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WORLD TRADE
ORGANIZATION

WT/DS236/R
27 September 2002

(02-4958)

  Original: English

UNITED STATES - PRELIMINARY DETERMINATIONS
WITH RESPECT TO CERTAIN SOFTWOOD LUMBER
FROM CANADA
 


Report of the Panel


The report of the Panel on United States - Preliminary Determinations with Respect to Certain Softwood Lumber from Canada is being circulated to all Members, pursuant to the DSU. The report is being circulated as an unrestricted document from 27 September 2002 pursuant to the Procedures for the Circulation and Derestriction of WTO Documents (WT/L/160/Rev.1). Members are reminded that in accordance with the DSU only parties to the dispute may appeal a panel report. An appeal shall be limited to issues of law covered in the Panel report and legal interpretations developed by the Panel. There shall be no ex parte communications with the Panel or Appellate Body concerning matters under consideration by the Panel or Appellate Body.

 



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

TABLE OF CONTENTS

  1. INTRODUCTION
  1. COMPLAINT OF CANADA
     
  2. ESTABLISHMENT AND COMPOSITION OF THE PANEL
     
  3. PANEL PROCEEDINGS
  1. FACTUAL ASPECTS
     
  2. PARTIES' REQUESTS FOR FINDINGS AND RECOMMENDATIONS
  1. CANADA
     
  2. UNITED STATES
  1. ARGUMENTS OF THE PARTIES
  1. FIRST WRITTEN SUBMISSION OF CANADA
  1. The Preliminary Countervailing Duty Determination
     
  2. The Preliminary Critical Circumstances Determination
     
  3. US Law is Inconsistent with US Obligations on Expedited and Administrative Reviews
  1. FIRST WRITTEN SUBMISSION OF THE UNITED STATES
  1. Introduction
     
  2. Statement of Facts
     
  3. Standard of Review
     
  4. Argument

(a) Canada Bears the Burden of Proving Its Claim

(b) The Preliminary Countervailing Determination Is Consistent With the SCM Agreement

(i) Provincial Stumpage Programmes Constitute a "Financial Contribution" 

(ii) Provincial Stumpage Programmes Provide a "Benefit" 

(iii) The Calculation Did Not Overstate the Subsidy Found to Exist 

(iv) Canada's "Pass-through" Argument Is Inapposite 

(c) The Preliminary Critical Circumstances Finding Is Consistent with the SCM Agreement 

(i) Judicial Economy 

(ii) Authority to Impose Provisional Measures Retroactively 

(iii) Basis for Critical Circumstances Findings 

(d) Expedited and Administrative Reviews

(i) Section 777A(e)(2)(A) and (B) of the Tariff Act of 1930

(ii) Expedited Reviews

(iii) Administrative Reviews 

  1. FIRST ORAL STATEMENT OF CANADA
  1. The Preliminary Countervailing Duty Determination

(a) Stumpage is not a "financial contribution"

(b) The USDOC's use of "cross-border" benchmarks to find and measure "benefit" violates the SCM Agreement 

(c) The USDOC impermissibly presumed a pass-through of an alleged benefit 

(d) The USDOC impermissibly inflated the subsidy rate by calculating a "weighted-average country-wide rate" based upon only a portion of Canadian production and exports 

(e) The USDOC impermissibly applied provisional measures in excess of the subsidy preliminarily found to exist

  1. The Preliminary Critical Circumstances Determination  
     
  2. US Law is Inconsistent with US Obligations on Expedited and Administrative Reviews 
  1. FIRST ORAL STATEMENT OF THE UNITED STATES 
  1. Preliminary Subsidy Determination 

(a) Financial Contribution 

(b) Benefit 

(c) Cross-Border Benchmark 

(d) Benefit Calculation - Indirect Subsidies (Pass-Through) 

(e) Benefit Calculation - Denominator 

  1. Critical Circumstances 
     
  2. Reviews
  1. SECOND WRITTEN SUBMISSION OF CANADA
  1. Introduction 
     
  2. The Preliminary Countervailing Duty Determination 

(a) "Financial Contribution" 

(b) "Benefit" 

(c) Pass-Through 

(d) First Mill 

  1. The Preliminary Critical Circumstances Determination 
     
  2. US Law On Expedited Reviews And Administrative Reviews 
  1. SECOND WRITTEN SUBMISSION OF THE UNITED STATES 
  1. Introduction
     
  2. Argument 

(a) The USDOC's Preliminary Determination that the Canadian Provincial Governments Provide a Good to Lumber Producers Is Consistent with Article 1.1(a)(1)(iii) of the SCM Agreement 

(b) The USDOC Properly Measured the Benefit from Provincial Stumpage Systems Under Article 14(d) of the SCM Agreement

(i) The Use of Commercially Available World Market Prices Is, in Appropriate Circumstances, Consistent with Article 14(d) of the SCM Agreement

(ii) There Is No Evidence of a Market Benchmark in Canada 

(iii) US Stumpage Prices Are Commercially Available to Canadian Lumber Producers

(c) The USDOC Properly Calculated the Total Amount of the Subsidy to Producers of the Subject Merchandise

(d) The Preliminary Critical Circumstances Finding Is Consistent with the SCM Agreement

(e) US Laws Governing Reviews Are Consistent with the SCM Agreement

  1. Conclusion
  1. SECOND ORAL STATEMENT OF CANADA
  1. Introduction
     
  2. Subsidy

(a) Financial Contribution

(b) Benefit

(c) Pass-through 

(d) First mill

  1. Critical circumstances
     
  2. Expedited review and Administrative review
  1. SECOND ORAL STATEMENT OF THE UNITED STATES
  1. Financial Contribution
     
  2. Benefit
     
  3. Critical Circumstances
     
  4. Expedited Reviews
     
  5. Factual Support for the Preliminary Determination

(a) Processing Requirements - Independent Loggers 

(b) Private Prices 

  1. Standard of Review
  1. ARGUMENTS OF THE THIRD PARTIES
  1. THIRD PARTY WRITTEN SUBMISSION OF THE EUROPEAN COMMUNITIES
  1. Scope of the term "good" under Article 1.1(a)(1)(iii) of the SCM Agreement
     
  2. Determination of a "benefit" under Article 1.1(b), 14(d) of the SCM Agreement
     
  3. The determination of a "pass-through" Benefit
     
  4. No application of Article 20.6 of the SCM Agreement to provisional countervailing duties
     
  5. Requested recommendation
  1.  THIRD PARTY ORAL STATEMENT OF THE EUROPEAN COMMUNITIES
  1. Introduction
     
  2. A "pass-through" benefit determination

(a) Article 1.1(a)(1)(iv) of the SCM Agreement not the relevant benchmark for a "pass through" benefit determination

(b) Determination of a "benefit" according to Article 1.1(b) of the SCM Agreement

  1. The scope of Article 19.3 of the SCM Agreement for an "expedited review"
     
  2. Conclusion
  1. THIRD PARTY ORAL STATEMENT OF INDIA
     
  2. THIRD PARTY WRITTEN SUBMISSION OF JAPAN
  1. Introduction
     
  2. Arguments

(a) Indirect Subsidies

(b) Existence of a financial contribution by a government

(c) Benefits conferred

  1. INTERIM REVIEW
     
  2. FINDINGS 
  1. CLAIMS RELATING TO THE PRELIMINARY COUNTERVAILING DUTY DETERMINATION
  1. Introduction
     
  2. Claim 1: inconsistent finding of the existence of a financial contribution

(a) Arguments of the parties 

(i) Canada

(ii) United States

(b) Analysis 

(c) Conclusion

  1. Claim 2: inconsistent determination of benefit

(a) arguments of the parties

(i) Canada

(ii) United States

(b) Analysis

(c) Conclusion

  1. Claim 3: failure to examine and determine the existence of benefit to the producers of the subject product

(a) Arguments of the parties

(i) Canada

(ii) United States 

(b) Analysis

(c) Conclusion 

  1. Claim 4: impermissible application of a provisional duty in excess of the subsidy rate 

(a) Arguments of the parties

(i) Canada

(ii) United States

(b) Analysis 

  1. Conclusion on Canada's claims relating to the Preliminary Countervailing Duty Determination
  1. CLAIMS RELATING TO THE PRELIMINARY CRITICAL CIRCUMSTANCES DETERMINATION AND THE RETROACTIVE APPLICATION OF PROVISIONAL COUNTERVAILING MEASURES
  1. Claim 1: retroactive application of provisional measures is inconsistent with Article 20.6 SCM Agreement and violates Article 17.3 and 17.4 SCM Agreement

(a) Arguments of the parties

(i) Canada 

(ii) United States

(b) Analysis 

(i) Does Article 20.6 SCM Agreement allow for the retroactive application of provisional measures? 

(ii) Does the retroactive application of provisional measures also violate the disciplines of Article 17 SCM Agreement. 

(c) Conclusion 

  1. Claim 2: USDOC failed to establish critical circumstances under Article 20.6 SCM Agreement 

(a) Arguments of the parties 

(i) Canada 

(ii) United States 

(b) Analysis 

  1. Conclusion on Canada's claim concerning the USDOC Preliminary Critical Circumstances Determination
  1. CLAIM OF INCONSISTENT CVD LAW CONCERNING EXPEDITED AND ADMINISTRATIVE REVIEWS 

(a) Arguments of the parties

(i) Canada

(ii) United States 

(b) Analysis

(i) Mandatory versus discretionary legislation

(ii) The US Statute and the Statement of Administrative Action 

(iii) USDOC Regulations

(c) Conclusion 

  1. CONCLUSIONS AND RECOMMENDATIONS


LIST OF ANNEXES

Contents

Page

Annex A-1 Responses of Canada to questions posed in the context of the first substantive meeting of the Panel A-2
Annex A-2 Responses of the United States to questions posed in the context of the first substantive meeting of the Panel A-13
Annex B-1 Responses of Canada to questions posed in the context of the second substantive meeting of the Panel  B-2
Annex B-2 Responses of the United States to questions posed in the context of the second substantive meeting of the Panel B-11

I. INTRODUCTION

A. COMPLAINT OF CANADA

1.1 On 21 August 2001, Canada requested consultations with the United States pursuant to Article 4 of the Dispute Settlement Understanding ("the DSU"), Article XXII of the General Agreement on Tariffs and Trade 1994 ("GATT 1994") and Article 30 of the Agreement on Subsidies and Countervailing Measures ("the SCM Agreement" or "the Agreement"), with regard to the preliminary countervailing duty determination and the preliminary critical circumstances determination made by the US Department of Commerce ("USDOC") on 9 August 2001, with respect to certain softwood lumber from Canada, and with regard to US measures on company-specific expedited reviews and administrative reviews.1

1.2 On 17 September 2001, Canada and the United States held the requested consultations, but failed to reach a mutually satisfactory resolution of the matter.

1.3 On 25 October 2001, Canada requested the establishment of a panel to examine the matter.2

B. ESTABLISHMENT AND COMPOSITION OF THE PANEL

1.4 At its meeting of 5 December 2001, the Dispute Settlement Body ("the DSB") established a Panel in accordance with Article 6 of the DSU and pursuant to the request made by Canada in document WT/DS236/2.

1.5 At that meeting, the parties to the dispute also agreed that the Panel should have standard terms of reference. The terms of reference therefore are the following:

"To examine, in the light of the relevant provisions of the covered agreements cited by Canada in document WT/DS236/2 the matter referred to the DSB by Canada in that document, and to make such findings as will assist the DSB in making the recommendations or in giving the rulings provided for in those agreements."

1.6 On 22 January 2002, Canada requested the Director-General to determine the composition of the Panel, pursuant to paragraph 7 of Article 8 of the DSU. This paragraph provides:

"If there is no agreement on the panelists within 20 days after the date of the establishment of a panel, at the request of either party, the Director-General, in consultation with the Chairman of the DSB and the Chairman of the relevant Council or Committee, shall determine the composition of the panel by appointing the panelists whom the Director-General considers most appropriate in accordance with any relevant special or additional rules or procedures of the covered agreement or covered agreements which are at issue in the dispute, after consulting with the parties to the dispute. The Chairman of the DSB shall inform the Members of the composition of the panel thus formed no later than 10 days after the date the Chairman receives such a request."

1.7 On 1 February 2002, the Director-General accordingly composed the Panel as follows:

    Chairman: Mr. Dariusz Rosati
    Members:
    Mr. Robert Arnott
    Mr. Gonzalo Biggs

The European Communities, India and Japan reserved their third party rights.

C. PANEL PROCEEDINGS

1.8 The Panel met with the parties on 24-25 April 2002 and 4 June 2002. The Panel met with third parties on 24 April 2002.

1.9 On 26 July 2002, the Panel provided its interim report to the parties.

II. FACTUAL ASPECTS

2.1 This dispute concerns the preliminary countervailing duty determination and the preliminary critical circumstances determination made by the USDOC on 9 August 2001 in respect of certain softwood lumber imports from Canada, classified under headings 4407.1000, 4409.1010, 4409.1020, and 4409.1090.3 This dispute also concerns US law on expedited and administrative reviews in the context of countervailing measures.

2.2 On 2 April 2001 an application for countervailing duties was filed with the USDOC by the Coalition for Fair Lumber Imports Executive Committee; the United Brotherhood of Carpenters and Joiners; and the Paper, Allied-Industrial, Chemical and Energy Workers International Union. On 20 April 2001, the application was amended to include as applicants Moose River Lumber Co., Inc.; Shearer Lumber Products; Shuqualak Lumber Co.; and Tolleson Lumber Co., Inc. On 30 April 2001, the USDOC published a notice of initiation of a countervailing duty investigation in the US Federal Register.

2.3 In May 2001, the US International Trade Commission ("ITC") published its preliminary affirmative determination that there was a reasonable indication that the US industry was threatened with material injury by reason of imports from Canada of softwood lumber, which were alleged to be subsidized by the Government of Canada.

2.4 On 27 July 2001, the USDOC amended the initiation of the investigation, to exempt from investigation imports of certain softwood lumber produced in the Maritime Provinces from timber harvested in the Maritime Provinces.4

2.5 On 17 August 2001, the USDOC published in the Federal Register a notice of preliminary affirmative countervailing duty determination, preliminary affirmative critical circumstances determination, and alignment of final countervailing duty determination with final antidumping duty determination. Provisional measures (withholding of appraisement and posting of cash deposit or bond) were imposed on the basis of a preliminary subsidy rate of 19.31 per cent, applicable to all producers/exporters, and applied to all entries of the subject merchandise from Canada entered, or withdrawn from warehouse, for consumption on or after 90 days prior to the date of publication of the notice.



1 WT/DS/236/1.

2 WT/DS/236/2.

3 The countervailing duty investigation concerned in this dispute is sometimes referred to as the "Lumber IV" investigation.

4 US Department of Commerce, Notice of preliminary affirmative countervailing duty determination, preliminary affirmative critical circumstances determination, and alignment of final countervailing duty determination with final antidumping duty determination: Certain softwood lumber products from Canada, Exhibit CDA-1, p. 43,188.


To continue with III. PARTIES' REQUESTS FOR FINDINGS AND RECOMMENDATIONS