporting country, covering 20 per cent of world wood products exports. Japan respectfully requests the Panel to pay due attention to the fact that Canadian government has a strong influence on wood products market and thus the result of this dispute will have significant implications. Although Japan has no intention to argue on the assessment of underlying facts in the specific circumstances of this case, Japan would like to respectfully submit the following comments.

2. Legal Arguments

5.58 Japan considers that Canada must avoid trade distortion, when it tries to achieve sustainable management of its forestry resources through the stumpage programme. And Japan is of the view that the log price should be determined through the market mechanism in the trade between an independent tenure holder and an unrelated lumber mill, in the same way as the lumber price is determined. Having these in mind, Japan would like to submit the following points.

(a) Provision of �goods�

5.59 Canada argues that the stumpage programme is a system of interlocking rights and obligations between the Crown (provincial and federal governments) and harvesters⁶⁶. It also insists that the stumpage programme provides �rights� rather than �goods⁶⁷.� It is true that �rights� are not �tangible or movable personal property other than money⁶⁸�, and cannot be categorized into tariff classification⁶⁹, as Canada points out.

5.60 However, the �right to harvest standing timber on Crown land⁷⁰,� which is given in exchange for the �stumpage (price paid for harvesting),� is equivalent to the property right of standing timber (except for land). Furthermore, such �right� is exercised during a specific period, to produce logs which are �tangible or movable personal property other than money�. Therefore, it could be understood that, in this case, �provision of goods� is equivalent to �provision of property rights.�

5.61 In this respect, US � Softwood Lumber III panel report acknowledges that �The word �goods� in this context of �goods or services� is intended to ensure that the term financial contribution is not interpreted to mean only a money-transferring action, but encompasses as well an in-kind transfer of resources, with the exception of general infrastructure⁷¹.� In the context of Article 1.1 (a) (1) (iii) of the SCM Agreement, Japan considers that �goods or services� is a broad concept parallel to monetary transfer and, it is doubtful that the meaning of �goods� should be limited as Canada suggests. Since �goods� in Article 1.1 (a) (1) (iii) are provided by the government to domestic producers, Japan hesitates to interpret, as Canada does, that �goods� must be �tradable item with an actual or potential tariff classification� in general. Canada seems to base this claim on Article 3.1 (b). However, the provision covers only export subsidy.

(b) A Benefit Conferred

(i) �Cross-Border� Benchmarks

5.62 In order to determine if the stumpage programme could be understood as a �subsidy� as defined in the SCM Agreement, it is required to evaluate whether the programme constitutes a financial contribution by the Canadian government in providing �goods� as referred to in Article 1.1 of the SCM Agreement, and whether a benefit is conferred by the stumpage programme through proper method which complies with Article 14(d) of the SCM Agreement.

5.63 Article 14(d) provides that whether a benefit is conferred must be determined by comparing the price for the provision of goods or services and �adequate remuneration.� It also provides that the �adequate remuneration� shall be determined in relation to prevailing market conditions for the good or service in question �in the country of provision�. It is not disputed that USDOC used �Cross-border analysis� and this seems inconsistent with this article since it compared the stumpage in Canada with the stumpage (or price for standing timber) in the United States. In this case, however, it is noted that there is difficulty in finding market conditions to be compared in Canada, since most of forests in Canada is managed by the stumpage programme and private forest area is very limited, and even in the private forest area, as standing timbers are mostly harvested and produced into logs by owner companies, market of standing timbers rarely exists.

(ii) Stumpage Level

5.64 Even assuming that Cross-border comparison is permitted to be used to determine whether the stumpage is less than adequate remuneration, such comparison should not be conducted by simply comparing �stumpage� prices in Canada and those in the United States. It needs evaluation of various differences of their systems which affect their stumpage prices. The difference of forest management systems between the United States and Canada may be one of such factors to be considered. For example, if the Canadian government obligates harvesting companies to share the substantial part of the burden for sustainable forest management and thus the stumpage paid by those companies is kept low, the cost for fulfilling the obligation should be added on the price of Canadian stumpage for fairness of comparison.

(c) A Pass-through of an Alleged Subsidy

5.65 Regarding wood and wood products market, there is standing timber market, log market, lumber market, and processed wood products market. In each market, price is determined in accordance with the relationship between demand and supply. Therefore, in principle, product prices are determined in the market, independently from production costs.

5.66 Some Canadian softwood lumber is harvested and produced by lumber producers which hold stumpage rights. In this case, lumber producers would be able to produce lumber with lower costs, taking advantage of the stumpage programme. However, lumber producers in Canada do not necessarily ensure all log input supply from their own stumpage.⁷² As Canada points out, some lumber producers may purchase logs from unrelated log harvesters that do not own a mill. In that case, even if the log harvesters produce logs at lower costs through the stumpage programme, the price would be determined in accordance with the relationship between demand and supply because the log sellers pursue the maximum profit. Therefore, it would be unreasonable to assume that logs with lower production costs are sold with lower prices in the arm�s-length transactions between timber harvesters and unrelated lumber producers⁷³, resulting in a pass-through of the alleged subsidy to lumber producers. This would also apply to transactions of softwood lumber between lumber producers and final consumers. Further, since a wide variety of products are produced from softwood logs⁷⁴, the alleged subsidy would be passed through to other producers of wood products including pulp and plywood, if the subsidy is passed through to lumber producers.

5.67 The United States should fully investigate how much of the alleged subsidy is passed through to all producers of wood products in Canada and how much of it is passed through to softwood lumber producers in Canada through the stumpage programme, when imposing countervailing duty on Canadian softwood lumber. Japan expects that the Panel determines if the US final determination of countervailing duty is based upon sufficient analysis of a pass-through of an alleged subsidy, and how much of the alleged subsidy was passed through to lumber producers.

VI. INTERIM REVIEW

6.1 On 10 June 2003, the United States and Canada submitted a written request for review by the Panel of particular aspects of the interim report issued on 27 May 2003. Canada commented on the United States' request for interim review on 17 June 2003. The United States did not comment on Canada's request for interim review. Neither party requested an additional meeting with the Panel.

6.2 We have reviewed the comments presented by Canada and the United States and the reaction to the United States' comments by Canada and have finalized our report. We note in this regard that, throughout the report, we have corrected typographical and other clerical errors, including those identified in the parties' interim review comments.

6.3 Canada requested changes to the description of its argument concerning the definition of "goods" in the Uniform Commercial Code in footnote 80 of the interim report. In a similar vein, Canada requested changes to footnote 136 of the interim report to more accurately reflect Canada's argument concerning the use of prices that do not form part of the prevailing market condition in the country of provision. Finally, Canada further requested changes to paragraph 7.108 of the interim report to more accurately reflect its argument concerning specificity. We have amended these footnotes and this paragraph to reflect the comments made.

6.4 The United States requested a change to the first sentence of paragraph 7.56 of the interim report concerning the United States' interpretation of Article 14 (d) SCM Agreement to more accurately reflect its position. The United States also requested a change to the first sentence of paragraph 7.132 summarizing the US argument concerning the factor provided in the Minnesota Price Review for conversions between board feet and cords. We have amended these paragraphs to reflect the comments made.

6.5 Finally, the United States also took issue with the Panel's discussion in paragraphs 7.81 through 7.99 of the interim report concerning the pass-through of the alleged subsidy. The United States commented that the Panel's characterization of the Canadian industry in paragraph 7.84 of the interim report was partly inaccurate as it suggested that re-manufactured softwood lumber products were only produced by re-manufacturers from lumber purchased from sawmills, although, the US noted, some such re-manufactured products also were produced by tenure holding Canadian sawmills. The United States stated that it was concerned that this alleged factual misunderstanding underlay the Panel's conclusion in paragraphs 7.97 and 7.98 of the interim report that the total subsidy provided through the provincial timber programmes to Canadian softwood lumber mills cannot be allocated across all sales (domestic and export) of the output of those mills (both primary and remanufactured lumber), absent an upstream subsidy analysis of certain of those transactions. In response to this US comment, Canada argued that this perceived factual misunderstanding provided no basis for reconsideration of the Panel's analysis since the US concern did not go to the circumstances of the Panel's substantive analysis in the cited paragraphs. Canada stated that while a few re-manufacturers have access to Crown timber, the vast majority do not.

6.6 We disagree with the US that our consideration of the pass-through analysis in respect of re-manufactured products is based on any misunderstanding of the factual situation, and note that the sentence commented on by the US is intended simply to describe what is meant by the term "re-manufactured products", and not, as the US suggests, to characterize the nature of the transactions for lumber inputs between sawmills and re-manufacturers. Our analysis and conclusion in respect of the pass-through issue explicitly indicate that the question is relevant only to those cases in which the recipient of any subsidy from stumpage sells inputs (logs or lumber) to unrelated downstream lumber producers producing the subject merchandise. Contrary to the US comment, we did not suggest that no re-manufactured products were produced by tenure-holding sawmills. Rather, our conclusion was that a pass-through analysis was required where that was not the case (and both parties acknowledged that some re-manufactured products were produced by re-manufacturers that did not hold tenure). We therefore did not consider it necessary to amend this part of our report.

VII. FINDINGS

7.1 Canada challenges the United States Department of Commerce ("USDOC") final countervailing duty determination with respect to certain softwood lumber from Canada ("USDOC Determination" or "Final Determination") of 21 March 2002. Canada brings seven claims against the USDOC Determination. The first three claims relate to the USDOC's finding that the Canadian stumpage programmes constitute financial contributions which confer a benefit on producers of the subject merchandise and are thus subsidies. The fourth claim concerns the USDOC's determination of specificity of the alleged subsidies. The fifth claim concerns various specific aspects of the calculation of the subsidy rate. The sixth claim is of a procedural nature and concerns the alleged failure by the USDOC to provide a timely opportunity to see all relevant information and to give adequate notice of the essential facts of the investigation. The seventh and final claim relates to the alleged inconsistent initiation of the investigation by the USDOC as a consequence of the application of the Continued Dumping and Subsidy Offset Act of 2000 (the "Byrd amendment"). We will address these claims in the order they have been presented to us by Canada.⁷⁵

A. CLAIM 1: INCONSISTENT FINDING OF THE EXISTENCE OF A FINANCIAL CONTRIBUTION

1. Arguments of the parties

(a) Canada

7.2 Canada considers that the USDOC erred in determining that "stumpage" is a financial contribution in the form of the provision of a good by the government.⁷⁶ According to Canada, stumpage is the conferral of the right to harvest standing timber. Canada submits that the conferral of this right to exploit an in situ natural resource cannot be equated to the provision of a good or a service by the government and therefore does not constitute a financial contribution in the sense of Article 1.1 (a) (1) (iii) of the Agreement on Subsidies and Countervailing Measures (the "SCM Agreement"). Canada claims that the USDOC, by imposing definitive countervailing measures without properly determining the existence of a subsidy, acted inconsistently with Articles 10, 32.1, 19.1, 19.4 SCM Agreement and Article VI:3 GATT 1994.

7.3 Canada is of the view that stumpage is not a good because the ordinary meaning of the term "good", as reflected in Black's Law Dictionary, is "tangible or movable personal property, other than money".⁷⁷ According to Canada, an intangible real property right such as stumpage is thus not a good. Canada submits that an intangible right does not become a good just because it is a factor enabling the creation of a good, nor because the right holder's objective is to produce a good. Moreover, in Canada's view, the term "goods" in the context of Article 1.1 (a) (1) (iii) SCM Agreement has the same meaning and scope as "goods" or "products" used elsewhere in the SCM Agreement and the WTO Agreement, in particular Article II of GATT 1994, i.e. tradable items with an actual or potential customs classification.⁷⁸ Canada submits that a right to exploit a resource cannot be traded across borders and cannot be assigned a tariff classification.⁷⁹

7.4 Canada further argues that, even assuming that USDOC was correct that the stumpage programmes provide standing timber rather than the right to harvest such timber, the Canadian provincial stumpage programmes still do not involve a financial contribution. Canada argues that the ordinary meaning of "goods" is movable, tangible items, and that immovables such as trees in the forest are not "goods".⁸⁰ Therefore, according to Canada, standing timber � i.e. trees firmly rooted in the ground - is not a "good" in the sense of Article 1.1 (a) (1) (iii) SCM Agreement, as it is an in situ natural resource that is not capable of being traded across borders.

7.5 Canada rejects the United States assertion that tenures and licences are merely contracts for the sale of goods because at the end of the day tenure and licence holders end up with a good (cut timber). Canada considers that the definition of subsidy has two elements, financial contribution and benefit. Financial contribution relates to what the government does, benefit relates to what the recipient receives. Article 1.1 (a) (1) (iii) SCM Agreement does not require the Panel to determine what the recipient ends up with at the end of the day or why the recipient enters into a given relationship with a government, but it requires a Panel to determine what the government provides. Moreover, the provision of stumpage rights cannot be equated to the sale of goods. According to Canada, a timber sales contract identifies individual standing trees to be cut and the resulting felled timber to be hauled away. In contrast, a tenure or licence grants a right of harvest in an area of land in return for certain obligations, but no trees are identified to be cut.⁸¹ Stumpage rights are conferred and obligations are assumed regardless of whether any trees are actually cut, and even though the trees that are cut may not even have been planted at the time the rights and obligations are assumed. Tenures and licences, in Canada's view, do not involve identified trees, they involve identified areas. In sum, what the provinces provide is not simply trees in return for a fee, but harvesting rights in the context of tenures or licences that impose elaborate and long-term obligations on timber harvesters.⁸²

7.6 In sum, Canada submits that the transfer of the right to harvest standing trees through the Canadian provincial stumpage programmes does not amount to the provision of a good within the meaning of Article 1 SCM Agreement. For these reasons, Canada claims that the USDOC determination of the existence of a subsidy in the form of the provision of a good through the Canadian provincial stumpage programmes is inconsistent with the obligation to make a proper subsidy finding before imposing countervailing measures as set forth in Article 10, 19.1, 19.4 and 32.1 SCM Agreement and Article VI:3 GATT 1994.

(b) United States

7.7 The United States submits that the USDOC determination that Canadian provincial stumpage programmes provide a financial contribution in the form of government provision of a good is consistent with Article 1.1 (a) (1) (iii) SCM Agreement. The United States is of the view that the Canadian stumpage programmes provide standing timber, and the stumpage programmes thus constitute the provision of a good in the sense of that Article. According to the United States, the ordinary meaning of the term "goods", as reflected in Black's Law Dictionary for example, includes an "identified thing to be severed from real property"⁸³ which clearly covers standing timber.⁸⁴ The United States asserts that the context in which the term "goods" is used in Article 1.1 (a) (1) (iii) SCM Agreement, i.e. "goods or services other than general infrastructure", confirms the broad meaning of the term. The United States asserts that it is evident from Article 1.1 SCM Agreement that the Members recognized that governments have a wide variety of mechanisms at their disposal to confer an advantage on specific domestic enterprises and that they intended to bring those mechanisms within the disciplines of the SCM Agreement. According to the United States, the fact that "products" are "goods" and that "imported goods" are necessarily also "goods", does not logically give rise to the inferences Canada is drawing that nothing else can come within the meaning of goods. Thus, the United States submits that while the term "goods" in Article 1.1 (a)(1) (iii) SCM Agreement certainly includes tradeable products, there is no basis to limit its meaning to such products when neither the text nor the context in which the term is used suggests such a limitation.

7.8 According to the United States, Canada is elevating form over substance when it argues that stumpage only confers the right to harvest timber. In the view of the United States, there is no meaningful distinction between the government granting a right to harvest timber and the government actually supplying the timber through the holder�s exercise of that right.⁸⁵ The only way to provide standing timber (the good in question) is by providing the right to harvest the timber. According to the United States, the clear purpose of the programme is thus to provide timber to Canadian mills that make lumber or wood pulp.⁸⁶ The fact that tenure holders are required to fulfill certain forest management obligations as a condition of sale does not convert these sales of timber into forest management contracts or into the sale of a "right" to harvest.⁸⁷ The United States argues that all ownership rights in the forest remain vested in the Canadian provinces, and that the tenure holder only acquires ownership of the trees it harvests and pays for. The United States asserts that the record demonstrates that tenure holders do not acquire a freely transferable "right" to harvest, as all provinces prohibit the transfer of tenures without government approval.⁸⁸ In sum, the United States submits that, in spite of Canada's efforts to sever the right to harvest from the sale of the trees, the facts demonstrate that tenure holders are buying trees. Tenure holders are not forest management companies, they are mills which need timber. The provinces provide it and this, according to the United States, constitutes a financial contribution within the meaning of Article 1.1 (a) (1) (iii) SCM Agreement.

2. Analysis

7.9 Canada claims that the USDOC erred in finding that the provision of stumpage by Canadian provincial governments constitutes a financial contribution in the form of the provision of a good in the sense of Article 1.1 (a) (1) (iii) SCM Agreement. According to Canada, the USDOC thus failed to properly determine the existence of a subsidy to the producers of the subject merchandise as defined in Article 1 SCM Agreement, and the measures imposed on the basis of this flawed subsidy determination are therefore inconsistent with Articles 10, 32.1, 19.1, 19.4 SCM Agreement and Article VI:3 GATT 1994.

7.10 Canada's claim thus concerns the definition of a subsidy in Article 1.1 SCM Agreement, and the existence of a financial contribution under Article 1.1 (a) (1) (iii) SCM Agreement in particular. Our analysis of Canada's claim begins of course with the text of that Article. Article 1.1 SCM Agreement provides that:

Article 1

Definition of a Subsidy

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

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

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

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

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

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

or

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

and

(b) a benefit is thereby conferred."

7.11 In the Final Determination, the USDOC found that the Canadian provinces provide a good to Canadian producers of softwood lumber through the licence and tenure agreements concluded with companies that harvest standing timber. Canada focuses on the terms of the tenure agreements which confer harvesting rights to log producers. According to Canada, such a right is not a "good", it certainly is not timber. The United States is of the view that this is form over substance: what Canada is really doing is providing cheap timber to the lumber producers as it allows such producers access to cheap timber through agreements that provide harvesting rights.

7.12 The Final Determination first discusses the meaning of the term "stumpage" and examines the ordinary meaning of the term "goods" to conclude that "stumpage, i.e. timber, is a 'good' within the meaning of section 771 (5) (B) (iii) of the Act".⁸⁹ The USDOC then rejects the argument that the provincial governments are not providing timber (a good) but are merely granting a right to harvest timber as it considers that the sole purpose of the tenure systems is to provide lumber producers with timber.⁹⁰ The USDOC concludes that the provision of stumpage by the provincial governments constitutes the provision of a good under Section 771 (5) (D) (iii) of the Act.

(a) What do the stumpage programmes provide: the right to harvest or standing timber ?

7.13 Canada asserts that a tenure or licence carries current and future obligations such as forest management planning, fire protection, etc. which are independent of any harvest, and the right to harvest Crown timber is thus fundamentally different from the simple ownership right in trees. Canada argues that a timber sales contract identifies individual standing trees to be cut, while, in contrast, a tenure or licence grants a right of harvest in an area of land in return for certain rights and obligations, but that no specific trees are identified to be cut. The tenure agreements may even concern trees which have yet to be planted.

7.14 We asked Canada to explain what it considers to be the distinction between the provision of the right to harvest a tree and the right to own the harvested tree. In response, Canada stated that "most forms of tenure confer a right to harvest standing timber that is in the nature of a proprietary interest".⁹¹ We read Canada's acknowledgement that the right to harvest timber is in the nature of a proprietary interest, to imply that the tenure holder which has the right to harvest the timber, in fact receives proprietary rights over the standing timber. Canada further discussed, in response to our questions, how various types of tenures or licences operate and when ownership of the timber is transferred to the tenure holder. In light of Canada's answers, it appears that the United States is correct when it argues that "there is no record evidence of stumpage contracts under which the contracting party (tenure holder or licensee) does not have ownership rights to the harvested timber".⁹²

7.15 We also asked Canada whether the contractual rights to harvest could be sold without the permission of the provincial governments. Canada stated that the answer to this question varies from province to province, and it provided information concerning British Columbia, Alberta, Ontario and Quebec.⁹³ On the basis of this information provided by Canada we conclude that, in fact, in each province such rights cannot be sold without government permission, and that various types of tenures or licences are not transferable at all. We wish to emphasise that for purposes of Article 1.1 (a) (1) (iii) SCM Agreement, the exact legal nature of the stumpage contracts is not what is important. Rather, what is important for purposes of the Agreement is whether, through the stumpage programmes, the Canadian provincial governments are "providing a good" to the timber harvesters. We consider that, in essence, the stumpage programmes provide standing timber to the harvesters. Canada acknowledges that the provinces own the forests and the trees that grow in them.⁹⁴ The only way for harvesters to obtain the trees standing on government-owned Crown land for harvesting and processing is by concluding stumpage agreements (tenures or licences) with the governments concerning these trees. The only way for the government to provide the standing timber that it owns to the harvesters and the mills for processing is by allowing the harvesters to come on the land and harvest the trees. Such legal rights and obligations are transferred through the stumpage agreements. It is thus through the stumpage agreements that the governments provide the standing timber to the harvesters.⁹⁵ The price to be paid for the timber, in addition to the volumetric stumpage charge for the trees harvested, consists of various forest management obligations and other in-kind costs relating to road-building or silviculture for example. In return, the tenure holders receive ownership rights over the trees during the period of the tenure.⁹⁶ In other words, with the stumpage agreements, ownership over the trees passes from the government to the tenure holders. Standing timber has thus been provided to the tenure holders.

7.16 This conclusion does not change whether one looks at it from the perspective of the recipient, the tenure holder, or from the perspective of the provider, the government. As noted by the Panel in the US - Softwood Lumber III case, from the perspective of the tenure holder, the only reason to enter into tenure agreements with the provincial governments is to obtain the timber.⁹⁷ The minimum cut requirements for tenure holders under certain stumpage programmes, the requirements to qualify as a tenure holder, such as the requirement to own a processing facility and other processing requirements, are just some examples that demonstrate that the provision and processing of standing timber is what the stumpage programmes are all about. This is not to say that the governments may not at the same time be pursuing certain other social, economic or environmental policies by imposing certain forest management obligations as conditions of sale. However, these conditions of sale or the costs that companies assume for obtaining the stumpage cannot alter the fundamental conclusion that the stumpage programmes provide standing timber, and not just a right to harvest such timber, to the tenure holders. In return, the tenure holders accept to pay a volumetric stumpage fee for the trees actually harvested and assume certain management and other obligations in order to obtain such timber.

7.17 In our view, the right to harvest standing timber is not severable from the right over the standing timber and providing the right to harvest timber is therefore no different from providing standing timber. In this respect we find illustrative the example given by the United States of someone who wants to buy the trees in his neighbour's backyard and the neighbour agrees that he can have the trees if he paints that person's house and pays him $100. As the United States correctly points out, "inherent in the contract is the buyer�s right to cut down the trees and haul them away, if he fulfils the conditions of purchase, i.e., paints the house and pays the $100. Nevertheless, this is a contract for the sale of goods � the standing trees in the neighbour's backyard � not the sale of the 'right' to harvest the trees".⁹⁸

7.18 We do not consider relevant the distinction that Canada makes between a contract which identifies individual trees to be cut, and an agreement concerning harvesting rights over a certain area of forest land. In our view, in both cases, trees are provided. In any case, it appears to us that, although a tenure agreement may not provide for a precise number of identified trees to be cut, the tenure holder knows all too well how many trees and which species of trees can be found on the area of land covered by his tenure.⁹⁹ In sum, we consider that in this context there is no meaningful distinction between the provision of a right to harvest timber and the provision of standing timber itself, and therefore find that the Canadian provincial stumpage programmes provide standing timber to the tenure or licence holders.

(b) Is standing timber a "good" in the sense of Article 1.1 (a) (1) (iii) SCM Agreement?

7.19 In order to determine whether the USDOC correctly found that through these stumpage programmes Canadian provincial governments provide goods in the sense of Article 1.1 (a) (1) (iii) SCM Agreement, we next consider whether standing timber is a "good" in the sense of Article 1.1 (a) (1) (iii) SCM Agreement.

7.20 Canada argues that standing timber, i.e., trees rooted in the ground, are not "goods" within the meaning of Article 1.1 SCM Agreement. In Canada's view trees do not fall within the ordinary meaning of the term "goods". Moreover, Canada is of the view that the term "goods" in the particular context of Article 1 SCM Agreement refers to tradeable products with an actual or potential tariff line and standing timber which cannot be traded across borders is therefore not a good in the sense of Article 1.1 (a) (1) (iii) SCM Agreement.

7.21 According to the United States, standing timber is clearly included within the broad ordinary meaning of the term "goods". In the view of the United States, the context in which the term is used in the WTO Agreement and the SCM Agreement in particular does not provide a basis to limit its application, for the purpose of Article 1.1 (a) (1) (iii) SCM Agreement, to products for which there is an actual or potential tariff line.

7.22 We recall that Article 3.2 DSU requires a panel to interpret the Agreement in accordance with customary rules of interpretation of public international law, which, it is well-accepted, include in particular Articles 31 and 32 of the Vienna Convention on the Law of Treaties. Article 31 of the Vienna Convention on the Law of Treaties provides that "a treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in light of its object and purpose". We will thus examine the ordinary meaning of the word "goods" used in Article 1.1 (a) (1) (iii) SCM Agreement � in its context and in light of the object and purpose of the Agreement.

7.23 The New Shorter Oxford Dictionary defines "goods" as, inter alia, "saleable commodities, merchandise, wares".¹⁰⁰ Black's Law Dictionary, to which both parties refer in search of the ordinary meaning of the term "goods", defines "goods" as follows:

"1. Tangible or movable personal property other than money; esp. articles of trade or items of merchandise <goods and services>. The sale of goods is governed by Article 2 of the UCC. 2. Things that have value, whether tangible or not <the importance of social goods varies from society to society>.

"'Goods' means all things, including specially manufactured goods that are movable at the time of identification to a contract for sale and future goods. The term includes the unborn young of animals, growing crops, and other identified things to be severed from real property � . The term does not include money in which the price is to be paid, the subject-matter of foreign exchange transactions, documents, letters of credit, letter-of-credit rights, instruments, investment property, accounts, chattel paper, deposit accounts, or general intangibles." UCC � 2 � 102 (a) (24).

7.24 The ordinary meaning of the term "goods" as "tangible or movable personal property other than money" is thus very broad and includes standing timber, as trees are tangible objects which are capable of being owned. This is further confirmed by the explanation in Black's Law Dictionary that a "good" includes "an identified thing to be severed from real property". Standing timber indeed seems to us to be an excellent example of an identified thing that can be severed from real property. We note that in its Sale of Goods Act, the Canadian province of British Columbia, the prime exporter of softwood lumber to the United States, itself defines "goods" as including "growing crops, [�], and things attached to or forming part of the land that are agreed to be severed before sale or under the contract of sale".¹⁰¹ In our view, this definition of a good certainly includes standing timber.

7.25 Article 31 Vienna Convention requires the interpreter to determine the ordinary meaning of the terms of the treaty in their context and in the light of its object and purpose. The immediate context of the term "goods" in Article 1.1 (a) (1) (iii) SCM Agreement is "goods or services, other than general infrastructure". We note that the term "goods" in this context is not qualified in any way and its use in the combination "goods or services", in our view, confirms that the term is to be understood broadly. We find further confirmation of this broad meaning in the fact that the drafters of the Agreement considered it necessary to explicitly exclude "general infrastructure". This implies that "goods or services" is sufficiently broad as to include "general infrastructure"; if not, there would have been no reason to explicitly exclude it. At the same time, "general infrastructure" is the only "good or service" which is excluded from the broad scope of Article 1.1 (a) (1) (iii) SCM Agreement. In our view, if the drafters had wanted to exclude other items such as natural resources or non-tradeable goods, they would have also explicitly excluded such "goods or services".

7.26 Article 1.1 SCM Agreement defines a subsidy for the purposes of the SCM Agreement. It provides that the first element of a subsidy is a "financial contribution by the government". Subparagraphs (i) through (iv) explain that a financial contribution can exist in a wide variety of circumstances including of course the direct transfer of funds.¹⁰² A financial contribution will also exist if the government does not collect the revenue to which it is entitled or when it does something for ("provides a service") or supplies something to ("provides a good") a recipient. We are of the view that Article 1.1 (a) (1) (iii) SCM Agreement, in its context, clarifies that a financial contribution also exists where, instead of a money-transferring action, goods or services are provided. The context in which the term "goods" is used in Article 1.1 (a) (1) (iii) SCM Agreement as well as the purpose of Article 1 SCM Agreement in our view confirm the broad and unqualified meaning of the term "goods".

7.27 We consider Canada's interpretation, that the reference in Article 1.1 SCM Agreement to the provision of "goods" refers to tradeable products for which there is a tariff line, to be excessively narrow. We understand Canada to argue that, since on several occasions in the SCM and other WTO Agreements the term "goods" is qualified as "imported" or is understood to be tradable, and since for many goods there exists a tariff line, this necessarily implies that all "goods" have to be capable of being imported, and must therefore be tradeable.

7.28 We consider that the ordinary meaning of the term "goods", in its context and in light of the object and purpose of the Agreement, does not place the limitations on the meaning of the term suggested by Canada ("tradeable products with a potential or actual tariff line"). In our view, that in many cases in the GATT and the WTO Agreements the general term "good" is used as an equivalent of the term "products", does not imply that this is necessarily always the case. Precisely because of its broad ordinary meaning, the specific content of the term will be determined by the adjective accompanying the term as a sort of qualifier. In the absence of any such limitations placed on the term, as in Article 1.1 (a) (1) (iii) SCM Agreement, we consider that the term "goods" keeps its broad ordinary meaning. All that the text of Article 1.1 (a) (1) (iii) SCM Agreement suggests is that the goods or services are capable of being provided by a government; it does not address whether they can be imported or traded. The fact that the SCM Agreement relates to subsidies in the trade in goods context only, and does not cover services, does not mean that the "goods" provided by the government necessarily have to be goods that can be traded or that are covered by the GATT as products under Article II. We note in this respect that Article 1.1 (a) (1) (iii) SCM Agreement also mentions the provision of services by the government as constituting a financial contribution while the disciplines of the SCM Agreement, as discussed, only apply to trade in goods.

7.29 We agree with Canada that the definition of a subsidy in Article 1 SCM Agreement reflects the Members' agreement that only certain types of government action are subject to the SCM Agreement, and also that not all government actions that may affect the market come within the ambit of the SCM Agreement.¹⁰³ When the government provides goods or services, however, such action is clearly covered by the SCM Agreement. Standing timber, a physical and tangible object, is the log and lumber producers' prime input, and the action by the government to supply this input to the producers of logs and lumber, is the provision of a good and therefore covered by the SCM Agreement.¹⁰⁴

7.30 In the absence of any textual basis for limiting the broad ordinary meaning of the term "goods" in the context of Article 1.1 (a) (1) (iii) SCM Agreement, we find that the USDOC Determination that the Canadian provinces are providing a financial contribution in the form of the provision of a good by providing standing timber to the timber harvesters through the stumpage programmes is not inconsistent with Article 1.1 (a) (1) (iii) SCM Agreement. We therefore reject all of Canada's claims of violation of the SCM Agreement and GATT 1994 in this respect.

B. CLAIM 2: INCONSISTENT DETERMINATION OF BENEFIT UNDER ARTICLE 14 (D) SCM AGREEMENT

1. Arguments of the parties

(a) Canada

7.31 Canada asserts that the USDOC found that Canadian provincial stumpage programmes conferred a benefit on Canadian stumpage holders by comparing the "price" paid for provincial stumpage in Canada with stumpage prices in the United States. Canada argues that such a cross-border analysis using transactions in a country other than the country of alleged provision of the good to determine the existence of a benefit, and measure it, is inconsistent with Article 1 and Article 14 (d) SCM Agreement. In Canada's view, for the purposes of Part V of the SCM Agreement, the proper benchmark in a provision of goods context is the home market price of a good, and not its price in some other market, nor some hypothetical construct. According to Canada, whether a "benefit" is conferred by the alleged provision of goods by the government through the stumpage programmes depends on whether the stumpage tenure or licence holders were better off than other purchasers who buy the same good from other sources in Canada, the country subject to the investigation.

7.32 Canada considers that the USDOC rejected record evidence pertaining to benchmarks in Canada for the alleged good provided, based on an unfounded assumption that it could legally reject in-country benchmarks and an unsupported factual conclusion that "there are no useable market-determined prices between Canadian buyers and sellers"¹⁰⁵ because prices were allegedly suppressed as a result of government involvement. In response to the US argument that private stumpage prices in Canada were distorted by the alleged government financial contribution and could therefore not be used as a benchmark, Canada submits that there is nothing in the text, context, or object and purpose of the Agreement that suggests that the market conditions referred to in Article 14 (d) SCM Agreement as the benchmark for measuring the adequacy of the remuneration received by the government for the good provided are those of a perfectly competitive market isolated from the effect of a financial contribution. According to Canada, by replacing "adequate remuneration" with "fair market value", the United States turns Article 14 (d) SCM Agreement into a provision that measures adequacy of remuneration by comparing the government price to a constructed "fair market value" rather than to the prevailing market conditions in the country of provision, contrary to the plain meaning of Article 14 (d) SCM Agreement.¹⁰⁶

7.33 According to Canada, the record provided the USDOC with ample information regarding prevailing market conditions in Canada, such as private timber sales, cost-revenue comparisons, an economic analysis of provincial stumpage charges, competitive auction prices and private sector assessments of timber value.¹⁰⁷ In sum, Canada submits, there was sufficient useable information on the record concerning private stumpage prices which could have been, and should have been, used by USDOC in calculating the alleged benefit.

7.34 Canada rejects the United States argument that such Canadian price information could not be used because of alleged price suppression due to the Canadian government's involvement in the market. According to Canada, there is nothing in the SCM Agreement or WTO jurisprudence that mentions "price suppression" as a reason for dispensing with market benchmarks. Moreover, Canada submits, the USDOC did no analysis whatsoever to arrive at the conclusion that price suppression existed because of government presence in the Canadian market, but simply assumed that government market share demonstrated price suppression.¹⁰⁸

7.35 Canada considers flawed the US argument that stumpage prices in the United States form part of the prevailing market conditions in Canada because US stumpage is available to Canadian loggers. According to Canada, stumpage prices in the United States cannot be considered to constitute part of the prevailing market conditions for stumpage in Canada. Canada is of the view that, even if in certain areas of the United States Canadian producers can legally bid on certain cutting rights in the United States, harvest US timber and import US logs for milling, US standing timber � the alleged good provided, not logs produced from the standing timber - is still not available "in" Canada. In addition, Canada argues, there are a number of factual differences between the rights and obligations involved in acquiring harvesting rights in the United States and in Canada which invalidate the use of US stumpage prices as a benchmark and which demonstrate that cross-border comparisons make no economic or common sense.¹⁰⁹ Canada asserts that the United States claim that it made adjustments to take into account these differences is not supported by the record.¹¹⁰

7.36 Finally, Canada argues that studies on the record demonstrate, consistent with classical economic theory, that the market for stumpage is an "economic rent" market, in which, for an input that is fixed in supply, such as an in situ natural resource like standing timber, the level of charges or fees for access to that resource will not lead to greater production of the output (logs or lumber), or lower prices for them than in a private competitive market. According to Canada, the USDOC ignored this evidence that stumpage charges do not provide lumber producers with an advantage in trade. In Canada's view, any determination of whether provincial stumpage systems confer a benefit must take into account the fact that the market at issue in this case is an economic rent market, and any analysis of adequate remuneration in relation to prevailing market conditions should have included a review of whether provincial stumpage fees or charges are capable of causing trade distortion in downstream markets, which the USDOC failed to do.

7.37 In sum, Canada argues that the USDOC Determination which found that the Canadian provincial stumpage programmes conferred a benefit was inconsistent with Articles 14 and 14 (d) SCM Agreement. Canada submits that, since the United States failed to make a proper subsidy determination in accordance with the SCM Agreement, the countervailing measures imposed on the basis of this flawed determination are inconsistent with Articles 10, 19.1, 19.4, 32.1 SCM Agreement and Article VI:3 GATT 1994.

(b) United States

7.38 The United States argues that a benefit is something better than the market would otherwise provide, absent the financial contribution. According to the United States, it is well established that a benefit from a governmental financial contribution is to be determined in comparison to the commercial market, and that the commercial market used for this comparison must, necessarily, be undistorted by the government�s intervention.¹¹¹ The United States considers that the appropriate benchmark for measuring benefit in this case would normally have been the fair market value of timber in Canada.¹¹² However, the United States asserts, the record evidence demonstrated that the small non-government sector of the Canadian timber market was not a �commercial� market, i.e. a market undistorted by the government intervention, and Canadian private stumpage price information could thus not be used as the benchmark. Therefore, the USDOC used prices for comparable timber from alternate sources � the bordering regions of the northern United States � to determine the benefit conferred by the provision of standing timber from Crown land adjusted to reflect market conditions in Canada, in accordance with Articles 1 and 14 (d) SCM Agreement.

7.39 The United States asserts that Article 14 (d) SCM Agreement provides that the adequacy of the remuneration and the existence of a benefit must be determined "in relation to" the prevailing market conditions (such as the conditions of sale, price, etc.) in the country under investigation, i.e. "with reference to" or "taking account of" market conditions in the country of provision. The United States considers that Article 14 (d) SCM Agreement is silent on the data to be used to determine "adequate remuneration", and the choice of data is therefore up to the investigating authority. According to the United States, Article 14 (d) SCM Agreement does not restrict that data to "in-country" sources.¹¹³ Rather, what is important is that the method used must result in a fair market value assessment that relates to conditions of sale (i.e. prevailing market conditions) in the country of provision. The United States argues that Members such as the European Communities¹¹⁴ also permit the use in certain circumstances of prices on the world market to assess adequate remuneration, and that Canada itself acknowledges that, in case of a government monopoly, prices of imports could be used.¹¹⁵ In addition, the United States submits, the object and purpose of the SCM Agreement, which is to provide a remedy to offset an artificial advantage provided by the government, requires an interpretation of Article 14 (d) SCM Agreement that permits the use of external evidence of fair market value when it is shown, based on positive evidence, that domestic prices are heavily distorted by the very financial contribution whose benefit is being measured.

7.40 The United States asserts that the limited non-government price data submitted by the Canadian parties in this case was inadequate¹¹⁶ and that such prices were significantly affected by the financial contribution itself, i.e. the supply of provincial government timber. A price artificially suppressed by the government's financial contribution is not a "market" price, that is, a price between buyers and sellers responding to market forces of supply and demand.¹¹⁷ According to the United States, the record demonstrates that Canadian government timber sales were dominant relative to private timber sales, ranging from 83 to 98 per cent of the total market, and that, given the circumstances, it would not have been reasonable to conclude that the small amount of private timber sales was unaffected by the dominant government-supplied timber.¹¹⁸ The United States argues that studies by economists and other experts demonstrated that private timber prices in Canada were depressed and distorted by the overwhelming volume of government-supplied timber in the provinces.¹¹⁹ The United States concludes that there did not exist a reliable source of market-determined prices in Canada which could have been used by the USDOC as a basis for the benefit determination.

7.41 In the absence of a reliable source of market-determined fair market value prices in Canada, the USDOC used prices for comparable timber from alternate sources � the bordering regions of the northern United States � which are commercially available to Canadian lumber producers, as the "starting-point" for its fair value assessment, and made adjustments to those US prices (e.g. for the road-building, silviculture, and fire and disease protection obligations under Canadian stumpage contracts).¹²⁰ According to the United States, the USDOC made such adjustments based upon the "prevailing market conditions" in Canada to arrive at the fair market value of timber in Canada, in accordance with the text, context, object and purpose of Article 14 (d) SCM Agreement. The United States submits that the use of United States source data for comparable timber of the same species immediately across the border, as a starting-point, and adjusted as appropriate for provincial market conditions was justified and formed a reasonable basis to assess the fair market value of timber in Canada.¹²¹

7.42 Finally, the US submits that the SCM Agreement does not define benefit in terms of increased output or lower prices for the subject merchandise and does not create an exception for natural resource inputs as Canada is arguing on the basis of the economic rent theory. Rather, the "benefit" referred to in Article 1.1(b) SCM is a benefit to its recipient, and this benefit, whether it is cash or natural resource inputs, is in no way dependent upon the downstream effects of the subsidy. The United States argues that Canada failed to identify any obligation in the SCM Agreement to conduct a market distortion analysis as part of the benefit determination, and asserts that no such obligation exists.

2. Analysis

7.43 Canada's claim concerns the benchmark used by the USDOC for determining "benefit". According to Canada, the USDOC used stumpage prices in the United States as a benchmark for determining benefit to Canadian lumber producers, instead of non-government prices in Canada. Canada argues that as a matter of principle such a cross-border price analysis is not permitted under Article 14 (d) SCM Agreement, which requires that the prevailing market conditions in the country of provision, i.e. in Canada, be used as the benchmark for determining the adequacy of the remuneration received by the government for the good allegedly provided. In sum, Canada submits that Article 14 (d) SCM Agreement does not allow an authority to base its determination of benefit on market conditions or prices from outside the country under investigation, as the USDOC did.

7.44 The United States asserts that in this case it was not possible to assess the adequacy of the remuneration on the basis of in-country prices. According to the United States, the government completely dominates the stumpage market and there is evidence on the record of price suppression due to the government's involvement which makes it impossible to use the small amount of private stumpage prices as a basis for any comparison. In sum, the United States argues that although in-country prices are normally the preferred benchmark for determining benefit, in this case private market prices in Canada are not reflective of the "fair market value" of timber in Canada, due to the near-total dominance of the government in the Canadian timber market. According to the United States, it would be a completely circular reading of Article 14(d) SCM Agreement that the government-administered price for timber would need to be compared to the price charged by private timber sellers in Canada, as these latter have no choice but to align their prices to the administered prices set by the government. Thus, in effect, a comparison of the government price with the private price would amount to a comparison of the government price with itself. Moreover, according to the United States, the USDOC used the US stumpage prices as a "starting-point" and adjusted such prices, to reflect Canadian "prevailing market conditions", and it thus acted in a manner consistent with Article 14(d) SCM Agreement. Finally, the United States argues that the provinces did not provide sufficient information on private stumpage sales in order for those to be used as a benchmark for determining benefit.¹²²

7.45 Article 1 of the SCM Agreement provides that a subsidy in the sense of the SCM Agreement exists when a financial contribution, like the provision of a good or a service by the government, confers a benefit. Article 14 SCM Agreement, and Article 14 (d) SCM Agreement in particular, govern the benefit analysis an investigating authority is to perform in order to determine the existence and amount of a subsidy in cases, such as the one before us, where the financial contribution at issue consists of the provision of a good or service by the government. In this respect, we recall that the USDOC found that the Canadian provincial stumpage programmes provide a good, standing timber, to stumpage holders. Article 14 (d) SCM Agreement provides as follows:

Article 14

Calculation of the Amount of a Subsidy in Terms

of the Benefit to the Recipient

For the purpose of Part V, any method used by the investigating authority to calculate the benefit to the recipient conferred pursuant to paragraph 1 of Article 1 shall be provided for in the national legislation or implementing regulations of the Member concerned and its application to each particular case shall be transparent and adequately explained. Furthermore, any such method shall be consistent with the following guidelines:

(a) government provision of equity capital shall not be considered as conferring a benefit, unless the investment decision can be regarded as inconsistent with the usual investment practice (including for the provision of risk capital) of private investors in the territory of that Member;

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

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

(d) the provision of goods or services or purchase of goods by a government shall not be considered as conferring a benefit unless the provision is made for less than adequate remuneration, or the purchase is made for more than adequate remuneration. The adequacy of remuneration shall be determined in relation to prevailing market conditions for the good or service in question in the country of provision or purchase (including price, quality, availability, marketability, transportation and other conditions of purchase or sale).

7.46 Article 14 (d) SCM Agreement thus establishes that the provision of goods by a government shall not be considered as conferring a benefit unless the provision is made for less than adequate remuneration. The adequacy of the remuneration charged by the government shall be determined "in relation to the prevailing market conditions for the good or service in question in the country of provision or purchase".

7.47 In accordance with the customary rules of interpretation of public international law, our analysis of Article 14 (d) SCM Agreement begins with the specific words of the provision, as the text is the most authentic expression of the intention of the drafters of the Agreement. We recall that Article 31 of the Vienna Convention on the Law of Treaties provides that "a treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in light of its object and purpose". As the Appellate Body has stated on various occasions, a proper interpretation is first of all a textual interpretation, and the task of interpreting a treaty provision must begin with the specific words of that provision.¹²³

7.48 We note that the text of Article 14 (d) SCM Agreement provides that the standard for determining benefit is whether "adequate remuneration" has been received by the government providing the good. The term "adequate" is defined as "sufficient, satisfactory" in the New Shorter Oxford Dictionary.¹²⁴ It is clear that "adequacy" is a relative concept; what is "adequate" in one given set of circumstances is not "adequate" in another. The set of circumstances to which the term relates in Article 14 (d) SCM Agreement are the prevailing market conditions in the country of provision. In our view, the term "in relation to" - or "par rapport aux" in the French version of the text � in this context means "in comparison with"¹²⁵ and Article 14 (d) SCM Agreement thus provides that the prevailing market conditions in the country of provision are the benchmark against which to judge the adequacy of the remuneration received by the government for the stumpage provided.

7.49 The United States argues that the broad phrase "in relation to" allows for various means of performing a comparison that relates to market conditions in the country under investigation. The United States is of the view that Article 14 (d) SCM Agreement does not specify the methods for performing such an analysis or the types of data that may be used, because it sets out "guidelines", i.e. general principles, not detailed rules.¹²⁶ We do not consider that Article 14 (d) does not specify the data that may be used for determining adequate remuneration. To the contrary, Article 14 (d) SCM Agreement uses the term "shall" to indicate that adequacy of remuneration must be determined in relation to, i.e. compared with, the prevailing market conditions in the country of provision, and the data to be used are those which reflect the prevailing market conditions in the country of provision. The precise detailed method of calculation is not determined, in that sense Article 14 (a) � (d) SCM Agreement are guidelines, but the framework within which this calculation is to be performed is clearly determined and limited in a mandatory manner by the prevailing market conditions in the country of provision.

7.50 Article 14 (d) SCM Agreement refers the authority to the "prevailing" market conditions, i.e. the market conditions "as they exist" or "which are predominant"¹²⁷ in the country of provision. Therefore, according to Article 14 (d), the price of the good provided, its quality, availability, marketability, transportation and other conditions of purchase or sale which are used as the benchmark for determining the adequacy of the remuneration have to be such as are prevailing in the country of provision. In sum, a plain reading of the text of Article 14 (d) leads us to the initial conclusion that the market which is to be used as the benchmark for determining benefit to the recipient is the market of the country of provision, in this case Canada.¹²⁸  We note that the United States itself acknowledges that the adequacy of remuneration must be determined in relation to the prevailing market conditions "in the country of provision"¹²⁹. According to the United States, that begs the question whether there are in fact "market" conditions for the good in the country of provision that provide probative evidence for determining the adequacy of the remuneration. According to the United States, the Panel must give meaning to the word "market" and it asserts that the point of comparison under Article 14 (d) SCM Agreement must be prevailing commercial market conditions, i.e. a market undistorted by the government's financial contribution, in the country of provision.¹³⁰ The view of the United States thus appears to be that, when actual prices prevailing in the market are distorted by the government's financial contribution, and thus do not represent the "fair market value" of the goods in question, "prevailing market conditions" may be established on a basis other than actual prices prevailing in the country of provision.

7.51 As we have indicated above, our analysis has to be based on the text of the Agreement, as a proper interpretation is first of all a textual interpretation. The text of Article 14 (d) SCM Agreement does not qualify in any way the "market" conditions which are to be used as the benchmark. As such, the text does not explicitly refer to a "pure" market, to a market "undistorted by government intervention", or to a "fair market value". Rather, Article 14 (d) SCM Agreement identifies the market conditions which shall be used to determine adequacy of remuneration as those which are "prevailing" in respect of the price of the good, its quality, availability, marketability, transportation, and other conditions of purchase or sale, in other words, the market conditions "as can be found". Such market conditions must be those found in the country of provision, in this case Canada. Thus, the text of Article 14 (d) indicates that the analysis the authority is to perform is whether the government, when providing a good, is receiving a remuneration which is adequate, when compared to the price of the good in the market of that country, taking into account the quality of the good, its availability, marketability, transportation and other conditions of sale that apply in the country of provision. We see nothing in the text of Article 14 (d) that would justify disregarding those prices on the grounds that they were "distorted" or did not reflect the "fair market value" of the goods provided.

7.52 The United States finds support for its argument that the "prevailing market conditions in the country of provision" have to be those of a commercial market undistorted by the government's financial contribution in the report of the Appellate Body on Canada � Aircraft and in the report of the Panel in the case Brazil � Aircraft. According to the United States, only by comparison to a market undistorted by the government's financial contribution is it possible to determine the trade distorting potential of the subsidy by assessing whether the recipient is better off than it would otherwise have been absent the financial contribution.¹³¹

7.53 We recall that the Appellate Body in the Canada � Aircraft case clarified what it considers to be the analysis that is to take place in order to determine whether the financial contribution conferred a benefit to the recipient:

"157. We also believe that the word "benefit", as used in Article 1.1(b), implies some kind of comparison. This must be so, for there can be no "benefit" to the recipient unless the "financial contribution" makes the recipient "better off" than it would otherwise have been, absent that contribution. In our view, the marketplace provides an appropriate basis for comparison in determining whether a "benefit" has been "conferred", because the trade-distorting potential of a "financial contribution" can be identified by determining whether the recipient has received a "financial contribution" on terms more favourable than those available to the recipient in the market."¹³²

7.54 We agree with the general principle expressed by the Appellate Body that a benefit analysis is to be conducted against the background of the marketplace in order to determine whether the recipient was better off than it would have been absent the financial contribution. We note, however, that the language quoted above formed part of the Appellate Body's general discussion about "benefit" under Article 1.1 (b) SCM Agreement. The Appellate Body was not addressing the particular wording of the text of Article 14 (d) SCM Agreement. Nor was the Appellate Body in that case addressing the issue before us in this dispute. To the contrary, the Appellate Body's statement in Canada � Aircraft was made in the context of an argument by Canada that the Panel had erred in considering that the notion of "cost to government" was not relevant to the interpretation and application of the term "benefit". The Appellate Body decided that it was the marketplace, and not the cost to government, that was the appropriate basis for comparison; the question whether the term "market" means a market undistorted by the government's financial contribution was simply not before it, and there is no indication that the Appellate Body had any intention of addressing it. Thus, we do not consider that this statement of the Appellate Body, which related to the interpretation of a different article of the SCM Agreement and was made in the context of a very different issue than the one before us in this dispute, sheds much light on the issue before us here.

7.55 It is certainly correct that the Panel in the Brazil � Aircraft case stated that the "market" referred to "must necessarily be a 'commercial' market, i.e. a market undistorted by government intervention".¹³³ However, that Panel also was addressing a very different question from the one before us here. The Panel rejected a particular argument by Brazil by clarifying that the "market" to which reference was made should not include other governments' export credit practices, but only those of non-government entities, as it could well be that other governments were also granting export credits at a subsidized rate.¹³⁴ In other words, the thrust of the Panel's statement was that it would not be appropriate to determine whether a particular financial contribution conferred a benefit by comparing the terms of that financial contribution with those of other government financial contributions. This is an eminently sensible proposition with which we cannot but agree. However, neither party in this case has suggested that the "prevailing market conditions" referred to in Article 14 (d) include other government financial contributions, and we thus fail to see how the ruling of the Panel in that case is relevant to the issue before us here.

7.56 The United States suggests that Canada's reading of Article 14 (d) SCM Agreement would lead to an absurd result, as it would preclude in all cases the use of data from outside the country of provision, even when no market conditions exist in the country of provision, thereby making it impossible to ever establish the existence of subsidization in case the government is the only player on the market.

7.57 We do not consider that our reading which is based on the text of the Agreement would lead to this absurd result. We do not exclude the possibility that it will in certain situations not be possible to use in-country prices. Certainly, in our view, in a situation where, for example, the government is the only supplier of the good in the country, or where the government administratively controls all of the prices for the good in the country, there would be no price other than the price charged by the government and thus no basis for the comparison foreseen in Article 14(d) SCM Agreement.¹³⁵ The only remaining possibility would appear to be the construction of some sort of a proxy for, or estimate of, the market price for the good in that country.¹³⁶ We emphasise that it has not been argued however that there are no private buyers and sellers of stumpage in Canada. In other words, it has not been argued that there is no private market for stumpage in Canada.¹³⁷ Neither has it been argued that the Canadian provincial governments administratively set the price for private stumpage. As the United States clearly stated, in-country prices were rejected because they were significantly affected by the financial contribution, and because the USDOC considered that the observed non-government prices were for that reason simply uninformative of adequate remuneration.¹³⁸ We therefore consider that the situation confronted by the USDOC was not one where there were no market prices.

7.58 We also recognize the more subtle problem of economic logic identified by the United States. The United States argues that the problem of reading the text of Article 14 (d) SCM Agreement to require that, as soon as there is a market, no matter how small or affected by the government intervention in the market, such market prices are to be used in determining the adequacy of the remuneration, is that it could lead to a circular comparison of a government price with, in effect, itself.¹³⁹ We acknowledge that the concern raised by the United States may be a legitimate one in certain cases. In the situation addressed by Article 14 (d) SCM Agreement, the government fulfils a role normally also played by private market players: it provides goods or services. In these situations, the government is acting on the market and, by so doing, may influence the private market. Whether and to what extent such government action influences the private market will of course depend upon the particular circumstances, but there could be cases in which that influence is substantial or even determinative of conditions in the private market. In such cases, a comparison of the conditions of the government financial contribution with the conditions prevailing in the private market would not fully capture the extent of the distortion arising from the government financial contribution, a result that in our view would not necessarily be the most sensible one from the perspective of economic logic.

7.59 That said, we do not believe that it would be appropriate for this Panel to substitute its economic judgement for that of the drafters. The Appellate Body has repeatedly emphasized, and we cannot but agree, that under Article 31 of the Vienna Convention on the Law of Treaties the interpretation of a treaty must be based on the text, as a proper interpretation is first of all a textual interpretation.¹⁴⁰ For all the reasons set forth above, we do not consider that Article 14 (d) can, consistent with customary rules of interpretation of public international law, be understood in the manner urged by the United States. We consider that our task is to interpret the applicable provisions as they exist and apply the text of the Agreement to the facts before us, not to rule on the economic logic of the text as it stands.

7.60 In sum, our conclusion on the basis of the text of Article 14 (d) SCM Agreement is that as long as there are prices determined by independent operators following the principle of supply and demand, even if supply or demand are affected by the government's presence in the market, there is a "market" in the sense of Article 14(d) SCM Agreement.¹⁴¹ The problem raised by the United States of comparing in certain situations the government price with a market price significantly affected by the government's price, is in our view inherent in the text of Article 14 (d) SCM Agreement. We consider that, if the Members feel the rules as laid down in the WTO Agreements do not address certain situations in what they consider to be a satisfactory manner, they should raise this issue during negotiations. Our task consists of interpreting the Agreement to explain what it means, not what in our view it should mean, nor are we allowed to read words in to the text of the Agreement which are not there, even if we were to consider that the text inadequately addresses certain specific situations.

7.61 Applying our analysis to the facts of this case, we examined whether the USDOC had before it information concerning the prevailing market conditions in Canada and whether it relied on such information. We consider that the USDOC summarized the situation with regard to the existence of the private market in Canada as follows:

"During the POI, total softwood harvested from Crown lands accounted for between approximately 83 and 99 per cent of all softwood timber harvested in each of the Provinces. Specifically, the Provincial, federal and private share of softwood timber harvests, by Province are:

British Columbia � 90 per cent Provincial, less than 1 per cent federal, and almost 10 per cent private;

Quebec � 83 per cent Provincial, and 17 per cent private;

Ontario � 92 per cent Provincial and 7 per cent private;

Alberta � 98 per cent Provincial, 1 per cent federal, and 1 per cent private;

Manitoba � 94 per cent Provincial, 1 per cent federal and 5 per cent private;

Saskatchewan � 90 per cent Provincial, 1 per cent federal and 9 per cent private."¹⁴²

7.62 The USDOC Determination further provides that "Alberta, Ontario and Quebec have provided private stumpage prices for their respective Provinces. British Columbia provided stumpage prices set by government auction".¹⁴³

7.63 As a factual matter, we therefore find that the USDOC acknowledged the existence of a private market for stumpage in Canada. It is clear therefore that we are not confronted with a situation where there are no market conditions in the country of provision which, for practical reasons would require the use of a proxy of some sort. Moreover, the USDOC Determination shows that the USDOC had before it private stumpage prices for four of the most important provinces. Our analysis is based upon the USDOC's establishment of the facts of record, as we are not to perform a de novo review. In spite of the many arguments made before us concerning the in-country price data, or the absence thereof, we find that there is no basis in the USDOC Determination for us to assume that the reason why such private price information was rejected and US stumpage prices were used instead was a lack of information concerning private stumpage prices. On the basis of the record, we find that the USDOC decided not to rely on the Canadian private stumpage prices, because it considered that "a valid benchmark must be independent of the government price being tested; otherwise the benchmark may reflect the very market distortion the comparison is intended to detect".¹⁴⁴ Based on this view, the USDOC reached the conclusion that "there are no useable market determined prices between Canadian buyers and sellers".¹⁴⁵ The USDOC decided to rely on stumpage prices in the United States instead.

7.64 In light of the fact that the USDOC acknowledged the existence of a private stumpage market in Canada, we find that the resort to US prices as the benchmark for the determination of benefit on grounds that private prices in Canada were distorted is inconsistent with Article 14 (d) SCM Agreement. As a consequence, we need not address the issue whether the USDOC had sufficient evidence of price suppression or conducted a proper analysis of the alleged distortive effect of the dominant government presence in the market. Nor need we address whether the proxy used by the United States for the prevailing market conditions in Canada was appropriate, i.e. whether the USDOC made proper adjustments to the US stumpage prices to reflect market conditions in Canada. Neither do we consider it relevant to rule on the argument made by Canada that any benefit analysis should include a determination of the potential trade advantage for the recipient of the subsidy.

7.65 For the reasons set forth above, we uphold Canada's claim that the USDOC failed to determine benefit in a manner consistent with Articles 14 and 14 (d) SCM Agreement and we therefore find that the USDOC's imposition of countervailing measures was inconsistent with the United States' obligations under Articles 14 and 14 (d) SCM Agreement as well as Articles 10 and 32.1 of the SCM Agreement as these countervailing measures were imposed on the basis of an inconsistent determination of the existence and amount of a subsidy.¹⁴⁶ In light of our finding, we do not consider it necessary to address Canada's additional claims regarding the consistency of the USDOC's actions with Articles 19.1 and 19.4 SCM Agreement and Article VI:3 of GATT 1994.