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UNITED STATES - PRELIMINARY DETERMINATIONS
Report of the Panel
4.352 The United States has demonstrated that US law provides the USDOC with discretion under section 751 of the statute to implement the United States' obligations under Article 19.3. Canada nonetheless asks the Panel to find "for the sake of clarity" that the United States has failed to implement its obligations under the SCM Agreement. Moreover, Canada even goes so far as to ask the Panel to make findings that the United States must implement its obligations in a specific fashion, not just in this case, but "in any other investigation." Such a request is, to say the least, inappropriate. 4.353 Where a Member's laws do not mandate WTO-inconsistent action, the Member is accorded the presumption that it will implement its obligations in good faith. The United States has demonstrated that the laws and regulations at issue do not mandate WTO inconsistent action or preclude it from implementing the obligations in Article 19.3 of the SCM Agreement. Therefore, the measures are not inconsistent with the SCM Agreement. No further findings or recommendations are necessary or appropriate. 4.354 Canada has also misstated the United States' position with respect to administrative reviews. Canada notes that the United States stated that Section 351.213(b) of the USDOC's regulations does not apply to aggregate cases. Canada fails to note, however, that the United States also stated that the regulation does not restrict the USDOC's authority to conduct reviews. More importantly, however, the regulations cited by Canada govern only assessment proceedings and Article 21.2 does not address assessment proceedings. 4.355 The factual record at the time of the preliminary determination consists largely of the information that Canada submitted in its initial responses to the USDOC's questionnaire. The United States has provided the Panel with a great deal of that information. The United States therefore finds very disturbing Canada's serious and entirely baseless accusation that the United States has wilfully misrepresented certain facts concerning tenures in Alberta. The documents provided by the United States speak for themselves. 4.356 Canada also argues at length in its second submission about the USDOC's preliminary adjustments. Although the United States could refute those claims, they are not before the Panel for the simple reason that Canada has not challenged those adjustments in this proceeding. Canada's eleventh hour attempt to expand the Panel's terms of reference is improper and should, therefore, be rejected. 4.357 Moreover, Canada cites its criticisms of the adjustments in an attempt to bolster its argument that the use of a cross-border comparison is prohibited per se. In doing so, Canada attempts to give the impression that the study relied upon by Canada to support this argument is the only record evidence on this issue. In fact, the record at the time of the preliminary determination contains extensive evidence that the US stumpage prices in contiguous states provide a very reasonable and logical basis for determining the market value of Canadian timber. 4.358 Canada also accuses the United States of engaging in post hoc rationalizations. Canada has not, however, claimed that the preliminary determination is inconsistent with Article 22 of the SCM Agreement regarding public notice and explanation of determinations. 4.359 The United States would now like to turn the Panel's attention to certain record facts before the USDOC at the time of the preliminary determination. The debate over the record facts has primarily centered on two issues: processing requirements imposed on tenure holders by the provincial governments and private stumpage prices in Canada.
4.360 With respect to tenure processing requirements and the existence of so-called independent loggers, the United States would stress at the outset that the benefit calculation was based solely on the volume of Crown timber that went into the production of softwood lumber. Data pertaining to other tenure types, to timber from private lands or to timber going to the production of other types of products are entirely irrelevant. 4.361 In addition, the record at the time of the preliminary determination indicates that the vast majority of Crown timber obtained by lumber producers was provided by the provinces directly to those producers. The record also indicates that, due to the restrictions imposed by the provinces, any truly arm's-length transactions for the small amount of timber that a lumber producer may have acquired outside its own tenure are insignificant. In short, the record at the time of the preliminary determination does not indicate that pass-through is an issue, nor did Canada raise it as an issue until the day before the preliminary determination.
4.362 Canada attempts to argue around the fact that only three provinces provided any information concerning non-government prices for stumpage. The fact remains that Alberta provided a single estimated stumpage value for all species and quality of trees; a value that is calculated by the province for the purpose of settling disputes over damaged timber. The United States provided the Panel with a copy of the Resource Information Systems study, which Ontario submitted to the USDOC. I refer the Panel to the United States' previous comments on the study and to the study itself, which we believe confirm the validity of the USDOC's assessment. With respect to Quebec, the United States notes that the record evidence of suppression of private stumpage prices that the United States has cited is only a sample of the record evidence. 4.363 Moreover, as discussed previously, this was not the only evidence on the record. Other facts concerning the governments' position as the dominant supplier of timber are consistent with the various statements on the record concerning price suppression. All of the evidence of the dominant influence of the provincial government on private stumpage prices, taken together, is more than sufficient to support the USDOC's preliminary determination that private prices could not logically serve as a valid market benchmark. 4.364 As previous panels have recognized, what constitutes sufficient evidence to support a determination varies depending on the nature of the determination in question. At the time of the preliminary determination the investigation was, of course, incomplete. Canada appears to be asking the Panel to resolve the outstanding issues and render its own findings of fact. Accordingly, Canada has spent a great deal of time explaining the facts and statements it provided to the USDOC prior to the preliminary determination and even supplementing those facts with references to evidence submitted after the preliminary determination. In this proceeding, however, the preliminary record must speak for itself. 4.365 The question in this proceeding is whether Canada has established, based on the evidence before the USDOC at the time of the preliminary determination, that there is a breach of the cited WTO provisions. If there is a reasonable basis for the preliminary determination, as there is in this case, there can be no breach of the SCM Agreement. Moreover, Canada, as the complainant, bears the burden of establishing a prima facie case of a breach. Therefore, if the balance of evidence is inconclusive with respect to a particular claim, Canada must be held to have failed to establish that claim. 4.366 It is the view of the United States that an objective assessment of this matter, as presented here and in our prior submissions, and a proper application of the standard of review will lead the Panel to conclude that Canada has not established a breach of the cited WTO provisions. V. ARGUMENTS OF THE THIRD PARTIES 5.1 The arguments of the third parties, the European Communities, India and Japan, as contained in their written submissions and oral statements are summarized below.
5.2 In its written submission, the European Communities made the following arguments.
5.3 The question whether stumpage is covered by the term "goods" can be determined at least in two different ways: 5.4 First, stumpage presupposes the provision of land on which the harvester exercises its right. As "land" is an "immovable" good, Article 1.1(a)(1)(iii) of the SCM Agreement may apply. The term "good" is commonly defined as, inter alia, "property or possessions; esp. movable property, saleable commodities, merchandise, wares" or "tangible or moveable personal property, other than money; esp., articles of trade or items of merchandise". The French text of the SCM Agreement uses the term "biens", which is defined as, inter alia, "domaine, possession, propri�te". Finally, the Spanish version refers to the word "bienes", which encompasses "inmobiliario" as well as "mobiliario". Therefore, from the ordinary meaning of the word the term "goods" can not only apply to "movable" but also to "immovable" objects, including "land". 5.5 Contextually, such an understanding is corroborated by Article 1.1(a)(1)(iii) of the SCM Agreement, which refers to "(�) goods or services other than general infrastructure (�)" (emphasis added). According to this wording even 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 may also be covered by Article 1.1(a)(1)(iii) of the SCM Agreement. 5.6 Second, stumpage gives a right to harvest a movable "good", i.e. the log, but it does not provide the object as such. In the EC's view even a "right to a good" might be sufficient for Article 1.1(a)(1)(iii) of the SCM Agreement because if one were to deny such a possibility Members could easily circumvent the obligations of the Agreement. As the economic consequences would be the same in both instances, the SCM Agreement should apply equally to both cases. 5.7 In the light of the complex nature of stumpage, the EC cautions that it would be necessary to carefully assess all the rights and obligations related to stumpage in the light of Article 1.1(a)(1)(iii) of the SCM Agreement. This is especially true because each province maintains a specific stumpage system. In this respect, the EC notes that all of the Canadian stumpage programmes appear to provide the beneficiary with the right to cut trees on certain "land". Furthermore, stumpage seems to be closely related to a defined movable good, which is the actual log to be harvested. In that respect, the EC finds it pertinent that, according to the main parties, the stumpage fee is calculated on the basis to the volume of the trees cut down and that applicants for stumpage are usually required to own a wood-processing facility.
5.8 The starting point for the benefit analysis under Article 14(d) of the SCM Agreement should be the prices in the country of provision, here Canada. This is not contested by the main parties. 5.9 The term "distortion", which is used by the United States, is not mentioned in Article 14(d) of the SCM Agreement as being relevant to the benefit analysis. The EC considers that much care should be paid in determining the correct benchmark for the existence and amount of a benefit. As Article 14(d) of the SCM Agreement does not set explicitly forth a hierarchy of methodologies, the Panel should refrain from imposing any such hierarchy. 5.10 Article 14(d) of the SCM Agreement requires investigating authorities to use domestic price information as long as these prices are market-driven and prevailing. The notion of market implies "an opportunity for buying and selling", "a place or group with a demand for a commodity or service or sale as controlled by supply and demand". Indeed, where prices are controlled or imposed by the government and not market-driven, i.e., not freely negotiated between suppliers and purchasers, such prices would not fulfil the key "market" criterion under Article 14(d) of the SCM Agreement. In that respect, the EC would agree with the United States that in case of a state monopoly, there would be no market conditions in the country of provision. 5.11 Yet, this might be a rather exceptional situation. In the case at hand, the United States has not shown that the price for private stumpage in Canada is not market-driven. The United States has not demonstrated that the prices paid for stumpage rights on private lands, which may amount to 10 � 30 per cent of the provincial markets in Canada, are no longer determined by supply and demand. 5.12 Where the government manages the supply of natural resources from state owned property, it may be that the domestic industry satisfies additional demands from the private market or through the importation of additional resources. The EC fails to see why those domestic prices should not be assumed to be driven by supply and demand. Also, the EC does not understand why those private stumpage prices are not prevailing. 5.13 Thus, the mere assumption that prices on the private stumpage market are affected by the governmental stumpage system is not sufficient to establish that no domestic market within the meaning of Article 14(d) of the SCM Agreement exists. 5.14 Regarding the consideration of world market prices in the benefit determination under Article 14(d) of the SCM Agreement, the EC suggests to distinguish two situations. First, imports at world market prices may form part of the domestic market conditions. Second, world market prices may be a last resort where no domestic market exists. 5.15 The expression "market conditions in the country of provision" in Article 14(d) of the SCM Agreement is sufficiently broad to allow the consideration of world market prices. The term "market" defined as "an opportunity for buying and selling" suggests that world market prices may be relevant if the product at hand is commercially available to the recipient in the country of provision. 5.16 The consideration of all commercially available prices is clearly allowed in the benefit analysis under Article 14(b) and (c) of the SCM Agreement which only refer to "the market" but do not contain any territorial restriction. The principal relevance of world market prices is also recognised in the benchmark for export subsidies defined in item (d) of the Illustrative list of export subsidies in Annex I of the SCM Agreement. There, the domestic market price is only a relevant benchmark "provided such terms or conditions are more favourable than those commercially available on world markets to their exporters". 5.17 A proper analysis of the "market conditions in the country of provision" may thus include all commercially available alternative sources for the recipient, including the price for imports into that market. 5.18 The EC considers that the United States did not sufficiently explain why prices for imports from the United States into Canada are not "distorted" by the Canadian stumpage schemes or by the different market conditions in the United States Where imports take place, the respective prices form part of the "prevailing market conditions in the country of provision", i.e., Canada, and should have been considered together with the price information on private stumpage. 5.19 If the Panel found that the US correctly dismissed all price information relating to the domestic market, including also the prices in Canada's maritime provinces, the EC takes the view that world market prices may serve as a subsidiary means of establishing the existence of a benefit. 5.20 As shown above, the text of Article 14(d) of the SCM Agreement does not exclude the recourse to world market prices as a benchmark. The alternative use of the cost to government standard does not necessarily measure the price at which the private recipient could have obtained the good or service in the marketplace absent the financial contribution. According to Appellate Body jurisprudence, the existence of a benefit must be measured from the perspective of the recipient. To serve that purpose, there is a logical preference for taking account of actual prices at which the recipient might have obtained the good, because a cost to government standard appears to be a less precise measure whether the recipient is better off. 5.21 Finally, the EC emphasises that price information is not the sole criterion to determine the prevailing market conditions in the country of origin. Article 14(d) of the SCM Agreement requires the investigating authority to assess the adequacy of the remuneration in relation to all factors affecting the "prevailing market conditions for the good in question in the country of provision". These include not only the price, but according to Article 14(d) of the SCM Agreement also "quality, availability, marketability, transportation and other conditions of purchase or sale". 5.22 A high standard of demonstration is placed on the investigating authority through the introductory sentence of Article 14(d) of the SCM Agreement. Thus, great care should be taken before rejecting benchmarks in the country of exportation, particularly if this ultimately leads to the use of the petitioner's prices in the country of exportation. 5.23 The EC reserves its position on this claim because it is linked to Canada's allegation that no expedited reviews are foreseen under US law where the investigation has been conducted on an aggregate basis.
5.24 A critical circumstances determination under Article 20.6 of the SCM Agreement cannot apply to a provisional countervailing duty. Apart from the plain language of Article 20.6 of the SCM Agreement, which only relates to "definitive" countervailing duties, the context as well as the purpose of this provision prevent any other approach. 5.25 Article 20.1 of the SCM Agreement provides for the general rule that neither provisional nor definitive duties shall be applied retroactively. This concept reflects a fundamental WTO principle. Therefore, exceptions to this rule should be stated expressis verbis in the Agreement and they should be interpreted narrowly. Article 20.6 of the SCM Agreement is such an exception regarding definitive countervailing duties. Thus, any extension of this provision to provisional countervailing duties by way of analogy would run counter to this general principle. 5.26 Furthermore, the retroactive application of provisional measures under Article 20.6 of the SCM Agreement would contradict the time constraints set out in Article 17.3 of the SCM Agreement. Under this provision provisional measures shall not be applied any earlier than 60 days from the date of initiation of the investigation. Yet, if Article 20.6 of the SCM Agreement were applicable to provisional measures, provisional duties could be imposed 90 days before the application of a provisional measure, thus, even to imports that enter before the time of the initiation of the investigation. While it is true that Article 20.6 of the SCM Agreement provides exactly for this consequence in case of a definitive countervailing duty, it has also to be born in mind that Article 17.3 of the SCM Agreement contains a specific time frame for provisional measures. What is more, by its very nature provisional measures may be reversed in the final determination. Yet, a retroactive application of a provisional measure would place an additional burden on the exporter if this provisional duty would be reversed in the final definitive determination. 5.27 Canada's requested recommendation would involve an element of retroactivity, which is contrary to the general prospective nature of WTO remedies.
5.28 The European Communities, in its oral statement, made the following arguments.
5.29 In its written submission, the EC has already addressed certain legal issues, in particular on:
5.30 In its oral statement, the EC does not intend to dwell further on these aspects, but rather address two equally important questions of the case, i.e.:
5.31 In its first written submission, Canada takes issue with the US determination that the "financial contribution" to timber harvesters conferred a "benefit" on softwood lumber producers. In Canada's view, the United States incorrectly concluded that the benefit to harvesters "passes through" to softwood lumber producers. Such a determination could according to Canada only be made under Article 1.1(a)(1)(iv) of the SCM Agreement, which conditions were not fulfilled in the case at hand15.
5.32 In the EC's view, Canada erred in its assumption that the determination of a "pass through" benefit must be based exclusively on Article 1.1(a)(1)(iv) of the SCM Agreement. 5.33 First, Canada's position conflicts with the circumstance that under Article 1 of the SCM Agreement the term "financial contribution" and the notion of a "benefit" have to be clearly distinguished. Article 1.1(a)(1)(iv) of the SCM Agreement is only relevant with regard to the "financial contribution", as is evidenced by the chapeau of Article 1.1(a)(1) of the SCM Agreement. Furthermore, in the case Brazil - Aircraft the Appellate Body considered it as a "mistake" to "import the notion of benefit into the definition of a financial contribution"16. 5.34 Article 1.1(a)(1)(iv) of the SCM Agreement cannot, therefore, be relevant for the determination of whether a "benefit" "passes through" from one recipient to another. The EC would underline that, in particular, there is no requirement of identity between the recipient of a "financial contribution" and the "benefit" thereby conferred. For instance, the case Brazil - Aircraft involved an export credit programme where the government issued bonds to a financing bank. The beneficiary, and therefore, recipient of the benefit, however, was the aircraft manufacturer. 5.35 Second, the EC notes that the purpose of Article 1.1(a)(1)(iv) of the SCM Agreement is to clarify under which conditions payments made by private bodies can be imputed to governments. Governments do not escape their obligations under the SCM Agreement by using a private entity to confer a "financial contribution". 5.36 Yet, the case at hand differs from this scenario. The Canadian government does not use timber harvesters to distribute "financial contributions". Timber harvesters rather act autonomously when entering into contractual relationships with lumber producers. 5.37 The EC, therefore, considers that Article 1.1(a)(1)(iv) of the SCM Agreement is not relevant in this case.
5.38 In the EC's view any "benefit" determination, including a case of an alleged "pass through", has to abide by the normal rules as laid down in Article 1.1(b) and 14 of the SCM Agreement. Therefore, it is essential to determine whether the downstream producer has received a "benefit" and whether a causal link between the "financial contribution" and the "benefit" exists. 5.39 In this context, the EC would recall the jurisprudence on Article VI:3 of GATT 1947, which might give further guidance on this issue. In United States � Pork from Canada, the panel explicitly stated that a countervailing duty may only be imposed on a downstream product "if a subsidy has been determined to have been bestowed on the production of [that product]".17 It further held that any subsidy granted to the upstream producer could only be considered to be bestowed on the downstream producer if this has led to a decrease in the level of prices for the primary product below the level that would be commercially available from other sources of supply.18 5.40 The EC considers that in the case at hand, the United States appears not to have carried out a proper "pass through" analysis with respect to those producers operating at arm's length from Canadian harvesting companies. It has also not correctly determined the existence of a "benefit" for downstream producers under Article 14(d) of the SCM Agreement19 nor established a causal linkage between the "financial contribution" and the "benefit".
5.41 Canada claims that the United States implemented incorrectly Article 19.3 of the SCM Agreement by denying the possibility of an individual expedited review in case of an investigation that was conducted on a country-wide basis.20 Canada argues that Article 19.3 of the SCM Agreement applies also to provisional measures by virtue of Article 17.5 of the SCM Agreement.21 5.42 Article 19.3 second sentence of the SCM Agreement refers only to a "definitive countervailing duty". Yet, as Article 17.5 of the SCM Agreement provides that "the relevant provisions of Article 19 shall be followed in the application of provisional measures" (emphasis added) the key issue before the Panel is to determine whether Article 19.3 second sentence of the SCM Agreement is pertinent. 5.43 In the EC's view, Article 19.3 second sentence of the SCM Agreement does not apply to provisional countervailing duties. The EC basis its conclusion on the following reasons: 5.44 First, the plain language of Article 19.3 second sentence of the SCM Agreement refers, expressis verbis, only to a "definitive" countervailing duty. This restriction is all the more significant as Article 19 of the SCM Agreement elsewhere uses the broader notion of "countervailing duties" without any further indication whether this encompasses "provisional" as well as "definitive" duties. The explicit limitation in Article 19.3 therefore strongly indicates that Article 19.3 second sentence of the SCM Agreement applies only to "definitive" countervailing duties and cannot be one of the "relevant provisions" under Article 17.5 of the SCM Agreement. 5.45 Secondly, the predecessor to Article 19.3 of the SCM Agreemen6t, Article 4.3 of the Tokyo Round Subsidies Agreement, did not mention the requirement of expedited review. Article 5.4 of the Tokyo Round Subsidies Agreement, which is the predecessor to Article 17.5 of the SCM Agreement, could therefore not refer to such an obligation simply because it did not exist. To restrict Article 19.3 second sentence of the SCM Agreement to "definitive" countervailing duties (as the language indicates) would thus be in line with the legal situation, which existed already under the Tokyo Round Subsidies Agreement. Indeed, if the drafters of the SCM Agreement had intended to broaden the scope of Article 17.5 one would have expected to do so explicitly. 5.46 Finally, the EC considers that the restriction of an expedited review to "definitive countervailing duties" is also justified in view of the specific nature of a provisional measure. In fact, every provisional measure is by itself subject to a review because the investigating authorities will always have to determine whether or not they impose a definitive countervailing duty. In this respect, the EC notes that Article 17.4 of the SCM Agreement limits the application of a provisional measure to a maximum of four months. Thus, extending Article 19.3 second sentence of the SCM Agreement to provisional measures would place a heavy burden on the investigating authorities as they were at the same time obliged to complete the normal countervailing duty investigation.
5.47 To sum up, the EC considers that
5.48 India did not make a written submission. In its oral statement, India made the following arguments. 5.49 This dispute raises several issues of systemic interest. One such issue is whether the SCM Agreement permits the use of "cross-border" benchmarks to find and measure "benefit". 5.50 In this dispute, the USDOC sought to establish that Canadian stumpage practices "conferred" a benefit by comparing stumpage charges levied in Canada with stumpage prices levied in certain parts of the United States, on the basis that such prices are "commercially available world market prices�" to softwood lumber producers in Canada. Finding the US stumpage prices to be higher than the charges levied in Canada, the USDOC concluded that Canadian stumpage charges conferred a benefit. The USDOC thus derived the "stumpage subsidy" from the comparisons of stumpage charges in Canada and cross-border prices for stumpage in the United States. 5.51 India does not consider that the SCM Agreement permits such comparison. 5.52 Article 1.1 of the SCM Agreement provides that a subsidy exists where there is a financial contribution by a government and "a benefit is thereby conferred". The Appellate Body considered the meaning of "benefit" in Article 1 of the SCM Agreement in the dispute, Canada - Aircraft (DS70). According to the Appellate Body, "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".22 5.53 In the case of a government provision of goods, the question is therefore whether the purchaser of a good from the government is "better off" than other purchasers who buy the same good from other sellers in the country subject to the investigation. This is confirmed by Article 14(d) of the SCM Agreement, which sets out guidelines to calculate the amount of a subsidy based on a "benefit to the recipient" test in cases of an alleged government provision of goods. It provides that:
5.54 The words or Article 14(d) are clear and unambiguous. The expression "in the country of provision or purchase" means "in the country of provision or purchase". It does not mean prevailing market conditions in some other country. Similarly, Article 14(d) does not allow adequacy to be determined as against market conditions internationally. We agree with Canada that nothing in the text, context, object and purpose of Article 14(d) of the SCM Agreement permits reading "in" as anything other than "in"; "in" manifestly does not mean "out"; "in the country" does not admit of "cross-border" analysis. Therefore, it is not open to an investigating authority to look outside the country of provision. 5.55 For the purposes of Part V of the SCM Agreement, the proper benchmark in a provision of goods context is therefore the home market price of a good, and not its price in some other market. A cross-border analysis using transactions in another country is thus inconsistent with Articles 1 and 14 as interpreted by the Appellate Body, and viewed in context and in the light of the object and purpose of the SCM Agreement.
5.56 In its third party written submission, Japan made the following arguments. Japan did not make an oral statement.
5.57 A standing timber price, which is included in log production cost, generally forms a part of production cost of lumber. Assuming that the cost of processing logs into lumber is fixed, when a standing timber price gets higher, the production cost of lumber using that standing timber as raw material would rise, and it works on the direction where production of lumber is discouraged. On the contrary, when the standing timber price is set significantly low, the production cost of lumber would also remain low, and it works on the direction that production of lumber is encourage. It can also lead to lowering a price of lumber by producers. 5.58 The issue before this Panel, however, is not the adequacy of Canadian lumber export pricing itself. Issues presented in this proceeding are whether the United States may countervail the stumpage programmes of Canadian provinces in accordance with the provisions of the SCM Agreement and Article VI:3 of GATT 1994. 5.59 Japan has no intention to argue whether assessment of underlying facts in the specific circumstances of this case is consistent with the SCM Agreement. This case, however, raises certain important systemic issues. In the interests of the sound interpretation of the SCM Agreement, Japan respectfully submits the following comments.
5.60 According to Canada, provincial stumpage programmes are granted to timber harvesters, and timber is further processed by downstream producers in Canada into lumber, some of which in turn are exported to the United States. 5.61 Article VI:3 of GATT 1994 and footnote 36 of the SCM Agreement provide that an importing Member may impose countervailing duties on a product for the purpose of offsetting any subsidy granted (or bestowed), "directly or indirectly, on the manufacture, production or export of" such product. (Emphasis added.) 5.62 Article VI:3 and footnote 36 also provide that in order to be countervailable a subsidy does not have to be granted directly on manufacture of a product. Such subsidy may be granted on exported products "indirectly". A subsidy may be countervailable even if the subsidy is granted on manufacture of exported products through something else. For example, a subsidy may be countervailable when the subsidy is granted to the raw material supplier upon its sales of its raw material to producers of an exported product, if a benefit accrues to such producers by the subsidy. But it should be noted that the term "indirectly" may not be construed beyond its meaning. 5.63 Japan respectfully requests that this Panel make its finding on the countervailability of the Canadian stumpage programme based on our consideration stated above.
5.64 Canada claims that stumpage programmes are not governmental provision of "goods or services other than general infrastructure" in Article 1.1(a)(1)(iii) of the SCM Agreement, and thus the provincial governments have not provided "a financial contribution" under Article 1.1(a)(1) of the SCM Agreement. Canada further claims that the stumpage is a right to exploit an in situ natural resource, and therefore, this right is not a good or service within the meaning of Article 1.1(a)(1)(iii) of the SCM Agreement23. 5.65 Canada explained in paragraph 33 of its first submission that timber harvesters are given the right to harvest standing timber under stumpage programmes. These harvesters pay actual stumpage charges to provincial governments not when they acquire and maintain the right to harvest standing timber, but when they cut and acquire the timber. The amount of consideration is decided by multiplying the wood volume by unit prices defined by the provincial government. Although stumpage could be a "right" instead of "good" itself as Canada mentioned, a person given such a right will acquire the timber after all. 5.66 Japan respectfully requests that this Panel provide its finding of whether this stumpage should be distinguished from governmental provision of "goods or services other than general infrastructure".
5.67 The other question that Japan wishes to address in this submission is how "financial contribution" of a good should be adequately measured. This question is equivalent to whether the provision of a good is made for less than adequate remuneration "in relation to prevailing market conditions for the good or service in question in the country of provision or purchase (including price quality, availability, marketability, transportation and other conditions of purchase or sale)" (emphasis added) under Article 14(d) of the SCM Agreement. 5.68 The USDOC found in its preliminary determination that the financial benefit conferred by the Canadian provincial governments be valued by comparing the stumpage charge with stumpage prices in the United States with comparable forests24. Canada claims that this "cross-border" analysis is inconsistent with Article 14(d) of the SCM Agreement because the Article does not mean that adequacy can be based on prevailing market conditions in some other country or internationally25. 5.69 In Japan's view, this Article means that the adequacy of remuneration be based, in principle, on prevailing market conditions in the territory of the exporting Member. Firstly, the text of Article 14(d) does not explicitly permit "cross-border" analysis. Secondly, the interpretation by the United States of Article 14(d) would create incongruous results. When the interpretation by the United States is strictly followed, in order to avoid granting a subsidy, a Member would be required to review prices in all foreign markets, to which a product would be exported, when the Member sells or purchases the product. This interpretation imposes an unreasonable burden on Members. 5.70 However, the question whether "cross-border" analysis has no ground for justification under any circumstances, or if it is ever permissible, and what are the conditions for a Member to use such an analysis, still remains. Japan hopes this question would be properly addressed in this Panels findings.
15
Canada's first written submission, paras. 54 to 68.
16
Appellate Body Report, Brazil - Export Financing Programme
for Aircraft, WT/DS46/AB/R, adopted 20 August 1999, para. 157.
17
GATT Panel Report, United States - Countervailing Duties
on Fresh, Chilled and Frozen Pork from Canada, DS7/R, adopted 11 July 1991,
BISD 38/30, para. 4.5.
18 Id., para. 4.9.
19
EC third party submission, paras. 10 to 35.
20
Canada' first written submission, paras. 147 to 178.
21 Id., footnote 87.
22
Appellate Body Report, Canada - Measures Affecting the
Export of Civilian Aircraft, WT/DS70/AB/R, adopted 20 August 1999, para.
157.
23
Canada's first written submission, at para. 34.
24
US first written submission at para. 50.
25
Canada's first written submission at para. 44.
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