(Cite as: 57 FR 22570, *22604)
United States of the subject merchandise ignores the benefit to lumber production not exported.
It is the Department's normal practice to weight the subsidy by the relevant share of exports to the United States. (See Preliminary
Results of Countervailing Duty Administrative Review; Live Swine from Canada, 56 FR 29224 (June 26, 1991). If
the Department were to weight by total production, it would not collect the appropriate countervailing duties on the
exports of the subsidized subject merchandise from Canada. Since duties are collected only on exported merchandise, a duty
that does not take into account the relative weight of the different levels of exports would not accurately capture the subsidies
that exports of softwood lumber products from Canada enjoy.
Log Export Restrictions
In the Preliminary Determination, we found that the log export restrictions in BC conferred a countervailable benefit. We also
found that the log export restrictions in Alberta, Ontario, and Quebec did not confer a benefit. We have evaluated all information
regarding these export restrictions submitted in the context of this investigation and confirm our preliminary finding. We
determine that only the log export restrictions in BC are countervailable and that the log export restrictions in Alberta, Ontario
and Quebec do not provide a subsidy
(Cite as: 57 FR 22570, *22604)
to lumber producers.
British Columbia
Market Distortion
As discussed earlier in the "Preferentiality" section, we have established that proof of market distortion is not, as a matter of law, a
prerequisite to a finding of a subsidy. Nor can market distortion, defined by respondents as an increase in output or a decrease in
price, be the measure of a subsidy. Nonetheless, we have relied upon a supply-and-demand analysis for purposes of the log export
restriction issue, because this analysis is the only method by which we could determine whether BC softwood lumber
manufacturers receive countervailable benefits as a result of BC's log export restrictions. To examine the concept of market
distortion, i.e., price changes, within the context of the log export restrictions, it is useful to summarize some of our earlier
analysis.
According to our reading of Respondents' arguments, the issue at hand is whether the Department is required to show a
correlation between the subsidy and the net economic effect [FN8] on the firm, as reflected in the firm's output or prices. If such
an effect can be shown, there is the additional
(Cite as: 57 FR 22570, *22604)
issue of whether the Department must calculate the benefit on the basis of this net economic effect. We maintain that we are not
required to show such a correlation and that, even if we could, we are not permitted to measure the subsidy on the basis of such a
*22605
(Cite as: 57 FR 22570, *22605)
correlation. Moreover, we maintain that none of the Department's pronouncements in the past contradicts these assertions.
Despite Respondents' claims to the contrary, a careful reading of Wire Rod, supra,. shows that the Department did not imply that it
was required to show conclusively an increase in supply or a decrease in price in order to find a subsidy, or that it was required to
measure the subsidy on the basis of the precise relationship between the subsidy and the theoretically "corresponding" increase in
supply or decrease in price.
FN8 Throughout this discussion, we are using the term "net economic effect" to mean a change in output or price, which could be
achieved by a change in a firm's marginal costs in the short run, or a change in the firm's fixed costs in the long run.
Based on our analysis of the legislative history to the 1979 Act, supra, we conclude that Congress forbade the Department from
calculating subsidies on the basis of the net economic effect on the subsidy recipient, except in carefully prescribed
circumstances (viz. 19 U.S.C. 1677(6), the "offset" provision). Yet this conclusion does not in any way imply that
(Cite as: 57 FR 22570, *22605)
Congress did not recognize that subsidies, as a general matter, do have a net economic effect on a firm. For example, the statutory
definition of "domestic subsidy" clearly describes examples of government programs that lower a producer's marginal costs (e.g.,
the provision of goods at preferential rates or the assumption of any costs of manufacture, as provided for in 19 U.S.C.
1677(5)(A)). Therefore, Congress did not forbid the Department from identifying countervailable subsidies on the basis of the
effect of the subsidy on the producer's marginal costs, and the resulting effect on the producer's output or prices. Instead, we
conclude that Congress forbade the Department from measuring the subsidy on the basis of the effect of the subsidy on the
producer's marginal costs, or on the basis of any other net economic effect on the firm. A corollary to this conclusion is that
Congress could not have intended that the Department be precluded from countervailing a subsidy as a matter of law, simply
because there has been no demonstration of the net economic effect of the subsidy on the firm.
From a practical perspective, Respondents' thesis would push the Department into a complex causation analysis in every case and
for every type of countervailable subsidy, including all the usual direct subsidies that the Department analyzes. The following
hypothetical example illustrates this point. Suppose a widget firm receives a $l million grant from the government. According to
Respondents' theory, in order to find a subsidy, the Department
(Cite as: 57 FR 22570, *22605)
would have to show that the firm either increased its production of widgets or lowered its price of widgets. Yet, it would be
difficult to show a causal link between the grant and the additional number of widgets produced or the exact amount by which the
price of widgets decreased. Absent such a conclusive showing, according to Respondents' argument, the Department would be
compelled to find the grant not countervailable. As another example, if the widget producer received a tax break, Respondents'
thesis would arguably mean that the Department would have to determine the amount of the decreased tax that was passed
through to the consumer in the form of lower prices. If the Department could not prove any pass-through, according to
Respondents' theory, it would be forced to find the tax break not countervailable.
Yet few would argue, given the statute, legislative history, the Department's regulations, and its longstanding practice, that either
the grant or the tax break is not a subsidy. Further, there is little doubt that the Department would be justified in finding both to be
countervailable if given exclusively to this firm or a limited number of firms or industries.
In conclusion, while we determine that the Department is precluded from measuring benefits on the basis of the net economic
effect on the subsidy recipient (whether defined in terms of market distortion, an increase in output, a decrease in price, or a
change in marginal or fixed costs), the Department is not precluded from identifying and analyzing a subsidy in terms
(Cite as: 57 FR 22570, *22605)
of market distortion (i.e., marginal cost and price changes).
This discussion is of equal relevance to both stumpage and log export restrictions. The preferential provision of stumpage lowers
a firm's marginal costs by decreasing the price of the major raw material input used in the production of lumber. Likewise, and as
discussed in greater detail below, log export restrictions in British Columbia also lower the lumber producer's marginal costs by
decreasing the price of the same raw material input. Although in the first instance, the effect on the producer's marginal costs can
be shown through a normal comparison of preferential prices to a competitive benchmark price, in the second instance, the effect
on the firm's marginal costs can only be shown through a market distortion analysis (i.e., supply-and- demand). However, our
calculation of the amount of the benefit from the log export restrictions is in no way related to the net economic effect, or change
in marginal costs, or increase in output, or decrease in price, experienced by individual lumber producers as a result of the
restrictions. Nor does the calculation in any way attempt to measure the subsidy on the basis of the precise causal link between
the effect of the log export restrictions and the actual, observed incidence of increased output, or decreased prices, of lumber
producers. Even if the Department had considered attempting to calculate the subsidy in this way, it would have been legally
precluded from doing so.
Having defined what the benefit of the BC log export restrictions is on lumber
(Cite as: 57 FR 22570, *22605)
producers, the Department is statutorily required only to show that the BC government program falls within the ambit of the
countervailing duty law. To make this showing, the Department must demonstrate that the government program in
question constitutes a "domestic subsidy" within the meaning of the Act, determine that any benefit received is specifically
provided, and calculate the benefit.
As shown below, we have concluded that the BC log export restrictions constitute a "domestic subsidy" within the meaning of the
Act. Furthermore, we determine that the restrictions, Which provide a measurable benefit, are de jure specific. To calculate the
benefit, we have employed a methodology that is consistent with that used for other types of programs: we have calculated what
the domestic BC price of logs would have been absent the restrictions and made all appropriate adjustments to that price in order
to ensure a fair, apples-to-apples comparison with the current domestic BC log price. We multiplied the differential by the total
sawlog volume consumed by lumber producers in the affected areas of British Columbia and allocated the benefit over the total
lumber production in those areas.
Legal Requirements
Countervailable Government Programs
(Cite as: 57 FR 22570, *22605)
Citing to, inter alia, the Act, legislative history, and administrative precedent, as well as to the GATT, the GATT Subsidies Code,
and the U.S.-Canada Free-Trade Agreement (FTA), Respondents contend that the export restrictions covering logs imposed
by the provinces of BC, Ontario, Alberta, and Quebec do not constitute countervailable subsidies as a matter of law. The Coalition,
on the other hand, contends that these export restrictions are countervailable, advancing the position that any foreign
government action (1) which is "specific" within the meaning of the Act, and (2) which *22606
(Cite as: 57 FR 22570, *22606)
produces a measurable effect on prices of outputs or inputs, constitutes a countervailable domestic subsidy. The Coalition also
contends that the Department erred in the Preliminary Determination by not finding the export restrictions imposed by the
Provinces of Ontario, Alberta, and Quebec to be countervailable.
For the reasons set forth below, the Department reaffirms the Preliminary Determination with respect to the log export restriction
issue. Specifically, the Department determines that the export restrictions maintained by the Province of BC constitute a
countervailable domestic subsidy, but that the export restrictions imposed by the other provinces do not confer countervailable
benefits upon Canadian manufacturers or exporters. [FN9]
FN9 Because our analysis demonstrates that the export restrictions maintained
(Cite as: 57 FR 22570, *22606)
by the other provinces do not confer any countervailable benefits, our legal analysis is limited to the BC log export restrictions.
(For a discussion of our analysis with respect to the export restrictions maintained by the other provinces, see below.)
Before the Department had issued its final determination in Leather, the long- standing and consistent administrative practice of
both the U.S. Department of Treasury (Treasury), the previous administrator of the U.S. countervailing duty law, and the
Department was that border measures, such as export restrictions, generally did not constitute countervailable subsidies as a
matter of law. [FN10] Administrative agencies, however, are authorized to depart from a long- standing and consistent
practice--provided that they (1) offer a reasonable and rational explanation for doing so, and (2) demonstrate that the new
practice is not inconsistent with the applicable statute. [FN11]
FN10 See, e.g., Litharge from Mexico, 67 Treas. Dec. 142 (1967) (export tax imposed upon major input of finished product under
investigation not countervailable); Anhydrous and Aqua Ammonia from Mexico, 48 FR 28,522, 28,524-28,525 (1983) (export
tax on input not countervailable because "not provided to a specific enterprise," no evidence that "government caused the
domestic price of the input * * * to drop through the use of the export tax," and "proposition that such government action
necessarily confers
(Cite as: 57 FR 22570, *22606)
bounties or grants is untenable on its face, and unsupported by the Act and its legislative history."); Non-Rubber Footwear from
Argentina, 49 FR 9,922 (1984) (same); Galvanized Steel Sheet from Australia, 49 FR 8,657 (1984) (import restrictions per se not
countervailable pursuant to U.S. law). One notable exception to this general proposition is the excessive rebate of an indirect tax,
which is per se countervailable pursuant to the Tariff Act and the GATT Subsidies Code. See 19 U.S.C. 1677(5)(A)(i); GATT
Subsidies Code, Illustrative List, Item (g).
FN11 See Secretary of Agriculture v. U.S., 347 U.S. 645, 653 (1954); Alhambra Foundry v. U.S., 685 F.Supp. 1252 (Ct. Int'l. Trade
1988); Mitchell Energy Corp. v. FERC, 580 F.2d 763, 765 (5th Cir. 1978), cert. denied, 456 U.S. 974 (1982); Katunich v. Donovan,
599 F. Supp. 985 (CIT 1984). This proposition follows from the well-established tenet that there is no rule of administrative stare
decisis. See NLRB v. J. Weingarten, Inc., 420 U.S. 151 (1975).
This principle applies with particular force and effect where, as here, the statute does not define the terms at issue--namely,
"subsidy" and "bounty or grant." See id. The U.S. Supreme Court has held that an agency has wide latitude to define such statutory
terms so long as its construction is reasonable within the meaning of the applicable statute and is supported by
(Cite as: 57 FR 22570, *22606)
substantial evidence. (See K Mart Corp., v. Cartier Inc., et al., 486 U.S. 281, 286 (1988); PPG, at 1568.)
After a careful re-examination of the relevant statutory language, legislative history, and judicial decisions, as well as the
underlying purpose of the U.S. countervailing duty law, [FN12] the Department concludes that, had Congress ever squarely
addressed the question of whether export restrictions fall within the ambit of the U.S. countervailing duty law, Congress
would have answered this question in the affirmative. This conclusion, moreover, is consistent with the GATT and the GATT
Subsidies Code.
FN12 The purpose of the U.S. countervailing duty law is to offset any countervailable benefits conferred upon foreign
manufacturers or exporters by their governments. Zenith Radio Corp. v. United States, 437 U.S. 443, 456 (1978).
Based upon this analysis, the Department further concludes that the pre- Leather administrative determinations finding border
measures in general to be per se noncountervailable pursuant to U.S. law were wrongly decided as contrary to Congressional
intent. [FN13] Therefore, the Department declines to follow these determinations and, instead, is following its recent
determination in Leather.
(Cite as: 57 FR 22570, *22606)
FN13 We also emphasize that the pre-Leather determinations employ tautological reasoning; these determinations assume as a
premise the very conclusion they are seeking to prove--that is, border measures in general, including export restrictions, per se
are not countervailable pursuant to U.S. law. See, e.g., Galvanized Sheet from Australia, 49 FR 8,658 ("the absurdity of such a
proposition (i.e., that border measures are countervailable) is self-evident and necessarily beyond the intent of the Congress in
enacting the CVD law.") (emphasis added); Anhydrous and Aqua Ammonia from Mexico, 48 FR 28,525 ("The proposition that such
governmental actions necessarily confer bounties or grants is untenable on its face * * *") (emphasis added).
In Leather, the Department determined that an embargo imposed on the export of raw hides, the primary input used in the
manufacture of the finished product under investigation (i.e., leather), constituted a countervailable domestic subsidy. The
rationale underlying that determination was that (1) the embargo on raw hides "applie(d) only to (raw) cattle hides, which are sold
primarily, if not exclusively to leather tanners (and, therefore,) * * * (was) limited to a specific industry," and (2) the export
embargo "caused hide prices to be lower than they would have been absent the embargo" and, thereby, enabled the leather
tanners to sell the finished product, leather, at a lower price. 55 FR at 40,213-214 ("the embargo had a direct and discernible effect
on hide prices
(Cite as: 57 FR 22570, *22606)
in Argentina") (emphasis added).
In following Leather in the current countervailing duty investigation involving softwood lumber from Canada, the
Department acknowledges that the U.S. Customs Court correctly overturned Treasury's determination in Litharge from Mexico--a
determination in which the agency had found that a Mexican export-tax scheme, which had the effect of reducing the price of the
major input of the finished product under investigation, did not constitute a countervailable subsidy. See Hammond Lead
Products, Inc. v. United States, 306 F. Supp. 460 (Cust. Ct. 1969), rev'd on procedural grounds, 440 F.2d 1024 (C.C.P.A. 1971),
cert. denied. 404 U.S. 1005 (1971) (Hammond Lead). Although the U.S. Court of Customs and Patent Appeals (CCPA) reversed the
lower court's decision on jurisdictional grounds, holding that the statute in existence at the time precluded challenges to negative
countervailing duty determinations, 440 F.2d at 1024, this reversal, contrary to Respondents' contention, did not
"nullif(y)" the Customs Court's ruling. [FN14]
FN14 Government of Canada Memorandum Concerning The Non-Countervailability Of Canadian Log Export Regulations 9
(Mar. 2, 1992).
This conclusion follows from the well-settled rule "that a judgment of reversal is not necessarily an adjudication by the appellate
court of any other than the questions in terms discussed and decided." Mutual Life Insurance Co.
(Cite as: 57 FR 22570, *22606)
v. Hill, 193 U.S. 551, 553-554 (1904). More important, in legislatively overturning the CCPA's jurisdictional ruling in Hammond
Lead by providing U.S. petitioners with the right to challenge negative final countervailing duty determinations in the
Trade Act of 1974, [FN15] Congress did not either approve or disapprove the Customs Court's decision on the merits. [FN16]
FN15 See Pub. L. 93-618, 88 Stat. 1978, 2041 (1975), as codified at 19 U.S.C. 1516; see also H.R. 15794, 92d Cong., 2d Sess.
section (e) (1972).
FN16 See H.R. 15794, 92d Cong., 2d Sess. section (e) (1972); S. Rep. No. 3964, 92d Cong., 2d Sess. section (e) (1972); 118 Cong.
Rec. 23,883 (1972) (statement of sponsor Rep. Fulton); 118 Cong. Rec. 29,698 (1972) (statement of Sen. Fannin, introducing a bill
to overturn the procedural ruling in Hammond Lead).
*22607
(Cite as: 57 FR 22570, *22607)
Rather, Congress addressed only the procedural jurisdictional question and refrained from confronting the substantive question
of whether the Mexican export tax regime in Hammond Lead constituted a countervailable subsidy pursuant to U.S. law. See id.
Congress's actions concerning the substantive issue are nothing more than, in the words of the Federal Circuit in Smith- Corona
Group v. United States. "a legislative 'no comment.' " 713 F.2d 1568, 1576 (Fed. Cir. 1983) (where Congress did not provide clear
guidance on the
(Cite as: 57 FR 22570, *22607)
meaning of the phrase "circumstance of sale"). Hence, any attempt to divine Congress's intent concerning the substantive issue
presented here from the Hammond Lead controversy is highly questionable.
Because Congress never has squarely addressed the question of whether export restrictions may constitute a countervailable
subsidy within the meaning of the U.S. countervailing duty law, our task is "to discern dispositive legislative intent by
'projecting as well as it could how the legislature would have dealt with the concrete situation if it had spoken.' " Georgetown Steel,
801 F.2d at 1314 quoting Asahi Chemical Industry Co. Ltd. v. United States, 548 F. Supp. 1261, 4 CIT 120, 124 (1982)) (quoting
District of Columbia v. Orleans, 406 F.2d 957, 958 (D.C. Cir. 1968)). In other words, we must determine whether, had Congress
directly confronted this question when enacting or amending the U.S. countervailing law, it would have applied the
countervailing duty law as a matter of law to border measures, such as the export restrictions at issue.
To make this determination in this investigation, we must ascertain whether BC export restrictions confer a countervailable
benefit or subsidy upon BC manufacturers of softwood lumber within the meaning of the U.S. countervailing law. United States v.
Zenith Radio Corp., 562 F.2d 1209 (C.C.P.A. 1977), aff'd sub nom., Zenith Radio Corp. v. United States, 437 U.S. 443 (1978). To
resolve this question, we must undertake a two-tier inquiry: (1) Whether these export restrictions provide a benefit to such
(Cite as: 57 FR 22570, *22607)
manufacturers; and, if so, (2) whether the BC Government provides the benefit to a "specific" group of industries (see Proposed
Regulations.)
The logical starting point of our analysis is the statutory language. United States v. Esso Standard Oil Co., 42 CCPA 144, 151 C.A.D.
587 (1955). At the outset, we emphasize that there is no single, universally accepted definition of the term "subsidy" in U.S. law.
Nonetheless, it is well settled that not all foreign government actions that confer a benefit to particular products or industries
constitute actionable subsidies pursuant to the Act. Zenith, 562 F.2d at 1209, aff'd, 437 U.S. at 443. In other words, there is a
distinction between what a layperson might regard as a subsidy and a subsidy which is countervailable pursuant to U.S. law.
Both the Act and the GATT provide examples of foreign government actions that can be considered subsidies. The Illustrative List
of Export Subsidies of the GATT Subsidies Code, incorporated by reference into U.S. law, provides a nonexhaustive list of
countervailable export subsidies. 19 U.S.C. § 1677(5)(A)(i). Similarly, the U.S. countervailing duty law provides a non-
exhaustive list of countervailable domestic subsidies. 19 U.S.C. 1677(5)(A)(ii)(I)-(IV).
Because the BC log export restrictions affect BC users of logs and are not contingent upon exportation or export performance,
these restrictions cannot constitute an export subsidy within the meaning of the Act. See 19 U.S.C.
(Cite as: 57 FR 22570, *22607)
1677(5)(A)(i). Rather, these restrictions affect the production of all softwood lumber, whether sold in the BC domestic market or
export markets, and, therefore, fall within the purview of the domestic subsidy provisions. See 19 U.S.C. 1677(5)(A)(ii).
Accordingly, the Department must undertake its analysis pursuant to section 771(5)(A) of the Act.
Section 771(5)(A) provides in relevant part:
(A) In General.--The term "subsidy" has the same meaning as the term "bounty or grant" as that term is used in section 303 (of the
Act), [FN17] and includes, but is not limited to, the following:
FN17 Section 303 of the Act, 19 U.S.C. 1303, was the exclusive U.S. countervailing duty law before passage of the Trade
Agreements Act of 1979. Section 303 continues to apply today to imports from, inter alia, nearly every country that has not
signed the GATT Subsidies Code.
* * * * *
(ii) The following domestic subsidies, if provided or required by government action to a specific enterprise or industry, or group
of enterprises or industries, whether publicly or privately owned and whether paid or bestowed directly or indirectly on the
manufacture, production or export of any class or kind of merchandise:
(I) The provision of capital, loans or loan guarantees on terms
(Cite as: 57 FR 22570, *22607)
inconsistent with commercial considerations.
(II) The provision of goods or services at preferential rates.
(III) The grant of funds or forgiveness of debt to cover operating losses sustained by a specific industry.
(IV) The assumption of any costs or expenses of manufacture, production or distribution.
19 U.S.C. 1677(5)(A)(1991) (emphasis added).
Section 303 of the Act, in turn, refers to the term "bounty or grant" in the following manner:
(W)henever any country * * * shall pay or bestow, directly or indirectlv, any bounty or grant upon the manufacture or production
or export of any article or merchandise produced in such country, then upon the importation of such article or merchandise into
the United States, there shall be levied and paid, in all such cases, in addition to any duties otherwise imposed, a duty equal to the
net amount of such bounty or grant * * * .
19 U.S.C. 1303 (1991) (emphasis added).
Althouqh the Act does not define the operative terms "subsidy" and "bounty or grant," the legislative history of the Trade
Agreements Act of 1979 demonstrates that Congress intended to incorporate into the definition of a "subsidy" under section
771(5)(A) the administrative and judicial precedents construing the term "bounty or grant" under section 303. See S. Rep. No.
249,
(Cite as: 57 FR 22570, *22607)
96th Cong., 1st Sess. 84 (1979) ("The definition of 'subsidy' is intended to clarify that the term has the same meaning which
administrative practice and the courts have ascribed to the term 'bounty or grant' under section 303 of the Tariff Act of 1930,
unless that practice or interpretation is inconsistent with the bill.") (emphasis added).
As discussed above, the Customs Court overturned Treasury's determination in Litharge--a determination in which the agency
had refused to countervail a Mexican export-tax scheme that had the effect of reducing the price of the major input product (i.e.,
refined lead) used in the manufacture of the final product under investigation (i.e., Litharge). Hammond Lead, supra. Although the
CCPA reversed the Customs Court's decision on purely procedural grounds, supra, the United States Congress legislatively
overturned the CCPA's procedural ruling when passing the Trade Act of 1974.
In reporting out of committee an amended bill [FN18] designed to overturn the *22608
(Cite as: 57 FR 22570, *22608)
CCPA's procedural ruling in Hammond Lead. the Senate Finance Committee stated in pertinent part:
FN18 Although the House-Senate conferees accepted the amended bill, the "bill was not brought to a vote in the House as an
accommodation to the Secretary of the Treasury, with the understanding that the matter would be given attention in the context
of trade legislation in the next Congress." ASG
(Cite as: 57 FR 22570, *22608)
Industries. Inc. v. United States, 467 F. Supp. 1200, 1229 (Cust. Ct. 1979) (citing H.R. Rep. 92-1583, 92d Cong., 2d Sess. (1972); S.
Rep. 92- 1298, 92d Cong., 2d Sess. (1972); 118 Cong. Rec. 37,098 (1972)). "While the Executive Branch's trade legislation proposal
of April 1973 contained no provision for judicial review of negative countervailing duty determinations, Congress
provided one in the Trade Act of 1974." Id. (citing H.R. Rep. 93-571, 93d Cong. lst Sess. 76 (1973); S. Rep. 93-1298, 93d Cong., 2d
Sess. 183 (1974)).
The Committee believes that American producers as well as importers should be permitted to have the right to judicial review in
countervailing duty cases as a matter of basic equity and fairness, and as a means to secure administration of the law in
keeping with the intent of Congress reflected in the broad, explicit and mandatory terms (i.e., "bounty or grant") used in section
303.
S. Rep. No. 92-1221, 92d Cong., 2d Sess. 8 (1972) (emphasis added).
The CCPA echoed essentially the same view in Zenith when discussing the parameters of the statutory terms "bounty or grant":
Congress' intent to provide a wide latitude within which the (Secretary) may determine the existence or nonexistence of a bounty
or grant is clear from the statute itself, and from the congressional refusal to define the words 'bounty,' (or) 'grant' * * * in the
statute or anywhere else, for almost 80
(Cite as: 57 FR 22570, *22608)
years.
562 F.2d at 1216, aff'd, 437 U.S. at 443.
Shortly after the Zenith decision--in fact, only three months before Congress had issued the House and Senate Reports to
accompany the Trade Agreements Act of 1979 and nine months before the effective date of the 1979 statute--the Customs Court
overturned another negative countervailing duty determination issued by Treasury. ASG Industries, Inc. v. United States,
467 F. Supp. 1200 (Cust. Ct. 1979). In concluding that regional development programs administered by the Government of Italy,
including, inter alia, investment grants and low-interest rate financing, constituted countervailable subsidies, the Customs Court
declared in relevant part:
Unquestionably, the effect of these programs has been to reduce (the respondent's) cost of producing float glass. And whether the
reduction in cost is occasioned by direct cash payments, or by an act of government reducing labor cost, capital cost, or the cost
of any other factor of production is of no consequence. For if a benefit or advantage is received in connection with the production
of the merchandise, that benefit or advantage is a bounty or grant on production. And to the extent that such bounited (sic)
merchandise is exported to the United States, it comes squarely within our countervailing duty law--section 303.
467 F. Supp. at 1213 (emphasis supplied in original).
(Cite as: 57 FR 22570, *22608)
This historical background demonstrates that, by the time Congress was drafting the subsidy provisions of the Trade Agreements
Act of 1979, (1) Congress itself already had ascribed a somewhat broad meaning to the statutory terms "bounty or grant," (2) the
Customs Court had struck down one Treasury determination that refused to countervail an export-tax scheme, and (3) the same
court had concluded that foreign government programs that indirectly reduce a foreign manufacturer's production costs
constitute countervailable subsidies.
A reasonable reading of this historical background, in conjunction with the legislative history of the 1979 trade legislation, further
demonstrates that Congress intended to incorporate these principles into the term "domestic subsid(y)," as appearing in section
771(5)(A)(ii) of the Act. See H.R. No. 96- 317, 96th Cong., lst Sess. (1979) ("In deciding whether any other practice is a (domestic)
subsidy, the standard remains that presently used with regard to a 'bounty or grant' under section 303.").
Therefore, contrary to Respondents' fundamental contention, Congress did not intend to constrict the definition of the term
"domestic subsid(y)" by codifying the four illustrative examples of domestic subsidies (e.g., direct or indirect provision of goods
or services at preferential rates), [FN19] as set forth in section 771(A)(5)(ii). The House Report to the 1979 legislation cannot be
any more explicit in this regard:
(Cite as: 57 FR 22570, *22608)
FN19 The other three examples include (1) the direct or indirect provision of capital, loans, or loan guarantees on terms
inconsistent with commercial considerations, (2) the direct or indirect grant of funds or forgiveness of debt to cover operating
losses sustained by a specific industry, and (3) the direct or indirect assumption of any costs or expenses of manufacture,
production, or distribution. See 19 U.S.C. 1677(5)(A)(ii)(I), (III), (IV).
The Committee does not intend for this to be a comprehensive, exclusive enumeration of domestic practices which will be
considered subsidies. It is a minimum list, an identification, for purposes of clarification, of those practices which are definitely
subsidies.
Id. (emphasis added). [FN20]
FN20 The Senate Report contains similar language:
The reference to specific subsidies in the definition is not all inclusive, but rather is illustrative of practices which are subsidies
within the meaning of the word as used in the bill.
S. Rep. 96-249, 96th Cong., lst Sess. (1979).
Accordingly, that a domestic practice is not expressly described in the statutory list of illustrative examples of domestic subsidies
does not entail that the foreign government practice is not countervailable; indeed, the
(Cite as: 57 FR 22570, *22608)
statute does not even purport to provide an exhaustive list. Furthermore, the Department routinely countervails certain
domestic practices that are not included on the list, such as domestic grants and domestic tax subsidies. See e.g., Proposed
Regulations, at 23,366, 23,380, 23,382; Carbon Steel Wire Rod From Spain, 51 FR 36,579 (Oct. 14, 1986) ("The grants were
provided to the firms in the Basque region * * *"); Industrial Phosphoric Acid From Israel, 52 FR 25,447 (July 7, 1987) (domestic
grants); Stainless Steel Cooking Ware from Korea, 51 FR 42,867 (Nov. 26, 1988) ("(e)xemption from acquisition tax on purchase of
land, buildings, and capital equipment for firms establishing factories in rural areas * * *.").
The historical background provided above, in combination with the relevant legislative history and the statutory language, can
also reinforce the conclusion that Congress intended that the Department treat foreign government schemes that have even an
indirect effect upon a manufacturer's production costs as a "domestic subsid(y)." In this regard, the legislative history provides
that when the Department is contemplating any expansion of the illustrative list of domestic subsidies, that expansion must be
"consistent with the basic definition" of a domestic subsidy contained in the list. S. Rep. No. 249, 96th Cong., 1st Sess. 85 (1979).
In other words, "to the extent (that) the (four illustrative) enumerations (of a domestic subsidy) under this provision might
provide a basis
(Cite as: 57 FR 22570, *22608)
for expanding the present standard," such expansion of the list must be "consistent with the underlying principles implicit in these
enumerations," and only "then (can) the standard * * * be so altered." H.R. Rep. No. 317, 96th Cong. lst Sess. 74 (1979). These
Congressional statements are nothing more than an express directive that, when the Department interprets the U.S.
countervailing law, the agency must apply the well-established maxim of statutory construction of ejusdem generis.
This maxim of statutory construction provides that where general words or terms of a statute precede specific terms or phrases in
a statute, the "general words are construed to embrace only objects similar in nature to those objects enumerated by the * * *
specific words." Sutherland Statutory Construction. § 47.17 (5th ed. 1992). Application of this maxim to the general terms
"subsidy" and "bounty or grant," when combined with the Congressional directives set forth above, demands the conclusion that,
in order for a domestic practice not expressly identified in the statute to be countervailable, the practice in question must be
similar in nature to, or like, the four illustrative categories of domestic subsidies. See id.
These four categories of illustrative countervailable domestic subsidies share certain common characteristics: *22609
(Cite as: 57 FR 22570, *22609)
(1) The direct transfer of tangible resources with a tangible value from a foreign government to a particular beneficiary or
recipient (e.g., direct provision of capital); (2) the indirect
(Cite as: 57 FR 22570, *22609)
bestowal of tangible resources with a measurable value from a foreign government to a recipient (e.g., indirect provision of goods
or services at preferential rates), and (3) the indirect bestowal of intangible but, nonetheless, measurable benefits from a
government to a specified class of recipients (e.g., indirect assumption of any production costs).
By considering the indirect provision of goods or services at preferential rates, as well as the indirect assumption of production
costs, to constitute a "domestic subsid(y)," the United States Congress unambiguously intended that the general statutory term
"domestic subsid(y)" include other indirect government schemes that are similar to, or like, these two illustrative examples--that
is, programs the indirect effect of which is to reduce a foreign manufacturer's production costs. Thus, Congress was concerned not
so much with the manner (i.e., direct or indirect) by which a foreign recipient obtained a benefit, but with the substance of the
benefit (viz., that, by the end of the day, the recipient, in fact, had procured a cognizable and measurable benefit). [FN21]
FN21 For this reason, the Department has countervailed indirect benefits or subsidies on a variety of occasions. See, e.g., Final
Determination and Countervailing Duty Order; Certain Steel Products from the Federal Republic of Germany, 47 FR 39,353
(September 7, 1982) (indirect domestic subsidies
(Cite as: 57 FR 22570, *22609)
potentially countervailable); Final Affirmative Countervailing Duty Determination; Oil Country Tubular Goods from Korea,
49 FR 46,776 (November 28, 1984) (indirect government intervention in the commercial banking system countervailable: pool
of loans available to manufacturer that otherwise would not have been available in absence of government intervention); Final
Affirmative Countervailing Duty Determinations on Stainless Steel Sheet, Strip, and Plate from the United Kingdom, 48 FR
19,052 (April 27, 1983) (subsidies used to close redundant facilities or to purchase idle assets constitute indirect countervailable
benefits).
A passage from the Customs Court's decision in Hammond Lead . supports this conclusion. Quoting the Court of Appeals in
Nicholas & Co. v. United States, the Customs Court explained in Hammond Lead:
There is nothing obscure, abstruse mystic,or even ambiguous about (the term "grant" or "bounty") which has been, as to the
particular words, a part of all our tariff acts from 1897 to and including the present act. Its plain, explicit, and unequivocal
purpose is: Whenever a foreign power or dependency or any political subdivision of a government shall give any aid or advantage
to exporters of goods imported into this country therefrom whereby they may be sold for less in competition with our domestic
goods, to that extent by this paragraph the duties fixed in the schedule of the act are increased. It was a result Congress was
seeking to equalize regardless of whatever name or in
(Cite as: 57 FR 22570, *22609)
whatever manner or form or for whatever purpose it was done.
306 F. Supp. at 467-68 (quoting 7 Ct. Cust. Appls. 97, 106-107 (1916), aff'd. 249 U.S. at 249 (emphasis supplied in original)).
Because BC does not maintain direct control over the log prices through the imposition of its export restrictions, the Department
determines that the BC export-restriction scheme constitutes indirect, rather than direct, government action. Nonetheless, this
indirect scheme, as demonstrated below, has the effect of reducing the production costs of BC softwood lumber manufacturers.
Based upon the maxim of ejusdem generis, in combination with the express Congressional directives in the legislative history, BC's
export restrictions covering logs are similar to, or like, the illustrative examples and, therefore, fall within the ambit of the
statutory term "domestic subsid(y)." In fact, the net result of the BC log export restrictions is no different in substance from what it
would be if BC simply had granted these manufacturers a refund upon sale. Furthermore, nothing in the legislative history
suggests that Congress intended to support the narrow interpretation of a "domestic subsid(y)" espoused by Respondents.
Accordingly, we disagree with the Respondents' contention that, because BC, according to Respondents, has not made some kind
of "financial contribution" or foregone some government revenue, the BC export restrictions are not countervailable. First, such a
construction of the statutory scheme conflicts
(Cite as: 57 FR 22570, *22609)
with the maxim of ejusdem generis. Second, Respondents' interpretation impermissibly reads out of the statute the term
"indirectly" and the phrase "but not limited to," as appearing in section 771(5)(A) of the Act. Third, because, as explained more
fully below, neither the GATT nor the GATT Subsidies Code per se requires a showing of government financial contribution to
trigger the imposition of countervailing duties, it follows that the U.S. countervailing duty law does not require such
a showing either. [FN22]
FN22 See Potassium Chloride from Spain, 49 FR 36,424-25 (1984) ("While there is no direct outlay of government funds, the
benefits conferred on the companies are the result of a government-mandated program to promote exports."). Furthermore, to
determine whether a program is countervailable, the Department examines the benefit to the recipient and not the cost to the
donor. See Certain Textile Mill Products from Mexico; Final results of Countervailing Duty Administrative Review, 54
FR 36,841, 36,843 (1989).
Having established that the BC export restrictions can be considered a "domestic subsid(y)" practice within the meaning of the
Act, our next task is to determine whether there is a proximate causal relationship or correlation (i.e., regression analysis)
between the BC export restrictions and the domestic price of BC logs. See Hammond Lead, 306 F. Supp. at 470. In other words, we
must ascertain whether these restrictions have a "direct and discernible
(Cite as: 57 FR 22570, *22609)
effect" within the meaning of Leather [FN23] upon the price of BC logs. 55 FR at 40,213.
FN23 The standard that we used in Leather--the "direct and discernible effect" standard--attempted to determine whether the
border measure in that case, an export embargo, had a direct effect on the price of the input product, raw hides, even though we
recognized that the effect upon the processed product under investigation was indirect. 55 FR at 40,213-214. More precisely, we
sought to determine whether there was a correlation through the use of circumstantial evidence between the export embargo and
changes to raw hide prices. Id. To measure the benefit in Leather, we compared Argentine hide prices over a period of
approximately 30 years in relation to a benchmark based upon U.S. prices over the same period. Id. We determined, based upon
probability theory and correlation analysis, that domestic prices for hides were directly linked to the hide embargo; we analyzed
hide prices during periods in which the embargo was, and was not, in effect. Id.
In particular, the Margolick and Uhler study [FN24] submitted on the record demonstrates that the BC log export restrictions
have a "direct and discernable effect" upon the domestic price of BC logs. [FN25] By reducing the demand for BC logs that
otherwise would exist in the absence of the BC export