5. The Panel also found that USDOC's determination that provincial stumpage programs provide specific subsidies within the meaning of Article 2.1 was not inconsistent with the SCM Agreement.⁹ The Panel declined to rule on Canada's claims regarding the methodology used by USDOC to calculate the subsidy rate and USDOC's conduct of the investigation.¹⁰ The Panel concluded that, to the extent the United States acted inconsistently with the provisions of the SCM Agreement and the GATT 1994, the United States had nullified or impaired benefits accruing to Canada under those Agreements. The Panel therefore recommended that the Dispute Settlement Body (the "DSB") request the United States to bring its measure into conformity with its obligations under the SCM Agreement and the GATT 1994.¹¹

6. On 2 October 2003, the United States notified the DSB of its intention to appeal certain issues of law covered in the Panel Report and certain legal interpretations developed by the Panel, pursuant to paragraph 4 of Article 16 of the Understanding on Rules and Procedures Governing the Settlement of Disputes (the "DSU"), and filed a Notice of Appeal pursuant to Rule 20 of the Working Procedures for Appellate Review (the "Working Procedures").¹² On 3 October 2003, for scheduling reasons, the United States withdrew its Notice of Appeal pursuant to Rule 30 of the Working Procedures, conditional on its right to re-file the Notice of Appeal at a later date.¹³ On 21 October 2003, the United States re-filed a substantively identical Notice of Appeal pursuant to Rule 20 of the Working Procedures.¹⁴ On that same day, the United States filed its appellant's submission in accordance with the Working Schedule drawn up by the Division for this appeal.¹⁵

7. On 23 October 2003, the European Communities, a third participant in these proceedings, requested the Appellate Body to modify the Working Schedule.¹⁶ On 24 October 2003, the Appellate Body declined the European Communities' request , noting that extending the date for the filing of third participants' submissions would significantly reduce the time available for the Division to consider carefully the arguments raised therein as well as the time available to the participants to respond to those arguments.¹⁷ The Division also observed that the new Notice of Appeal filed by the United States on 21 October 2003 was, in all relevant respects, identical to the one submitted on 2 October 2003, and that the critical time-period for third participants and appellees to prepare their responses to arguments raised by appellants and other appellants is the period between the receipt of the appellant's or other appellant's submissions, which contains the appellants' arguments, and the due date for the filing of the third participants' submissions. The Division noted that the time-period between the receipt of the appellant's submission and the due date for third participants' submissions in this case was the same as it would have been, had the Notice of Appeal of 21 October 2003 been filed 10 days before the date of the appellant's submission, as normally occurs.

8. On 27 October 2003, Canada filed an other appellant's submission.¹⁸ On 5 November 2003, Canada and the United States each filed an appellee's submission.¹⁹ On that same day, the European Communities and Japan filed third participants' submissions.²⁰ On 27 October 2003, pursuant to Rule 24(2) of the Working Procedures, India notified the Appellate Body Secretariat that it would not be filing a third participant's submission, but that it intended to make a statement at the oral hearing.

9. The Appellate Body received two amicus curiae briefs during the course of these proceedings. The first, dated 21 October 2003, was received from the Indigenous Network on Economies and Trade (based in Vancouver, British Columbia, Canada).²¹ The second, dated 7 November 2003, was a joint brief filed by Defenders of Wildlife (based in Washington, D.C., United States), Natural Resources Defense Council (based in Washington, D.C., United States) and Northwest Ecosystem Alliance (based in Bellingham, state of Washington, United States).²² These briefs dealt with some questions not addressed in the submissions of the participants or third participants. No participant or third participant adopted the arguments made in these briefs.²³ Ultimately, in this appeal, the Division did not find it necessary to take the two amicus curiae briefs into account in rendering its decision.

10. In a letter dated 12 November 2003, the Director of the Appellate Body Secretariat informed the participants and third participants that, in accordance with Rule 13 of the Working Procedures, the Appellate Body had selected Mr. Giorgio Sacerdoti to replace Mr. A.V. Ganesan as a Member of the Division hearing this appeal because the latter was prevented from continuing to serve on the Division for serious personal reasons.

11. The oral hearing was held on 20 November 2003. The participants and third participants each presented oral arguments and responded to questions put to them by the Members of the Division hearing the appeal.

II. Arguments of the Participants and the Third Participants

A. Claims of Error by the United States - Appellant

1. Calculation of Benefit

12. The United States requests the Appellate Body to reverse the Panel's finding that Article 14(d) of the SCM Agreement required the United States to determine the adequacy of remuneration for government-provided timber based on any observed non-government prices for timber in Canada, even when such prices are substantially influenced, or even effectively determined, by the government's financial contribution.

13. The United States argues that the guidelines for the calculation of benefit in Article 14(d) must be interpreted in a manner consistent with the term "benefit" as it is used in Article 1.1(b) of the SCM Agreement. The United States refers to the Appellate Body's interpretation of the term "benefit" in Article 1.1(b) in Canada - Aircraft and recalls that a government financial contribution confers a benefit if the "'financial contribution' makes the recipient 'better off' than it would otherwise have been absent that contribution", and that the marketplace provides the appropriate basis for comparison.²⁴ The United States criticizes the Panel's interpretation because it does not permit identification of the trade-distorting potential of a financial contribution. Rather, it requires a circular analysis in which government prices are compared to other prices that simply reflect the government's participation in the market.

14. The United States contends that the term "market conditions" as used in Article 14(d) can only mean "commercial" market conditions that are not determined or substantially influenced by the government's financial contribution. The United States agrees with the Panel that "prevailing" market conditions are market conditions as they exist or which are predominant, but argues that the Panel incorrectly interpreted the phrase "prevailing market conditions" as the "prevailing conditions of sale for the good in question", without inquiring whether the prevailing conditions are "market" conditions.²⁵ The United States submits that not all prevailing conditions are market conditions within the meaning of Article 14(d). The United States further argues that the designation in the chapeau to Article 14 of the provisions of that article as "guidelines" signifies that they are guides or principles, not rigid rules that purport to contemplate every conceivable circumstance. This interpretation is supported, according to the United States, by the use of the broad phrase "in relation to" before "prevailing market conditions" in the text of Article 14(d).

15. The United States thus takes issue with the Panel's finding that the United States was required to use private timber prices in Canada in assessing the adequacy of remuneration for government stumpage. Although the Panel acknowledged that, if the government were the sole supplier of the goods in question, the conditions prevailing would not be "market conditions", the Panel failed to consider that, in Canada, provincial governments control the vast majority of timber and are therefore the predominant suppliers. According to the United States, the conclusion should have been the same regardless of whether the government was the sole or predominant supplier. The United States accordingly contends that it was appropriate for it to conduct its analysis of the adequacy of remuneration for government stumpage in Canada using proxies other than private Canadian timber prices.

2. Pass-Through Analysis

16. The United States requests the Appellate Body to reverse the Panel's finding that, in failing to carry out a pass-through analysis, the United States acted inconsistently with Article 10 of the SCM Agreement and Article VI:3 of the GATT 1994, and, consequently, that the United States' imposition of countervailing duties was inconsistent with Articles 10 and 32.1 of the SCM Agreement and Article VI:3 of the GATT 1994.²⁶ Although the United States accepts that the SCM Agreement requires that countervailing duties not be imposed in an amount exceeding the "subsidy found to exist", it contends that the Panel erred in finding that a pass-through analysis is required in respect of sales of logs from tenure-holding sawmills producing softwood lumber to unrelated sawmills, and for sales of lumber by tenure-holding sawmills to unrelated lumber
remanufacturers. The United States does not appeal the Panel's finding that, where a subsidy is received by an independent timber harvester, a pass-through analysis is required in respect of sales to unrelated sawmills or unrelated remanufacturers.²⁷

17. The United States contends that the SCM Agreement does not require investigating authorities to determine the "subsidy found to exist" on a company-specific or transaction-specific basis before imposing countervailing duties. Rather, according to the United States, the SCM Agreement expressly contemplates that, in an investigation, a Member may adopt an aggregate methodology that may subject individual exporters or producers to countervailing duties without individually investigating whether those exporters or producers actually received a subsidy.

18. With this in mind, the United States argues that a pass-through analysis is required only where the subsidy is bestowed indirectly. Thus, if a subsidy is received directly by someone other than a producer of the product under investigation, an investigation is required to determine whether some or all of that subsidy is passed through to enterprises that do produce the product under investigation. Because USDOC's investigation with respect to softwood lumber from Canada involved subsidies that were granted directly to Canadian producers of softwood lumber and were not received by someone other than a producer of softwood lumber, the United States argues that no pass-through analysis was required. The United States recalls that the product under investigation -softwood lumber-includes both primary lumber and remanufactured lumber. The United States contends that there is no basis in the SCM Agreement, or the GATT 1994, for the Panel's finding that "what constitutes the 'product' for which subsidies are being measured depends in part on what happens to the product after it is produced."²⁸ There is also no basis for the Panel's finding that the United States was required to reduce the "subsidy found to exist" by the amount of subsidies attributable to certain lumber products sold domestically, unless it could establish that those subsidies passed through to an exported product.

19. The United States argues that the Panel erred in requiring a pass-through analysis to determine what, if any, portion of the total subsidies could be specifically traced to products entering the United States that were produced by companies that purchase logs or lumber from unrelated entities. Article 19.3 of the SCM Agreement explicitly recognizes that exporters who are "not actually investigated" may be "subject to" countervailing duties.²⁹ There is thus no requirement, in an aggregate investigation, to investigate whether individual exporters receive subsidies. Article 19.3 simply requires that expedited reviews be available to enterprises that were not individually investigated. The United States argues that, in finding that a pass-through analysis was required in this case, the Panel expanded the obligation to determine the subsidy granted to production of a product, to include an obligation to determine the subsidy granted to specific producers of that product.

B. Arguments of Canada - Appellee

1. Calculation of Benefit

20. Canada requests the Appellate Body to uphold the Panel's finding that the United States' determination of the existence and amount of benefit was inconsistent with Article 14 and Article 14(d) of the SCM Agreement and, therefore, that the United States' imposition of countervailing duties on the basis of that determination was inconsistent with Articles 14, 14(d), 10, and 32.1 of the SCM Agreement.

21. Canada observes that Article 14(d) requires the adequacy of remuneration to be determined "in relation to the prevailing market conditions � in the country of provision", and submits that the ordinary meaning of Article 14(d) of the SCM Agreement requires Members to use prevailing market conditions in the country of provision as the benchmark against which to determine the adequacy of remuneration. Canada contends that "in the country of provision" can only mean "in the country of provision", and nothing in the context, object and purpose, or negotiating history of Article 14 permits an alternative reading. In particular, according to Canada, the use of the term "in relation to" does not give discretion to Members to reject in-country benchmarks for comparison.

22. Canada also argues that the Panel's interpretation of the phrase "prevailing market conditions" is consistent with the ordinary meaning of these terms as used in Article 14(d). Canada disagrees with the approach taken by the United States, which, it contends, interprets the word "market" in
Article 14(d) in isolation from the qualifying term "prevailing" and the phrase "in the country of provision". Canada claims that the United States mischaracterized the Panel's findings as to when
in-country prices would not govern the determination of adequate remuneration, and that the Panel was correct in finding that in only two situations it would not be possible to use in-country prices. The first situation is where the government is the only supplier of the relevant goods, and the second situation is where the government administratively controls all the prices for those goods. The Panel found that the facts before it did not fall within either one of these situations. Canada asserts, moreover, that the United States' attempt to equate the government's position as a dominant supplier of goods with formal government price-setting is untenable because it would permit investigating authorities to avoid the in-country comparisons required by Article 14(d).

23. In addition, Canada submits that the Panel's interpretation of Article 14(d) is entirely consistent with WTO jurisprudence relating to the term "benefit" in Article 1.1(b) of the SCM Agreement. The Panel did not dismiss the Appellate Body's statements in Canada - Aircraft as irrelevant to the interpretation of Article 14(d). Rather, the Panel concluded, consistent with that Appellate Body decision, that the marketplace provided the appropriate basis in which to compare transactions. Canada distinguishes the report of the panel in Brazil - Aircraft (Article 21.5
- Canada II), which dealt with a different type of financial contribution.

24. Canada asserts that the Panel's interpretation of Article 14(d) is supported by the context of that provision. In particular, Canada submits that, even though the chapeau of Article 14 refers to the paragraphs that follow as "guidelines", it is clear from the use of the mandatory term "shall" that the calculation of benefit by an investigating authority must be consistent with those provisions. As a result, the "guidelines" cannot be referred to as "general principles" because they mandate the type of evidence that must be employed to determine and measure any benefit conferred. Similar contextual support is provided by paragraphs (b) and (c) of Article 14, which do not mention the country of provision or the territory of the Member. According to Canada, this indicates that, if the drafters of Article 14 had intended to allow reference to be made to the countries other than the country of provision, they would have done so explicitly.

25. Finally, Canada argues that the Panel's interpretation is supported by economic logic. It points out that there are inherent economic problems with cross-border comparisons, as well as a broad range of other considerations that also affect the comparability of forestry resources.

2. Pass-Through Analysis

26. Canada requests that the Appellate Body uphold the Panel's interpretation that Article 10 of the SCM Agreement and Article VI:3 of the GATT 1994 required USDOC to conduct a pass-through analysis in its countervailing duty investigation of softwood lumber from Canada.

27. Canada contends that, by not appealing the Panel's finding that a pass-through analysis is required where subsidies are received by independent harvesters of timber, the United States has accepted that a pass-through analysis is required in instances of alleged indirect subsidization. According to Canada, the United States thus concedes that when a Member wishes to impose countervailing duties on the products of producer A, that Member must demonstrate that a subsidy bestowed upon producer B is passed through producer B's arm's-length sale of an input to producer A. For Canada, this is an acceptance of the fundamental principle reflected in the SCM Agreement, and of the GATT 1994, that a Member may not presume the existence of a subsidy.

28. Canada submits that the requirement for a pass-through analysis applies equally to arm's-length sales of log inputs between sawmills, and to arm's-length purchases of lumber inputs from sawmills by lumber remanufacturers. In Canada's view, the fact that the United States chose to undertake its countervailing duty investigation on an aggregate, country-wide basis does not exempt the United States from the requirement to make such a pass-through determination. Canada argues that Article 19.3 of the SCM Agreement, which the United States invokes, does not permit a Member to simply presume subsidization. According to Canada, in order to impose countervailing duties on a product, a Member must first determine that there is a subsidy to a recipient, in the sense of
Article 1.1 of the SCM Agreement, which relates to the manufacture, production or export of that product. The United States' decision to conduct its investigation on an aggregate basis cannot absolve it of the fundamental requirement to establish the existence of a subsidy in respect of the products of sawmills and lumber remanufacturers who purchase their log or lumber inputs at arm's length. According to Canada, the Panel's findings follow consistent GATT and WTO jurisprudence on impermissible presumptions of subsidization, including the findings of the panel in US - Softwood Lumber III.

29. In Canada's view, the United States' arguments to the contrary impermissibly reduce to inutility the obligation in Article 10 of the SCM Agreement to "take all necessary steps" to determine subsidization in accordance with Article VI of the GATT 1994 and the SCM Agreement. Canada argues that any presumption of subsidization, especially in the face of evidence establishing no subsidy, fails to ensure that countervailing measures offset actual subsidization. Canada contends, further, that the United States' arguments reverse the burden of proving subsidization from the investigating authority to the producers on whose products a countervailing duty is imposed. Canada dismisses as unsatisfactory the United States' argument that affected companies may request a post facto expedited review at which they may seek to "disprove Commerce's presumed pass-through of the alleged subsidy".³⁰

C. Claims of Error by Canada - Appellant

1. Financial Contribution

30. Canada asks the Appellate Body to reverse the Panel's finding with respect to the existence of a "financial contribution". Canada contends that the Panel made several errors of law in developing legal interpretations related to what constitutes a "financial contribution" within the meaning of Article 1.1(a) of the SCM Agreement.

31. First, the Panel erred in interpreting the word "goods" in Article 1.1(a)(1)(iii) of the SCM Agreement. Canada argues that the Panel misinterpreted the text of Article 1.1(a)(1)(iii), in its context, in finding that the word "goods" referred to tangible or movable personal property other than money. Although Canada agrees that the Panel's definition reflects the ordinary meaning of the term, Canada argues that, in the context of Article 1.1(a)(1)(iii) of the SCM Agreement, the term "goods" is limited to "tradable items with an actual or potential tariff classification".³¹ In support of this view, Canada observes that Article 3.1(b) of the SCM Agreement refers to measures that favour "domestic over imported goods", and argues that the term "imported" in this context means that goods must be tradable. Canada reasons that this means the "goods" referred to in Article 1.1(a)(1)(iii) must also be tradable. In addition, Canada observes that the terms "goods" and "products" are synonymous and are used at various points in the Multilateral Agreements on Trade in Goods (Annex 1A of the Marrakesh Agreement Establishing the World Trade Organization (the "WTO Agreement")) to refer to items that are traded or imported or exported. It follows, for Canada, that all "goods" and "products" must be tradable and must be capable of bearing a tariff classification. Further, even if it is accepted that the term "goods" encompasses tangible or movable personal property other than money, Canada argues that the Panel erred in its legal characterization of the facts before it. According to Canada, the Panel found that unidentified trees, with roots firmly in the ground, constitute tangible or movable personal property. Canada submits that the Panel erred because standing timber is not personal property.

32. Finally, Canada contends that the Panel erred in finding that Canadian provincial governments "provide" standing timber through stumpage programmes. In Canada's view, the Panel erred in giving the word "provides" the broad interpretation "to make available". This was inappropriate, according to Canada, because, throughout the WTO Agreement, the meaning of the term "provides" is limited to "supplying" or "giving". Canada argues that the only thing provided by provincial governments under stumpage programmes is an intangible right to harvest. This right to harvest cannot be equated with providing standing trees, without effectively making the intangible right of exploitation "goods".

33. Canada requests the Appellate Body, should it reverse the findings of the Panel with respect to the existence of a financial contribution, to recommend that the DSB request the United States to bring its measures into conformity with the SCM Agreement, inter alia, by revoking the countervailing duties on softwood lumber and refunding deposits paid.

D. Arguments of the United States - Appellee

1. Financial Contribution

34. The United States argues that, by finding that standing timber constitutes "goods" within the meaning of Article 1.1(a)(1)(iii) of the SCM Agreement, the Panel interpreted the term "goods" consistently with its ordinary meaning and context, and in the light of the object and purpose of the SCM Agreement. The United States agrees with the Panel that the ordinary meaning of the term "goods" includes things to be severed from real property, such as standing timber. Nothing in the language or context of the term "goods" in Article 1.1(a)(1)(iii) suggests any limitation of the term to tradable products. Nor does the object and purpose of the SCM Agreement support Canada's position. In particular, the United States argues that the use of the term "imported goods" in Article 3.1(b) of the SCM Agreement, and similar terminology in other agreements, cannot be read to imply that the term "goods" in Article 1.1(a)(1)(iii) can only mean goods capable of being imported or traded. The United States points to the lack of a qualifier such as "imported" in Article 1.1(a)(1)(iii). In addition, the United States argues that Canada's interpretation of "goods" would render superfluous the explicit exception in Article 1.1(a)(1)(iii) for "general infrastructure", because that provision could never encompass any infrastructure if "goods" were interpreted in such a narrow manner. If that were the case, then there would be no need for the explicit exception. The United States also contends that Canada's argument regarding whether standing timber is "personal property" is inapposite. According to the United States, the Panel rightly did not attempt to interpret property laws, nor was it required to do so in considering whether standing timber was goods within the meaning of Article 1.1(a)(1)(iii).

35. The United States further argues that, by finding that the provincial governments provided standing timber to Canadian tenure holders, the Panel interpreted the term "provides" in Article 1.1(a)(1)(iii) of the SCM Agreement consistently with its ordinary meaning and context and in the light of the object and purpose of the SCM Agreement. According to the United States, Canada elevates form over substance by arguing that the only thing provided by the provincial governments is an intangible right to harvest, and that the granting of such a right is not the provision of goods. Noting that the definition of "provide" includes to "make available" and to "supply or furnish for use", the United States contends that it is beyond dispute that when a government transfers ownership of goods by giving a company the right to take them, the government is providing those goods within the meaning of Article 1.1(a)(1)(iii) of the SCM Agreement.

36. Finally, the United States argues that, in the event the Appellate Body finds that the United States has not acted in conformity with its obligations under the SCM Agreement or the GATT 1994, the Appellate Body should refrain from making any recommendation regarding the specific manner in which such findings should be implemented.

E. Arguments of the Third Participants

1. European Communities

(a) Financial Contribution

37. The European Communities disagrees with Canada that the term "goods" in Article 1.1(a)(1)(iii) of the SCM Agreement should be limited to "tradable items with an actual or potential tariff classification". The European Communities argues that the ordinary meaning of the word "goods" includes many forms of property, and is not limited to movable property. It finds support for the view that the term "goods" in Article 1.1(a)(1)(iii) of the SCM Agreement encompasses immovable property in the French and Spanish versions of the SCM Agreement. This understanding is further corroborated by the immediate context of the term "goods" in Article 1.1(a)(1)(iii), which refers to the provision of goods or services "other than general infrastructure". Only where such goods are "general" infrastructure are they excluded from the coverage of that provision. The European Communities also points to the object and purpose of the SCM Agreement and argues that the broad phrase "goods and services other than general infrastructure" is intended to cover any in-kind transfer of resources. The European Communities notes that subsidies may take the form of complex bundles of rights involving, for example, rights to movable or immovable goods, services or intellectual property. According to the European Communities, if such complex economic transactions were not covered by the disciplines of the SCM Agreement, there would be considerable room for circumvention.

(b) Calculation of Benefit

38. The European Communities agrees with the Panel that Article 14(d) of the SCM Agreement obliges WTO Members to use market prices in the country of provision to determine whether government-provided goods confer a benefit. The term "prevailing" clarifies that the benchmark is not a hypothetical market free from any government intervention, but, instead, it is the existing market, even if it is affected by the government's presence in the market. Therefore, private prices in the country of provision may not be disregarded as a benchmark based only on the government's presence in the market.

39. The European Communities asserts that, in exceptional situations where all domestic prices are effectively determined by the government or the government is the only suitable supplier available, there would be no market conditions within the meaning of Article 14(d). In such situations, other benchmarks would need to be used, as the Panel itself acknowledged. The decision as to whether market conditions exist must be made on a case-by-case basis. In this case, however, USDOC was not entitled to use cross-border prices instead of Canadian market prices on the basis of a mere assertion-without further explanation-that private Canadian prices are driven by prices of government-provided timber.

(c) Pass-through Analysis

40. The European Communities agrees with the general principle that investigating authorities must make a determination of subsidization in respect of a product and cannot simply assume subsidization where subsidies were bestowed on a product other than the one subject to a countervailing duty investigation, and where the input producers were unrelated to the producers of the subject merchandise. However, the European Communities disagrees with the Panel's application of this general principle to the specific case of an aggregate investigation. According to the European Communities, the Panel's reasoning fails to preserve fully the right of WTO Members to conduct aggregate investigations. The European Communities agrees with the United States that the SCM Agreement does not oblige investigating authorities to make a company-specific assessment by investigating and determining, in each case, what portion of the subsidies to the production of softwood lumber in Canada was received by specific producers of those products, before imposing the countervailing duty. The European Communities contrasts the first sentence of Article 6.10 of the Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade 1994 (the "Anti-Dumping Agreement "), which explicitly requires a determination of an individual margin for exporters of the dumped goods unless special situations occur which render individual examination impractical, with the SCM Agreement, which does not require WTO Members to determine an individual margin of subsidization for exporters of the subsidized goods. The European Communities finds further support for the ability of Members to conduct aggregate investigations in Article 19.3 of the SCM Agreement.

41. For the European Communities, investigating authorities have a broad margin of discretion
in establishing the existence of subsidization, including the ability to select the appropriate methodology for each case. Investigating authorities must be able to make a determination that is not based on a company-specific investigation and determination. The European Communities notes, however, that where the available facts reveal the existence of different categories of producers who have received different amounts of subsidization, such categories should be taken into account in any methodology chosen.

2. India

42. Pursuant to Rule 24 of the Working Procedures, India chose not to submit a third participant's submission. In its statement at the oral hearing, India addressed the issue of calculation of benefit and contested the admissibility of unsolicited amicus curiae briefs in WTO dispute settlement proceedings.

3. Japan

(a) Financial Contribution

43. Japan submits that the Panel's finding that "goods" in Article 1.1(a)(1)(iii) encompasses "tangible or movable personal property other than money" provides useful guidance on the interpretation of the meaning of "subsidy" in the SCM Agreement. For Japan, the concepts of "goods" and "services" in Article 1.1(a)(1)(iii) have broad meanings paralleling monetary transfers. In the light of the fact that, in the context of providing the financial contribution described in Article 1.1(a)(1)(iii), "goods" are provided by governments to domestic producers, Japan disagrees with Canada that "goods" should be limited to tradable items with an actual or potential tariff classification.

(b) Calculation of Benefit

44. Japan submits that the Panel correctly relied on a textual interpretation of Article 14(d) of the SCM Agreement in finding that the prevailing market conditions to be used as a benchmark are those in the country of the provision of goods. Thus, according to Japan, the United States has the burden of proving that, despite this explicit requirement of an in-country analysis, a cross-border analysis is also permissible. Japan asserts that, even if a cross-border analysis were deemed permissible in certain exceptional situations, the United States has not demonstrated that a cross-border analysis is appropriate in this case. In particular, the United States failed to show that no market prices existed for stumpage in Canada, or that it was not possible to construct a proxy for, or estimate of, the market price in Canada. Therefore, Japan asserts that it is not clear why a comparison with the United States domestic market was the only option available for the United States to conduct a benefit analysis under Article 14(d) of the SCM Agreement.

III. Issues Raised in This Appeal

45. This appeal raises the following issues:

(a) whether the Panel erred, in paragraph 7.30 of the Panel Report, in finding that Canadian provincial stumpage programs "provide goods", in the sense of Article 1.1(a)(1)(iii) of the SCM Agreement, thereby making a financial contribution in accordance with that provision;

(b) whether the Panel erred, in paragraphs 7.64 and 7.65 of the Panel Report, in finding that USDOC failed to determine benefit in a manner consistent with Articles 14 and 14(d) of the SCM Agreement by not using as a benchmark prices of private stumpage in Canada, and that, therefore, USDOC's imposition of countervailing measures was inconsistent with the United States' obligations under Articles 10, 14, 14(d) and 32.1 of the SCM Agreement; and

(c) whether the Panel erred, in paragraph 7.99 of the Panel Report, in finding that USDOC's failure to conduct a "pass-through" analysis in respect of arm's length sales of logs and lumber by tenure-holding timber harvesters owning sawmills and producing lumber, to unrelated sawmills or lumber remanufacturers, is inconsistent with Articles 10 and 32.1 of the SCM Agreement and Article VI:3 of the GATT 1994.

A. Introduction

46. We first consider Canada's appeal regarding the existence of a financial contribution within the meaning of Article 1.1(a)(1)(iii) of the SCM Agreement. In its final determination, USDOC found that Canadian provincial governments made a financial contribution because, through stumpage arrangements, those governments provide goods to timber harvesters.

47. The Panel found that:

� the USDOC Determination that the Canadian provinces are providing a financial contribution in the form of the provision of a good by providing standing timber to the timber harvesters through the stumpage programmes is not inconsistent with Article 1.1 (a) (1) (iii) [of the] SCM Agreement.³²

On this basis, the Panel rejected all of the claims of violation raised by Canada in respect of the SCM Agreement and the GATT 1994 that flowed from Canada's allegation that stumpage programs do not constitute financial contributions.³³

48. Canada requests us to reverse this finding on the ground that the Panel erred in its interpretation of Article 1.1(a)(1)(iii) of the SCM Agreement or, alternatively, that it erred in the legal characterization of the facts before it. Canada argues that standing timber, that is, trees attached to the land and therefore incapable of being traded as such, are not "goods" in the sense of Article 1.1(a)(1)(iii). It further contends that the Panel erred in finding that the provincial governments "provide" standing timber through stumpage arrangements.

49. The United States requests us to uphold the Panel's finding. The United States contends that the meaning of the term "goods" in Article 1.1(a)(1)(iii) encompasses things severable from land, such as standing timber. It also argues that the Panel was right in finding that standing timber is "provided" to harvesters through the conferral of a right to harvest it.

B. General Interpretation of the Requirements of Article 1.1(a)(1)(iii) of the SCM Agreement

50. We begin our analysis of this issue with the text of the relevant provision. Article 1 sets out a definition of "subsidy" for the purposes of the SCM Agreement. It reads as follows:

Definition of a Subsidy

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

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

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

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

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

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

or

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

and

(b) a benefit is thereby conferred. (emphasis added, footnote omitted)

51. The concept of subsidy defined in Article 1 of the SCM Agreement captures situations in which something of economic value is transferred by a government to the advantage of a recipient. A subsidy is deemed to exist where two distinct elements are present.³⁴ First, there must be a financial contribution by a government, or income or price support. Secondly, any financial contribution, or income or price support, must confer a benefit. Canada's appeal focuses on the Panel's finding with respect to the first element, namely the existence of a financial contribution.

52. An evaluation of the existence of a financial contribution involves consideration of the nature of the transaction through which something of economic value is transferred by a government. A wide range of transactions falls within the meaning of "financial contribution" in Article 1.1(a)(1). According to paragraphs (i) and (ii) of Article 1.1(a)(1), a financial contribution may be made through a direct transfer of funds by a government, or the foregoing of government revenue that is otherwise due. Paragraph (iii) of Article 1.1(a)(1) recognizes that, in addition to such monetary contributions, a contribution having financial value can also be made in kind through governments providing goods or services, or through government purchases. Paragraph (iv) of Article 1.1(a)(1) recognizes that paragraphs (i) - (iii) could be circumvented by a government making payments to a funding mechanism or through entrusting or directing a private body to make a financial contribution. It accordingly specifies that these kinds of actions are financial contributions as well. This range of government measures capable of providing subsidies is broadened still further by the concept of "income or price support" in paragraph (2) of Article 1.1(a).³⁵

53. Article 1.1(a)(1)(iii) of the SCM Agreement, the specific provision at issue in Canada's appeal, sets forth that a financial contribution exists where a government "provides goods or services other than general infrastructure, or purchases goods". As such, the Article contemplates two distinct types of transaction. The first is where a government provides goods or services other than general infrastructure. Such transactions have the potential to lower artificially the cost of producing a product by providing, to an enterprise, inputs having a financial value. The second type of transaction falling within Article 1.1(a)(1)(iii) is where a government purchases goods from an enterprise. This type of transaction has the potential to increase artificially the revenues gained from selling the product.

54. Canada's appeal requires us to focus upon one element of the first type of transaction contemplated by Article 1.1(a)(1)(iii), namely, whether, through stumpage programs, provincial governments provide goods. Canada takes issue with the Panel's interpretation of each of the two words in this expression. With respect to the meaning of the term "goods" in Article 1.1(a)(1)(iii) of the SCM Agreement, Canada submits that the Panel erred in finding that "standing timber" falls within the meaning of that term. Canada advances two arguments in support of this aspect of its appeal. First, it argues that, in the context of Article 1.1(a)(1)(iii) of the SCM Agreement, the term "goods" is limited to "tradable items with an actual or potential tariff classification."³⁶ Secondly, even if we were to find that the Panel's interpretation of the term "goods" is correct, Canada argues that the Panel erred in its legal characterization of the facts before it, because standing timber does not fall within the definition proposed by the Panel, which defines goods, inter alia, by reference to the concept of "personal property".³⁷

55. Canada further argues that the Panel erred in its interpretation of the term "provides".³⁸ In particular, Canada submits that the Panel incorrectly found that standing timber was "provided" to harvesters merely by virtue of the conferral, through stumpage arrangements, of an intangible right to harvest.³⁹

56. Before we consider each of the separate elements of Canada's appeal, we observe that the arguments put forward by Canada relating to the nature of "personal property", raise issues concerning the relevance, for WTO dispute settlement, of the way in which the municipal law of a WTO Member classifies or regulates things or transactions. Previous Appellate Body Reports confirm that an examination of municipal law or particular transactions governed by it might be relevant, as evidence, in ascertaining whether a financial contribution exists.⁴⁰ However, municipal laws-in particular those relating to property-vary amongst WTO Members. Clearly, it would be inappropriate to characterize, for purposes of applying any provisions of the WTO covered agreements, the same thing or transaction differently, depending on its legal categorization within the jurisdictions of different Members. Accordingly, we emphasize that municipal law classifications are not determinative of the issues raised in this appeal.

C. Do Provincial Stumpage Programs "Provide Goods" in the Sense of Article 1.1(a)(1)(iii) of the SCM Agreement ?

57. With this in mind, we turn to Canada's argument that standing timber does not fall within the meaning of the term "goods" in the phrase "provides goods or services other than general infrastructure". At the outset, we note that there is no dispute that trees are goods once they are harvested.⁴¹ The question raised by Canada's appeal is, rather, whether the term "goods" in Article 1.1(a)(1)(iii) captures trees before they are harvested, that is, standing timber attached to the land (but severable from it) and incapable of being traded across borders as such.

58. The meaning of a treaty provision, properly construed, is rooted in the ordinary meaning of the terms used.⁴² The Panel adopted a definition of the term "goods", drawn from Black's Law Dictionary, put forward in the submissions of both Canada and the United States, that the term "goods" includes "tangible or movable personal property other than money".⁴³ In particular, the Panel noted that this definition set out in Black's Law Dictionary contemplates that the term "goods" could include "growing crops, and other identified things to be severed from real property".⁴⁴ We observe that the Shorter Oxford English Dictionary offers a more general definition of the term "goods" as including "property or possessions" especially-but not exclusively-"movable property".⁴⁵

59. These definitions offer a useful starting point for discerning the ordinary meaning of the word "goods". In particular, we agree with the Panel that the ordinary meaning of the term "goods", as used in Article 1.1(a)(1)(iii), includes items that are tangible and capable of being possessed. We note, however, as we have done on previous occasions, that dictionary definitions have their limitations in revealing the ordinary meaning of a term.⁴⁶ This is especially true where the meanings of terms used in the different authentic texts of the WTO Agreement are susceptible to differences in scope. We note that the European Communities, in its third participant's submission, observed that in the French version of the SCM Agreement, Article 1.1(a)(1)(iii) addresses, inter alia, the provision of "biens".⁴⁷ In the Spanish version, the term used is "bienes".⁴⁸ The ordinary meanings of these terms include a wide range of property, including immovable property. As such, they correspond more closely to a broad definition of "goods" that includes "property or possessions" generally, than with the more limited definition adopted by the Panel. As we have observed previously, in accordance with the customary rule of treaty interpretation reflected in Article 33(3) of the Vienna Convention on the Law of Treaties (the "Vienna Convention"), the terms of a treaty authenticated in more than one language-like the WTO Agreement-are presumed to have the same meaning in each authentic text.⁴⁹ It follows that the treaty interpreter should seek the meaning that gives effect, simultaneously, to all the terms of the treaty, as they are used in each authentic language.⁵⁰ With this in mind, we find that the ordinary meaning of the term "goods" in the English version of Article 1.1(a)(1)(iii) of the SCM Agreement should not be read so as to exclude tangible items of property, like trees, that are severable from land.

60. We find that terms that accompany the word "goods" in Article 1.1(a)(1)(iii) support this interpretation. In Article 1.1(a)(1)(iii), the only explicit exception to the general principle that the provision of "goods" by a government will result in a financial contribution is when those goods are provided in the form of "general infrastructure". In the context of Article 1.1(a)(1)(iii), all goods that might be used by an enterprise to its benefit-including even goods that might be considered infrastructure-are to be considered "goods" within the meaning of the provision, unless they are infrastructure of a general nature.

61. Canada puts two arguments in support of its contention that the context of Article 1.1(a)(1)(iii) requires that-notwithstanding its ordinary meaning-the term "goods" must be read as limited to "tradable items with an actual or potential tariff classification". First, Canada observes that Article 3.1(b) of the SCM Agreement deals with "subsidies contingent ... upon the use of domestic over imported goods". Because the reference to "imported goods" necessarily refers to tradable (and indeed traded) goods, Canada reasons that all goods must be tradable and capable of bearing a tariff classification.⁵¹ Secondly, in a similar vein, Canada submits that "goods" in Article 1.1(a)(1)(iii) of the SCM Agreement has the same meaning as the term "products" in Part V of the SCM Agreement and elsewhere in the covered agreements. Canada observes that Part V of the SCM Agreement represents an elaboration of Article VI of the GATT 1994, which itself is an exception to Article II of the GATT 1994. For Canada, this means that the scope of Part V of the SCM Agreement and Article II of the GATT must be the same.⁵² Canada seems to imply that, because Article II of the GATT deals with the binding of tariffs in respect of particular "products", such "products"-and therefore "goods" in Article 1.1(a)(1)(iii) of the SCM Agreement-must inherently be susceptible to tariff classification. Canada raises a similar argument with respect to other rules that either regulate "trade in goods" generally⁵³; that address "imported or exported goods"⁵⁴; or, that simply deal with "goods" in the context of trade.⁵⁵ Canada claims that these provisions also imply that all goods must be tradable.⁵⁶

62. Canada's arguments in this regard are not convincing. Article 3.1(b) of the SCM Agreement addresses a certain situation in which subsidies favour domestic goods over "imported goods". In that provision, the word "goods" is qualified by the word "imported". In Article 1.1(a)(1)(iii), the word "goods" is not so qualified. The use of the word "goods" in Article 3.1(b), therefore, gives little contextual guidance to the meaning of the term "goods" in Article 1.1(a)(1)(iii). Contrary to Canada's argument, it does not preclude that there may be "goods" in the sense of Article 1.1(a)(1)(iii) that are not actually "imported" or traded.

63. For the same reason, we are of the view that the fact that certain agreements falling within the Multilateral Agreements on Trade in Goods (Annex 1A of the WTO Agreement) regulate "trade in goods" and deal with "imported" or "exported" goods, does not control the meaning of the term "goods" as used in Article 1.1(a)(1)(iii) of the SCM Agreement. Similarly, we disagree with Canada's argument relating to the term "products" in Article II of the GATT 1994. We do not see why a provision that governs an aspect of commerce between WTO Members and contemplates the binding of tariffs in respect of certain "products", requires that the "goods" referred to in Article 1.1(a)(1)(iii) must also be capable of having tariff classifications. "Goods" in Article 1.1(a)(1)(iii) of the SCM Agreement and "products" in Article II of the GATT 1994 are different words that need not necessarily bear the same meanings in the different contexts in which they are used.

64. Moreover, to accept Canada's interpretation of the term "goods" would, in our view, undermine the object and purpose of the SCM Agreement, which is to strengthen and improve GATT disciplines relating to the use of both subsidies and countervailing measures, while, recognizing at the same time, the right of Members to impose such measures under certain conditions.⁵⁷ It is in furtherance of this object and purpose that Article 1.1(a)(1)(iii) recognizes that subsidies may be conferred, not only through monetary transfers, but also by the provision of non-monetary inputs. Thus, to interpret the term "goods" in Article 1.1(a)(1)(iii) narrowly, as Canada would have us do, would permit the circumvention of subsidy disciplines in cases of financial contributions granted in a form other than money, such as through the provision of standing timber for the sole purpose of severing it from land and processing it.

65. In seeking to exclude "standing timber" from the definition of "goods" in Article 1.1(a)(1)(iii), Canada contends in the alternative that, even if we find that the term is not limited to "tradable items with an actual or potential tariff classification", standing timber is still not "goods" as the Panel has defined them, because it is neither "personal property" nor an "identified thing to be severed from real property". The concepts of "personal" and "real" property are, in the context Canada raises them, creatures of municipal law that are not reflected in Article 1.1(a)(1)(iii) itself. As we have said above, the manner in which the municipal law of a WTO Member classifies an item cannot, in itself, be determinative of the interpretation of provisions of the WTO covered agreements.⁵⁸ As such, we do not believe that the distinction drawn by Canada is dispositive of the issues raised in this appeal.

66. Similarly, we reject Canada's argument that specific trees are not "identified" in stumpage contracts and therefore cannot fall within the scope of "goods" within the meaning of the dictionary definition relied upon by the Panel. We disagree that trees must be specifically and individually "identified" in order to constitute "goods" for purposes of Article 1.1(a)(1)(iii) of the SCM Agreement. As the Panel found, stumpage contracts concern a specified area of land containing a predictable quantity of timber that may be harvested under certain conditions.⁵⁹ Harvesters pay a volumetric "stumpage fee" only for that volume of timber actually harvested.⁶⁰ In these circumstances, we do not see the relevance, for an assessment of whether trees are goods, of the fact that each individual tree within the specified area of land covered by a stumpage contract may not be identified at the time the contract is made. Indeed, the identification of trees by reference to a general area of forest renders the situation of the timber growing in that area similar to that of fungible goods. Fungible goods are goods even though they are identifiable only by number, volume, value or weight. We see no reason why disciplines on subsidies that regulate the provision of non-monetary resources should focus on identifiable physical objects and not on tangible, but fungible, input material. We note that, in Canada - Dairy, the Appellate Body reasoned that "the provision of milk at discounted prices to processors for export ... constitutes 'payments', in a form other than money, within the meaning of Article 9.1(c) [of the Agreement on Agriculture]".⁶¹ We see no reason to treat differently the standing timber subject to stumpage arrangements, for purposes of determining what constitutes a financial contribution through the provision of goods within the definition of subsidy in Article 1 of the SCM Agreement.

67. In sum, nothing in the text of Article 1.1(a)(1)(iii), its context, or the object and purpose of the SCM Agreement, leads us to the view that tangible items-such as standing, unfelled trees-that are not both tradable as such and subject to tariff classification, should be excluded, as Canada suggests, from the coverage of the term "goods" as it appears in that Article. It follows that we agree with the Panel that standing timber-trees-are "goods" within the meaning of Article 1.1(a)(1)(iii) of the SCM Agreement.

68. Having considered the meaning of the term "goods", we now turn to consider what it means to "provide" goods, for purposes of Article 1.1(a)(1)(iii) of the SCM Agreement. Canada argues that stumpage arrangements do not "provide" standing timber. According to Canada, all that is provided by these arrangements is an intangible right to harvest. At best, this intangible right "makes available" standing timber. But, in Canada's submission, the connotation "makes available" is not an appropriate reading of the term "provides" in Article 1.1(a)(1)(iii). In contrast, the United States argues that the Panel's interpretation that stumpage arrangements "provide" standing timber is correct. The United States contends that, where a government transfers ownership in goods by giving enterprises a right to take them, the government "provides" those goods, within the meaning of Article 1.1(a)(1)(iii).

69. Again, we begin with the ordinary meaning of the term. Before the Panel, the United States pointed to a definition of the term "provides", which suggested that the term means, inter alia, to "supply or furnish for use; make available".⁶² This definition is the same as that relied upon by USDOC in making its determination that "regardless of whether the Provinces are supplying timber or making it available through a right of access, they are providing timber" within the meaning of the provision of United States countervailing duty law that corresponds to Article 1.1(a)(1)(iii) of the SCM Agreement.⁶³ We note that another definition of "provides" is "to put at the disposal of".⁶⁴

70. Notwithstanding these definitions, Canada submits that the meaning of the term "provides" in Article 1.1(a)(1)(iii) of the SCM Agreement should be limited to the supplying or giving of goods or services. Canada raises two arguments to support this view. First, Canada suggests that the terms "provides goods" and "provides services" cannot be read to include the mere "making available" of goods or services, because "[t]o 'make available services' � would include any circumstance in which a government action makes possible a later receipt of services and to 'make available goods' would capture every property law in a jurisdiction".⁶⁵ Secondly, Canada points to the use of the term "provide" in Articles 3.2 and 8 of the Agreement on Agriculture⁶⁶ and in Article XV:1 of the General Agreement on Trade in Services (the "GATS")⁶⁷ to suggest that "provides", when used in the context of the granting of subsidies, requires the actual giving of a subsidy.⁶⁸

71. With respect to Canada's first argument, we do not see how the general governmental acts referred to by Canada would necessarily fall within the concept of a government "making available" services or goods. In our view, such actions would be too remote from the concept of "making available" or "putting at the disposal of", which requires there to be a reasonably proximate relationship between the action of the government providing the good or service on the one hand, and the use or enjoyment of the good or service by the recipient on the other. Indeed, a government must have some control over the availability of a specific thing being "made available".

72. Moreover, Canada's argument in this respect seems to disregard the fact that, in order to be subject to the disciplines of the SCM Agreement, or countervailing measures under Part V of that Agreement, a government action would also need to meet all other elements of the subsidy definition. Under Article 1.1(a)(1)(iii) of the SCM Agreement, not all government actions providing goods and services are necessarily financial contributions. If a government provides goods and services that are "general infrastructure", no financial contribution will exist. Furthermore, not all financial contributions are subsidies. The definition of subsidy includes further elements, in particular, that a financial contribution by a government must confer a "benefit". Finally, in accordance with Articles 1.2 and 2 of the SCM Agreement, a subsidy must be "specific" in order to be subject to the disciplines of the Agreement.

73. In any event, in our view, it does not make a difference, for purposes of applying the requirements of Article 1.1(a)(1)(iii) of the SCM Agreement to the facts of this case, if "provides" is interpreted as "supplies", "makes available" or "puts at the disposal of". What matters for determining the existence of a subsidy is whether all elements of the subsidy definition are fulfilled as a result of the transaction, irrespective of whether all elements are fulfilled simultaneously.

74. With respect to Canada's second argument regarding the Agreement on Agriculture and the GATS⁶⁹, the articles cited by Canada involve the provision of "subsidies" or "support". We note that in Article 1.1(a)(1)(iii) of the SCM Agreement, the term "provides" relates to the provision of "goods" and "services" in the context of describing a certain type of financial contribution. The different context of these provisions means that it is not necessarily appropriate to equate, precisely, the scope of the term "provide" or "provides" as they are used in these different agreements. Accordingly, even if we were to accept Canada's contention that the context of Articles 3.2 and 8 of the Agreement on Agriculture and Article XV:1 of the GATS limits the meaning of the term "provide" in those provisions, this would not necessarily imply that the meaning of the term "provides" should be similarly limited in the context of Article 1.1(a)(1)(iii) of the SCM Agreement.

75. Turning to the Panel's finding regarding what is provided by provincial stumpage programs, we note that the Panel found that stumpage arrangements give tenure holders a right to enter onto government lands, cut standing timber, and enjoy exclusive rights over the timber that is harvested.⁷⁰ Like the Panel, we conclude that such arrangements represent a situation in which provincial governments provide standing timber. Thus, we disagree with Canada's submission that the granting of an intangible right to harvest standing timber cannot be equated with the act of providing that standing timber. By granting a right to harvest, the provincial governments put particular stands of timber at the disposal of timber harvesters and allow those enterprises, exclusively, to make use of those resources. Canada asserts that governments do not supply felled trees, logs, or lumber through stumpage transactions.⁷¹ In our view, this assertion misses the point, because felled trees, logs and lumber are all distinct from the "standing timber" on which the Panel based its conclusions. Moreover, what matters, for purposes of determining whether a government "provides goods" in the sense of Article 1.1(a)(1)(iii), is the consequence of the transaction. Rights over felled trees or logs crystallize as a natural and inevitable consequence of the harvesters' exercise of their harvesting rights.⁷² Indeed, as the Panel indicated, the evidence suggests that making available timber is the raison d'�tre of the stumpage arrangements.⁷³ Accordingly, like the Panel, we believe that, by granting a right to harvest standing timber, governments provide that standing timber to timber harvesters. We therefore agree with the Panel that, through stumpage arrangements, the provincial governments "provide" such goods, within the meaning of Article 1.1(a)(1)(iii) of the SCM Agreement.

76. For these reasons, we uphold the Panel's finding, in paragraph 7.30 of the Panel Report, that USDOC's "[d]etermination that the Canadian provinces are providing a financial contribution in the form of the provision of a good by providing standing timber to timber harvesters through the stumpage programmes" is not inconsistent with Article 1.1(a)(1)(iii) of the SCM Agreement. 

V. Calculation of Benefit

A. Introduction

77. We turn next to the issue whether the Panel erred in its interpretation of Article 14(d) of the SCM Agreement, which relates, inter alia, to the calculation of benefit when goods are provided by a government. In the countervailing duty investigation underlying this dispute, USDOC determined that there were "no useable market-determined prices between Canadian buyers and sellers" that could be used to determine whether provincial stumpage programmes provide goods for less than adequate remuneration.⁷⁴ Therefore, USDOC used as a benchmark prices of stumpage in certain bordering states in the northern United States⁷⁵, making adjustments purportedly to account for differences in conditions between those states and Canadian provinces.⁷⁶

78. Before the Panel, Canada claimed that, by rejecting private prices in Canada, and using instead adjusted cross-border prices, USDOC acted inconsistently with Articles 10, 14, 14(d), 19.1, 19.4, and 32.1 of the SCM Agreement and Article VI:3 of the GATT 1994.⁷⁷ The United States responded that the "appropriate benchmark for measuring benefit in this case would normally have been the fair market value of timber in Canada", but that private timber sales in Canada did not represent a "commercial" market because they were distorted by government intervention.⁷⁸ Therefore, according to the United States, USDOC was entitled to use prices for comparable stumpage from alternative sources, in this case from the bordering states in the northern United States, which were then adjusted to reflect market conditions in Canada, in accordance with Articles 1 and 14(d) of the SCM Agreement.⁷⁹

79. The Panel agreed with Canada and found that:

In light of the fact that the USDOC acknowledged the existence of a private stumpage market in Canada, we find that the resort to US prices as the benchmark for the determination of benefit on grounds that private prices in Canada were distorted is inconsistent with Article 14 (d) [of the] SCM Agreement.⁸⁰

In addition, the Panel found consequential violations of Articles 10 and 32.1 of the SCM Agreement because the "countervailing measures were imposed on the basis of an inconsistent determination of the existence and amount of a subsidy".⁸¹

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

81. Canada submits that the Panel correctly interpreted Article 14(d) of the SCM Agreement. According to Canada, the ordinary meaning of Article 14(d) requires a comparison with "prevailing"-in the sense of existing-market conditions in the country of provision.⁸⁸ Canada asserts, furthermore, that the Panel's analysis is consistent with the Appellate Body's interpretation of the term "benefit" under Article 1.1(b) of the SCM Agreement in Canada - Aircraft.⁸⁹ In addition, Canada argues that the Panel's interpretation has contextual support in the chapeau of Article 14, which uses the term "shall", thus negating the United States' contention that the use of the term "guidelines" in the chapeau suggests that paragraph (d) does not set out mandatory rules.⁹⁰ Moreover, the absence of a reference to the country of provision in paragraphs (b) and (c) demonstrates, according to Canada, that when the drafters intended to permit consideration of conditions in another country, they did so explicitly.⁹¹ Finally, Canada contends that the "inherent economic problems with cross-border comparisons", coupled with the broad range of other considerations that affect the comparison of forestry resources, demonstrate the correctness of the Panel's interpretation of Article 14(d) as applied in this case.⁹² Consequently, Canada requests that we uphold the Panel's finding that the United States acted inconsistently with Articles 10, 14, 14(d) and 32.1 of the SCM Agreement.

2. Whether Article 14(d) of the SCM Agreement Permits Investigating Authorities to Use a Benchmark Other Than Private Prices in the Country of Provision

82. The initial issue before us is whether an investigating authority may use a benchmark, under Article 14(d) of the SCM Agreement, other than private prices in the country of provision for determining if goods have been provided by a government for less than adequate remuneration.⁹³ If our answer were to be in the affirmative, two additional questions would arise: (i) what are the specific circumstances under Article 14(d) in which an investigating authority may use a benchmark other than private prices in the country of provision; and (ii) assuming such circumstances exist, what alternative benchmarks may an investigating authority use to determine whether goods were provided by a government for less than adequate remuneration.

83. Article 14 of the SCM Agreement provides:

Calculation of the Amount of a Subsidy in Terms
of the Benefit to the Recipient

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

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

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

(c) a loan guarantee by a government shall not be considered as conferring a benefit, unless there is a difference between the amount that the firm receiving the guarantee pays on a loan guaranteed by the government and the amount that the firm would pay on a comparable commercial loan absent the government guarantee. In this case the benefit shall be the difference between these 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). (emphasis added)

84. As we observed earlier in this Report, not every financial contribution by a government in the form of provision of goods constitutes a subsidy, because a "benefit" must be conferred by virtue of that provision of goods.⁹⁴ Article 14(d) establishes that the provision of goods by a government shall not be considered as conferring a benefit unless the provision is made for less than adequate remuneration. As the Panel observed, the term "adequate" in this context means "sufficient, satisfactory".⁹⁵ "Remuneration" is defined as "reward, recompense; payment, pay".⁹⁶ Thus, a benefit is conferred when a government provides goods to a recipient and, in return, receives insufficient payment or compensation for those goods.

85. The question then becomes how to determine whether adequate remuneration was paid for the goods provided by the government. This is dealt with in the second sentence of Article 14(d), which provides that "[t]he adequacy of remuneration shall be determined in relation to prevailing market conditions for the good or service in question in the country of provision or purchase (including price, quality, availability, marketability, transportation and other conditions of purchase or sale)". (emphasis added)

86. In interpreting the second sentence of Article 14(d), the Panel noted first that, in this context, the term "in relation to" means "in comparison with".⁹⁷ The Panel next observed that "prevailing" market conditions refers to "the market conditions 'as they exist' or 'which are predominant' in the country of provision".⁹⁸ From this, the Panel reasoned that:

Therefore, according to Article 14 (d), the price of the good provided, its quality, availability, marketability, transportation and other conditions of purchase or sale which are used as the benchmark for determining the adequacy of the remuneration have to be such as are prevailing in the country of provision. In sum, a plain reading of the text of Article 14 (d) leads us to the initial conclusion that the market which is to be used as the benchmark for determining benefit to the recipient is the market of the country of provision, in this case Canada.⁹⁹

The Panel then went on to reject the United States' contention that the term "market" means "fair market value" or a market "undistorted by government intervention"¹⁰⁰, stating that:

� Article 14 (d) [of the] SCM Agreement identifies the market conditions which shall be used to determine adequacy of remuneration as those which are "prevailing" in respect of the price of the good, its quality, availability, marketability, transportation, and other conditions of purchase or sale, in other words, the market conditions "as can be found".¹⁰¹

The Panel reasoned that, "as long as there are prices determined by independent operators following the principle of supply and demand, even if supply or demand are affected by the government's presence in the market, there is a 'market' in the sense of Article 14(d) [of the] SCM Agreement."¹⁰² Therefore, the Panel concluded that "[i]n light of the fact that the USDOC acknowledged the existence of a private stumpage market in Canada ... resort to US prices as the benchmark for the determination of benefit on grounds that private prices in Canada were distorted is inconsistent with Article 14(d) [of the] SCM Agreement."¹⁰³

87. Turning first to the text of Article 14(d), we consider the submission of the United States that the term "market conditions" necessarily implies a market undistorted by the government's financial contribution. In our view, the United States' approach goes too far. We agree with the Panel that "[t]he text of Article 14 (d) [of the] SCM Agreement does not qualify in any way the 'market' conditions which are to be used as the benchmark � [a]s such, the text does not explicitly refer to a 'pure' market, to a market 'undistorted by government intervention', or to a 'fair market value'."¹⁰⁴ This is confirmed by the Spanish and French versions of Article 14(d), neither of which supports the contention that the term "market" qualifies the term "conditions" so as to exclude situations in which there is government involvement.¹⁰⁵

88. We now examine the meaning of the phrase "in relation to" in Article 14(d). We are of the view that the Panel failed to give proper meaning and effect to the phrase "in relation to" as it is used in Article 14(d). The Panel reasoned that the phrase "in relation to" in the context of Article 14(d) means "in comparison with".¹⁰⁶ Hence, the Panel concluded that the determination of the adequacy of remuneration has to be made "in comparison with" prevailing market conditions for the goods in the country of provision, and thus no other comparison will do when private market prices exist. We do not agree.

89. As we see it, the phrase "in relation to" implies a comparative exercise, but its meaning is not limited to "in comparison with".¹⁰⁷ The phrase "in relation to" has a meaning similar to the phrases "as regards" and "with respect to".¹⁰⁸ These phrases do not denote the rigid comparison suggested by the Panel, but may imply a broader sense of "relation, connection, reference".¹⁰⁹ Thus, the use of the phrase "in relation to" in Article 14(d) suggests that, contrary to the Panel's understanding, the drafters did not intend to exclude any possibility of using as a benchmark something other than private prices in the market of the country of provision. This is not to say, however, that private prices in the market of provision may be disregarded. Rather, it must be demonstrated that, based on the facts of the case, the benchmark chosen relates or refers to, or is connected with, the conditions prevailing in the market of the country of provision.

90. Although Article 14(d) does not dictate that private prices are to be used as the exclusive benchmark in all situations, it does emphasize by its terms that prices of similar goods sold by private suppliers in the country of provision are the primary benchmark that investigating authorities must use when determining whether goods have been provided by a government for less than adequate remuneration.¹¹⁰ In this case, both participants and the third participants agree that the starting-point, when determining adequacy of remuneration, is the prices at which the same or similar goods are sold by private suppliers in arm's length transactions in the country of provision. This approach reflects the fact that private prices in the market of provision will generally represent an appropriate measure of the "adequacy of remuneration" for the provision of goods. However, this may not always be the case. As will be explained below, investigating authorities may use a benchmark other than private prices in the country of provision under Article 14(d), if it is first established that private prices in that country are distorted because of the government's predominant role in providing those goods.¹¹¹

91. In addition to confining, in our view incorrectly, the meaning of the phrase "in relation to" in Article 14(d) to "in comparison with", the Panel's interpretation does not give due consideration to the provision's immediate context, particularly the chapeau of Article 14. The chapeau of Article 14 requires that "any" method used by investigating authorities to calculate the benefit to the recipient shall be provided for in a WTO Member's legislation or regulations, and it requires that its application be transparent and adequately explained. The reference to "any" method in the chapeau clearly implies that more than one method consistent with Article 14 is available to investigating authorities for purposes of calculating the benefit to the recipient. The Panel's interpretation of paragraph (d) that, whenever available, private prices have to be used exclusively as the benchmark, is not supported by the text of the chapeau, which gives WTO Members the possibility to select any method that is in conformity with the "guidelines" set out in Article 14.

92. The chapeau of Article 14 also provides that any method used by an investigating authority in calculating benefit "shall be consistent with the ... guidelines" set out in paragraphs (a) through (d). (emphasis added) The Panel observed that:

� Article 14 (d) [of the] SCM Agreement uses the term "shall" to indicate that adequacy of remuneration must be determined in relation to, i.e. compared with, the prevailing market conditions in the country of provision, and the data to be used are those which reflect the prevailing market conditions in the country of provision. The precise detailed method of calculation is not determined, in that sense Article 14 (a) - (d) [of the] SCM Agreement are guidelines, but the framework within which this calculation is to be performed is clearly determined and limited in a mandatory manner by the prevailing market conditions in the country of provision.¹¹²

We agree with the Panel that the term "shall" in the last sentence of the chapeau of Article 14 suggests that calculating benefit consistently with the guidelines is mandatory. We also agree that the term "guidelines" suggests that Article 14 provides the "framework within which this calculation is to performed", although the "precise detailed method of calculation is not determined".¹¹³ Taken together, these terms establish mandatory parameters within which the benefit must be calculated, but they do not require using only one methodology for determining the adequacy of remuneration for the provision of goods by a government. Thus, we find merit in the United States' submission that the use of the term "guidelines" in Article 14 suggests that paragraphs (a) through (d) should not be interpreted as "rigid rules that purport to contemplate every conceivable factual circumstance".¹¹⁴

93. Furthermore, the Panel's interpretation is not supported by the objective of Article 14. As the title indicates, Article 14 deals with the "Calculation of the Amount of a Subsidy in Terms of the Benefit to the Recipient". As noted above, in Canada - Aircraft, the Appellate Body stated that the "there can be no 'benefit' to the recipient unless the 'financial contribution' makes the recipient 'better off' than it would otherwise have been, absent that contribution".¹¹⁵ According to Article 14(d), this benefit is to be found when a recipient obtains goods from the government for "less than adequate remuneration", and such adequacy is to be evaluated in relation to prevailing market conditions in the country of provision. Under the approach advocated by the Panel (that is, private prices in the country of provision must be used whenever they exist), however, there may be situations in which there is no way of telling whether the recipient is "better off" absent the financial contribution. This is because the government's role in providing the financial contribution is so predominant that it effectively determines the price at which private suppliers sell the same or similar goods, so that the comparison contemplated by Article 14 would become circular.¹¹⁶

94. The Panel itself acknowledged that there were problems of "economic logic" inherent in its interpretation of Article 14(d).¹¹⁷ As the Panel explained, in certain situations where government involvement in the market is substantial, the prices of private suppliers may be artificially suppressed because of the prices charged for the same goods by the government.¹¹⁸ "In such cases", the Panel said:

� a comparison of the conditions of the government financial contribution with the conditions prevailing in the private market would not fully capture the extent of the distortion arising from the government financial contribution, a result that in our view would not necessarily be the most sensible one from the perspective of economic logic.¹¹⁹

Notwithstanding this, the Panel concluded that it would not be appropriate "to substitute its economic judgement for that of the drafters".¹²⁰

95. We have said that the Panel's restrictive interpretation of paragraph (d) frustrates the purpose of Article 14. More generally, it also frustrates the object and purpose of the SCM Agreement, which includes disciplining the use of subsidies and countervailing measures while, at the same time, enabling WTO Members whose domestic industries are harmed by subsidized imports to use such remedies.¹²¹ This is because the determination of the existence of a benefit is a necessary condition for the application of countervailing measures under the SCM Agreement. If the calculation of the benefit yields a result that is artificially low, or even zero, as could be the case under the Panel's approach, then a WTO Member could not fully offset, by applying countervailing duties, the effect of the subsidy as permitted by the Agreement.

96. In sum, the Panel's interpretation of Article 14(d) appears, in our view, to be overly restrictive and based on an isolated reading of the text. To us, such a restrictive reading of Article 14(d) is not supported by the text of the provision, when read in the light of its context and the object and purpose of the SCM Agreement, as required by Article 31 of the Vienna Convention. Thus, in our view, Members are obliged, under Article 14(d), to abide by the guideline for determining whether a government has provided goods for less than adequate remuneration. However, contrary to the views of the Panel, that guideline does not require the use of private prices in the market of the country of provision in every situation. Rather, that guideline requires that the method selected for calculating the benefit must relate or refer to, or be connected with, the prevailing market conditions in the country of provision, and must reflect price, quality, availability, marketability, transportation and other conditions of purchase or sale, as required by Article 14(d).