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NOTICES
DEPARTMENT OF COMMERCE
International Trade Administration
[C-122-602]
Preliminary Affirmative Countervailing Duty Determination: Certain Softwood
Lumber Products from Canada
Wednesday, October 22, 1986
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AGENCY: Import Administration, International Trade Administration, Commerce.
ACTION: Notice.
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SUMMARY: We preliminarily determine that benefits which constitute subsidies within the meaning of the countervailing
duty law are being provided to manufacturers, producers, or exporters in Canada of certain softwood lumber products as
described in the "Scope of Investigation" section of this notice. The estimated net subsidy is 15.00 percent ad valorem. Those
companies excluded from this determination are listed in the "Suspension of Liquidation" section of this notice.
We have notified the U.S. International Trade Commission (ITC) of our determination. We are directing the U.S. Customs Service
to suspend liquidation of all entries of certain softwood lumber products (the subject merchandise) from Canada that are
entered, or withdrawn from warehouse, for consumption on or after the date of publication of this notice, and to require a cash
deposit or bond on entries of the subject merchandise in an amount equal to the estimated net subsidy.
If this investigation proceeds normally, we will make our final determination by December 30, 1986.
EFFECTIVE DATE: October 22, 1986.
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FOR FURTHER INFORMATION CONTACT: Barbara Tillman or Gary Taverman, Office of Investigations, Import Administration,
International Trade Administration, U.S. Department of Commerce, 14th Street and Constitution Avenue NW,
Washington, DC 20230; telephone: (202) 377-2438 or 377-0161.
SUPPLEMENTARY INFORMATION:
Preliminary Determination
Based upon our investigation, we preliminarily determine that there is reason to believe or suspect that certain benefits which
constitute subsidies within the meaning of section 701 of the Tariff Act of 1930, as amended (the Act), are being provided to
manufacturers. producers or exporters in Canada of the subject merchandise. For purposes of this investigation, the
following programs are found to confer subsidies:
A. Stumpage Programs
1. Alberta
2. British Columbia
3. Ontario
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4. Quebec
B. Federal Programs
1. Certain Types of Investment Tax Credits
2. Program for Export Market Development
3. Regional Development Incentive Program
4. Industrial and Regional Development Program
5. Community-Based Industrial Adjustment Program
C. Joint Federal-Provincial Proqrams
1. Certain Agricultural and Rural Development Agreements
2. Subsidiary Agreements under the General Development Agreements
3. Subsidiary Agreements under the Economic and Regional Development Agreements
4. Sawmill Improvement Program
D. Provincial Proqrams
1. British Columbia
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a. Critical Industries Act
b. Low Interest Loan Assistance Program
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2. Quebec
a. Tax Abatement Program
b. Export Promotion Assistance
c. Assistance to and by the Forest Salvage, Management and Development Corporation of Quebec
d. Industrial Development Corporation Export Expansion Program
e. Lumber Industry Consolidation and Expansion Program
We preliminarily determine the estimated net subsidy to be 15.00 percent ad valorem.
Case History
On May 19, 1986, we received a petition in proper form from the Coalition for Fair Lumber Imports on behalf of the U.S. industry
producing the subJect merchandise. The Coalition for Fair Lumber Imports is a group of U.S. softwood lumber manufacturers and
associations representing U.S. manufacturers of the subject merchandise. In compliance with the filing requirements of section §
355.26 of the Commerce Regulations (19 CFR 355.26), the petition alleged that manufacturers, producers or exporters in
Canada of the subject merchandise
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receive, directly or indirectly, benefits which constitute subsidies within the meaning of section 701 of the Act and that the U.S.
softwood lumber industry is being materially injured or threatened with material injury by reason of these subsidized imports of
Canadian softwood lumber. On June 4, 1986, the Government of Canada exercised its right to consultation pursuant to Article
3:1 of the Agreement on Interpretation and Application of Articles VI, XVI, and XXIII of the General Agreement on Tariffs and
Trade. On June 5, 1986, we initiated a countervailing duty investigation (51 FR 21205, June 11, 1986).
Since Canada is a "country under the Agreement" within the meaning of section 701(b) of the Act, Title VII of the Act applies
to this investigation, and the ITC is required to determine whether imports of the subject merchandise from Canada
materially injure, or threaten material injury to, a U.S. industry. On June 26, 1986, the ITC determined that there is a reasonable
indication that an industry in the United States is materially injured by reason of imports from Canada of the subject
merchandise (51 FR 25752, July 16, 1986).
On July 7, 1986, we determined that this investigation was extraordinarily complicated in accordance with section 703(c)(1)(B)(i)
of the Act, and that additional time was necessary to make the preliminary determination. We, therefore, postponed the statutory
deadline for issuing this preliminary determination to no later than October 16, 1986. In addition, based upon information
received from the ITC, we amended the "Scope of Investigation" to
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include item 202.54 of the Tariff Schedules of the United States (TSUS) (51 FR 24568, July 7, 1986).
We presented a questionnaire concerning the allegations to the Government of Canada in Washington, DC, on June 17, 1986,
and in Ottawa on June 19, 1986. On August 13, 1986, we received a response to our questionnaire containing information
submitted by the Government of Canada and the Governments of Alberta, British Columbia, Manitoba, New Brunswick,
Newfoundland, Nova Scotia, Ontario, Prince Edward Island, Quebec and Saskatchewan. We presented a deficiency and
supplemental questionnaire to the Government of Canada in Washington, DC, on August 28, 1986. We received a response to
this questionnaire on September 15, 1986. In addition, we presented a company stumpage questionnaire to the Government of
Canada in Washington, DC, on August 29, 1986. We received responses to the company questionnaire on September 19, 1986.
On August 11, 1986, petitioner submitted information to the Department which contained allegations on additional programs
which may provide benefits constituting subsidies under the Act. We presented a questionnaire on certain of these programs to
the Government of Canada in Washington, DC, on August 26, 1986. On September 17, 1986, we received a response to this
questionnaire containing information submitted by the Government of Canada and the Governments of Alberta, British
Columbia and Quebec. On October 6, 1986, we
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sent a supplemental questionnaire to the Government of Canada on rail transportation programs, and on October 10, 1986,
we repeated our request for certain information on stumpage that had not yet been provided.
Over the course of this investigation, we have heard from several U.S. firms requesting that certain cedar products and clear and
shop lumber te removed from the scope of investigation. We are considering these requests and will address them in our final
determination.
Exclusion Requests
In accordance with § 355.38 of the Commerce Regulations, several Canadian firms, claiming not to have benefited from subsidies,
requested exclusion from any possible countervailing duty order in this case. On August 8, 1986, we informed the
Government of Canada of the requests and presented a questionnaire to be answered by each of the firms requesting
exclusion. At that time, we confirmed with the Canadian government that a firm would be eligible for exclusion if it either did not
participate, or participated only at a de minimis level for all programs under investigation during the review period. We also
confirmed that the Canadian government was required to certify either non-use by the companies of these programs, or that the
overall net benefit received under these programs was de minimis. In addition, we required that
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information on the amounts of benefits received and a calculation of any net benefits be provided for each requesting company.
On August 29, 1986, we presented a supplemental questionnaire covering additional subsidy allegations to the Canadian
government. We also required that it be answered by the companies requesting exclusion. We received responses to the exclusion
questionnaires and government certifications on August 28, and September 9 and 29, 1986.
Based on our review of the responses and the certifications received, we have excluded 20 companies from this preliminary
determination. The names of those companies are listed in the "Suspension of Liquidation" section of this notice. We will work
closely with the U.S. Customs Service to establish appropriate certification procedures to monitor exports from those companies
excluded from this determination.
Scope of Investigation
The products covered by this investigation are softwood lumber, rough, dressed, or worked (including softwood flooring
classified as lumber), provided for in TSUS items 202.03 through 202.30, inclusive; softwood siding, not drilled or treated,
provided for in items 202.47 through 202.50, inclusive; other softwood siding, provided for in items 202.52 and 202.54; and
softwood
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flooring provided for in item 202.60 of the TSUS.
Analysis of Programs
Throughout this notice we refer to certain general principles applied to the facts of the current investigation. These general
principles are described in the "Subsidies Appendix" attached to the notice of Cold-Rolled Carbon Steel Flat-Rolled Products from
Argentina: Final Affirmative Countervailing Duty Determination and Countervailing Duty Order (49 FR 18006,
April 26, 1984).
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With respect to the calculation of benefits from grant programs, we requested information going back ten years (the average
useful life of equipment used in the sawing of dimensional stock from logs and the manufacture of wood products). We totaled all
grants received in each of the ten years and divided the sum by the respective year's sales of the subject merchandise. For each
year (including the review period). the sum of all grants was less than 0. 5 percent of that year's sales. Therefore, we expensed all
grants in the year of receipt. Accordingly, those grant programs which did not provide funds to manufacturers, producers. or
exporters of the subject merchandise during the review period have been preliminarily determined not to be used since they did
not confer benefits upon the subject merchandise during the review period.
With respect to the benchmark interest rate used to calculate benefits from
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loan programs, for long-term fixed-rate loans, we used the long-term corporate bond rate in Canada as published by the Bank
of Canada. For long-term variable-rate loans, because we had no long-term variable interest rates to use as a benchmark, we
relied on a short-term interest rate which in this case is the 90-day prime corporate paper rate as reported by the Bank of
Canada. For short-term loans, we also used the 90-day prime corporate paper rate.
Since we are using aggregate information in this investigation, the responses reported the receipt of benefits provided under each
program to manufacturers, producers, or exporters of the subject merchandise in all of Canada. Our denominator used to
measure the benefits provided under each non-stumpage program was either the value of softwood lumber shipments or the
export value of softwood lumber shipments, reduced respectively by the sales or export value from those companies granted
exclusions. In cases where recipients produced more than the subject merchandise, and we had the information available to us,
we prorated the receipt of benefits to subject and non-subject merchandise. We then applied that portion attributable to the
subject merchandise in the calculation of any estimated net subsidy for each countervailable program. In cases where segregated
information was not available, we assumed all benefits were conferred upon the subject merchandise. The methodology used to
calculate the benefits from the provincial stumpage programs is described in that section of this notice.
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Consistent with our practice in preliminary determinations, when a response to an allegation denies existence of a program,
receipt of benefits under a program, or the eligibility of a company or industry under a program, and the Department has no
persuasive evidence showing that the response is incorrect, we accept the response for purposes of the preliminary
determination. All responses are subject to verification. If the response cannot be supported at verification, and the program is
otherwise countervailable, we will consider the program to be a subsidy in the final determination.
Unless otherwise specified, all values referred to are denominated in Canadian dollars.
For purposes of this preliminary determination, the period for which we are measuring subsidization (the review period), unless
otherwise specified, is the Government of Canada's 1985/86 fiscal year (April 1, 1985-March 31, 1986). Based upon our
analysis of the petition and the responses to our questionnaires, we preliminarily determine the following:
I. Programs Preliminarily Determined to Confer Subsidies
We preliminarily determine that subsidies are being provided to manufacturers, producers or exporters in Canada of the
subject merchandise under the following programs:
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A. Stumpage Programs of the Provincial Governments
Petitioner alleged that the provincial stumpage programs [FN1] of Alberta, British Columbia, Ontario and Quebec confer a
domestic subsidy on the products under investigation. Specifically, petitioner alleged that stumpage programs are provided to a
specific group of industries within the meaning of section 771(5)(B) of the Act, and that such programs constitute the provision of
a good at preferential rates under subsection 775(5)(B)(ii) of the Act.
FN1 In general, "stumpage" refers to standing timber and "stumpage programs" refer to the systems by which individuals and
companies acquire rights to cut and remove standing timber from provincial forest lands. The stumpage programs of the
provincial governments are described in further detail in Appendix A of this notice.
In our Final Negative Countervailing Duty Determinations: Certain Softwood Products from Canada (Softwood
Products) (48 FR 24159, May 31, 1983), we determined that stumpage programs were not provided to a "specific enterprise or
industry, or group of enterprises or industries" and did not entail the provision of goods at preferential rates. We determined in
Softwood Products that stumpage programs were not limited to a "group of enterprises or
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industries" because (1) any limitations on use were not due to activities of the Canadian governments, and (2) the actual users of
stumpage spanned a wide range of industries. We also determined that stumpage programs did not entail the provision of goods at
preferential rates because there was no evidence of price discrimination within the relevant jurisdictions.
Based on petitioner's presentation of new evidence which indicated that the use of stumpage programs may be limited by certain
government policies, and on petitioner's contention that there has been an evolution in the Department's interpretation of the
countervailing duty law, both in terms of the specificity test and the measure of preferentiality, we determined that a
re-examination of the provincial stumpage programs in Alberta, British Columbia, Ontario, and Quebec was warranted.
We also note that the specificity test has been closely examined and questioned by the Court of International Trade. In Cabot
Corp. v. United States, 620 F. Supp. 722 (Ct. Int'l Trade 1985), the Court rejected the Department's specificity test and its
application in Carbon Black from Mexico (48 FR 29564, June 27, 1983). That decision has prompted a re-evaluation of the
specificity test within the Department.
As in the prior investigation, the central issue in this case involves the application of the Department's specificity test, also known
as the "general availability test." In particular, the issue is whether or not
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stumpage is provided to a specific enterprise or industry, or group of enterprises or industries.
The specificity test has been one of the more controversial aspects of the Department's administration of the countervailing
duty law. The Department continues to adhere to the position that specificity is a prerequisite for a domestic subsidy, and that a
domestic program is a subsidy only if it is limited to a specific enterprise or industry, or group of enterprises or industries. Here,
petitioner does not question the general validity of the specificity test, but argues that stumpage is "specific" under that test.
Although Congress intended that the specificity test be part of the countervailing duty law, it provided no guidance, other
than the bare words of the statute, concerning the application of that test. Thus, the Department has had *37456
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to develop the test through its experience in actual cases, relying on the basic purpose of the countervailing duty law and
exercising the discretion conferred upon us by Congress. Based on our six years of experience in administering the law, we have
found thus far that the specificity test cannot be reduced to a precise mathematical formula. Instead, we must exercise judgment
and balance various factors in analyzing the facts of a particular case in order to determine whether an "unfair" practice is taking
place.
Among the factors we consider are: (1) The extent to which a foreign government acts to limit the availability of a program; (2) the
number of
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enterprises, industries, or groups thereof which actually use a program, which may include the examination of disproportionate
or dominant users; and (3) the extent to which the government exercises discretion in making the program available. The
Department must consider all of these factors in light of the evidence on the record in determining the specificity in a given case.
The Department received inadequate responses to its questions concerning the specificity of the provincial stumpage programs.
Therefore, we must use as best information available the information we have on the record, both from respondents and from
petitioner and draw reasonable inferences where necessary to make a preliminary determination regarding the specificity of the
provincial stumpage programs.
Petitioner alleges that the Canadian governments' exercise of discretion has led to the provision of stumpage to a specific group of
industries. Since we did not consider the question of discretion in Softwood Products, we have only the information provided in
the current investigation on which to base our finding. The information we do have indicates that the four provincial governments
exercise considerable discretion in the allocation of stumpage licenses. Furthermore, the provinces have not demonstrated that
their discretionary allocation systems do not provide-lumber producers a greater share of the annual allowable cut than they
would have received absent the discretion.
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While the implementing legislation in the Provinces allow any potential user to apply for a license, they also permit the
administering ministries a wide degree of discretion in determining the actual recipients of licenses. The provinces do not grant
stumpage rights on a first come, first served basis. Rather, they consider criteria such as the creation of employment, status of the
applicant, the furthering of provincial development objectives, the ability to use fully the timber allocated to the firm, and the
efficiency of the technology to be used by the applicant. Neither the implementing legislation nor the regulations define these
criteria in an objective manner.
The provinces may also use discretion in directing which products are to be produced from timber. For example, the terms of an
allocation arrangement may require the holder to operate certain types of mills or to acquire specific equipment. The provincial
governments must approve all transactions involving cut logs from provincial lands and all transfers of stumpage rights. They
retain the authority to change all terms and conditions in any such transfer.
Thus, the provinces exercise considerable discretion in allocating their stumpage rights. While the existence of discretion does
not per se mean that a benefit is specific, when the discretion results in the targeting of a specific enterprise or industry or group
of enterprises or industries, then that program is countervailable. Discretion need not result in the exclusion of all other users of
the good to be considered limiting. It must, however, allow a
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specific enterprise or industry or group of enterprises or industries greater access to, and use of, the good than would be the case
absent discretion.
Therefore, we must next consider whether government discretion has actually skewed the allocation of stumpage rights to the
lumber industry. The responses provided little information on the percentage of annual allowable cut allocated to lumber
producers. However, Ontario did provide information which demonstrated that a large proportion of the annual allowable cut
goes into lumber production. Moreover, petitioner alleges that government discretion has skewed the allocation of stumpage
rights, citing examples of specific acts of targeting in each of the four provinces.
For example, petitioner alleged that in Alberta the government provides Forest Management Agreements only to users who agree
to process all standing timber of suitable size in a sawmill and then to use the residues and remaining trees for pulp. Thus, license
holders are restricted in the use to which they put the timber they log. In British Columbia, petitioner alleged that the government
may limit applicants to specific industries. Petitioner cites two sales in the Queen Charlotte Timber Supply Area which required
the successful applicants to operate sawmills on Graham Island. Petitioner alleged that the Ontario government has stated that,
over the course of the 1970's, the government's policies resulted in allocating the entire annual allowable cut under Crown
Management Units to sawmills. Petitioner also alleged that in Quebec the
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government is restricting other industries' access to domanial forests unless they agree to operate sawmills. These domanial
forests are licensed under supply agreements. Over 70 percent of total allocation under supply agreements has been awarded to
sawmills. Petitioner argues that this discretionary action has resulted in more than doubling the output of the softwood sawmills
in ten years.
Since there is significant evidence indicating that the discretionary allocation of stumpage rights results in targeting and
distortion, we preliminarily determine that the stumpage programs of Alberta, British Columbia, Ontario, and Quebec are limited
to a specific group of industries.
Our re-examination of the provincial stumpage programs has included re- consideration of our finding in Softwood Products that
stumpage programs were de facto non-specific. Despite an earlier examination of this issue, information from the respondents
combined with the facts presented by petitioner, raise too many questions for us now to determine that stumpage is not, in fact,
limited. Instead, information that has been provided indicates that certain conclusions reached in Softwood Products may not be
supported by the information thus far submitted on the record in this investigation.
One conclusion drawn in Softwood Products concerned the number and types of actual users of stumpage. While in Softwood
Products we determined that stumpage was used by the lumber and wood products industries, the pulp and
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paper industries, and furniture manufacturing industries, the record of the current investigation indicates one undisputed fact:
furniture manufacturers own negligible rights, if they hold rights at all, to stumpage in any of the four relevant provinces. Thus,
contrary to our determination in Softwood Products, the industries actually using provincial stumpage do not include the
furniture manufacturing industries.
Another situation not noted in the earlier proceeding is the integration of the lumber and pulp and paper industries. The
responses indicate that the lumber and pulp and paper companies tend to be horizontally integrated into single enterprises.
Integration, in part, results from the complementary production process involved in timber processing: wood chips, by-products
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are the primary input product for the production of pulp. Further, petitioner asserted that these industries share the same trade
associations, and that the employees belong to the same trade unions. These factors call into question the earlier conclusion that
stumpage rights are not in fact limited to one group of industries. [FN2]
FN2 Sixteen of the twenty largest lumber producers in Canada also produce pulp and paper or other wood products. The
British Columbia response estimates that 80 percent of softwood chips used in provincial mills are obtained from "associated"
sawmills. The two pulp mills and the two veneer
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and plywood mills in Alberta also own sawmills. At least 50 percent of the softwood cut on provincial land in the last government
fiscal year in Ontario was cut by integrated firms. In Quebec, companies which produce exclusively pulp and paper accounted for
only nine percent of the provincial harvest.
Additionally, reference to the Standard Industrial Classification system to classify groups of industries may prove to be misplaced
in this investigation in light of the integration and concentration of production indicated above. Again, however, we note that,
except for information from Ontario, the Canadian governments failed to supply actual data on the products specifically produced
by each of the major holders of stumpage rights.
As noted above, we preliminarily find that the exercise of governmental discretion has led to the provision of stumpage to a
specific group of enterprises or industries. Having made this determination, we must also determine whether stumpage rights are
provided at preferential rates within the meaning of section 771(5)(B)(ii) of the Act. Our preferred test for determining whether
goods or services are provided at preferential rates is to measure government price discrimination within the jurisdiction.
The stumpage programs we are investigating are described in Appendix A. The price for stumpage under these programs is
determined either by an appraisal system, or is set administratively or legislatively. Of the provinces whose
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stumpage programs are under investigation, only British Columbia and Alberta have competitively bid sales of stumpage.
Generally, competitively bid sales will not confer subsidies unless the government acts to limit supply and demand.
We do not consider the competitively bid sales as providing an accurate measure of price discrimination because we do not have
information on the adjustments in price that must be made between competitively bid and non- competitively bid stumpage sales.
We are not satisfied that competitively bid sales are the same product, broadly defined. In other words, we cannot say that
competitively bid stands are as accessible as non-competitively bid stands, that the quality of the stumpage is comparable or that
obligations undertaken by the stumpage users are identical. Furthermore, we cannot accurately gauge the effect that the duration
of a stumpage license has on the price of stumpage. Moreover, we note that, where the government limits supply and demand
conditions, the competitively bid price may be rendered meaningless. Therefore, we lack adequate information to determine
whether there is price discrimination by the provincial governments of British Columbia and Alberta.
Since the holders of provincial stumpage are limited and we have no comparable, generally available reference price to use as a
benchmark for measuring price discrimination, we have turned to the Preferentiality Appendix
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to Preliminary Results of Administrative Review: Carbon Black from Mexico (51 FR 13269; April 18, 1986). The alternative
tests in the Preferentiality Appendix are designed to determine whether a government is providing a good or service at a
preferential rate in those situations where the users are limited. The alternatives outlined are as follows: (1) Prices charged by the
government for a similar or related good; (2) prices charged within the jurisdiction by other sellers for an identical good or
service; (3) the government's cost of producing the good or service; and (4) external prices.
We preliminarily determine that alternative one, prices charged by the same seller for a similar or related good, is not an
appropriate measure of preferentiality for provincial stumpage programs. As noted in our Preferentiality Appendix, the similar
good and its price must not be limited to a "specific enterprise or industry, or group of enterprises or industries." The only good
similar to softwood stumpage is hardwood stumpage, which is limited to virtually the same users as softwood stumpage and
allocated under the same programs. Based on information submitted in this proceeding, we cannot say that hardwood stumpage is
not limited to a "specific enterprise or industry, or group of enterprises or industries." Therefore, the price for hardwood
stumpage is not an appropriate reference price for the programs at issue.
We preliminarily determine that alternative two, prices charged within the jurisdiction by other sellers for an identical good or
service, is also an
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inappropriate measure of preferentiality for provincial stumpage programs. Alberta, British Columbia, Ontario and Quebec did
not submit significant private price information, and stated that they do not collect data on private sales. The responding
companies reported only four sales of private stumpage during the review period. Further, as noted above, the government's
presence in the market may have distorted private stumpage prices. Therefore, we are unable to derive a reasonable benchmark
based on private stumpage prices.
We preliminarily determine that alternative three, the government's cost of producing the good or service, is an appropriate
measure of preferentiality for provincial stumpage programs. Alberta, British Columbia, Ontario and Quebec do not recover the
costs of providing standing timber to stumpage holders; expenditures directly related to commercial timber harvesting exceed
directly related revenues. Stumpage holders benefit from the shortfall in provincial revenue. Therefore, we preliminarily
determine that the provincial stumpage programs of Alberta, British Columbia, Ontario and Quebec involve the provision of
goods at preferential rates within the meaning of section 771(5)(B)(ii).
In calculating costs borne by the government in producing the product concerned, stumpage rights, we have included the value
of standing timber as an imputed cost to the government. The primary input into the selling of stumpage rights is the tree itself.
While the provincial governments incur no direct costs for trees and the land on which they are situated, an imputed or indirect
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cost is associated with the intrinsic value of the tree and land. To determine whether the provincial governments are recovering
their costs of production, the value or imputed cost of standing timber must be considered along with all direct costs.
To calculate the benefit for the review period, we determined from provincial responses revenues directly associated with
stumpage payments. We compared these amounts for each province to expenditures undertaken by each provincial government
to maintain commercial timberland and administer stumpage programs. and included as an imputed cost an amount representing
the intrinsic value of standing timber. Because we have no information available to us that reflects the exact value of provincial
timber resources, we have chosen surrogates that best portray timber value in each province.
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For British Columbia and Alberta, we used competitive bid prices under government administered programs as surrogates for the
value of standing timber in these provinces. In calculating the price of competitively bid stumpage, we have excluded certain
other costs borne by the stumpage holder. For example, in Alberta we have not included reforestation fees. In doing this, we have
attempted to isolate the competitively bid price for the tree, not the "extras" that made up the broadly defined product. For
Quebec and Ontario we used private prices reported in the New Brunswick response as a surrogate.
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We calculated an amount by which costs exceeded revenues per cubic meter, and multiplied this by the total cubic meters of
timber used in lumber production. Dividing this amount by lumber sales in the four relevant provinces during the review period,
we preliminarily determine an estimated net subsidy of 14.542 percent ad valorem.
B. Federal Programs
1. Certain Types of Investment Tax Credits (ITCs). There are several categories of ITCs in Canada: one encourages general
capital investment; three others encourage capital investment in certain regions of the country; another, designed to stimulate
scientific research, is available for general research and development.
The first category of ITCs is for investment in qualified property, qualified transportation equipment and qualified construction
equipment. The basic ITC for investment in this category is seven percent. The second category provides for an additional three
or 13 percent only for qualified property used in certain regions.
The third category of ITCs is for investment in "certified property." The distinguishing factor between "certified property" and
"qualified property" is that the former must be located in prescribed regions characterized by high
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levels of unemployment and low per capita income. The ITC rate for certified property is 50 percent.
The fourth category of ITCs is for scientific research. Eligible expenditures under this category include the cost of capital
equipment used for scientific research and expenses attributable to scientific research. A basic 20 percent ITC rate is available for
qualifying scientific research expenditures, while the rate for expenditures made in designated regions of Canada is 30
percent. For small Canadian-controlled private corporations, the rate is 35 percent. Before October 31, 1983, these rates were 10,
20 and 25 percent, respectively.
The fifth category provides an ITC of ten percent to all companies in Canada with respect to research and development (20
percent for small businesses).
In our Final Affirmative Countervailing Duty Determination: Oil Country Tubular Goods from Canada (OCTG) (51 FR
15037, April 22, 1986), we stated that there were five categories of ITCs. According to the response in the instant case, however, a
sixth category provides a 60 percent ITC for approved project property acquired after May 13, 1985, and before 1993, in the Cape
Breton Island region of Nova Scotia.
Prior to April 19, 1983, claims for ITCs in each year were limited to $15,000 plus one-half of the amount by which federal tax
otherwise payable was greater than $15,000. Earned credits above this limit could be carried forward for five years. On April 19,
1983, the carry-forward was increased to seven years
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(ten years for the Cape Breton ITC) and a three year carry-back was implemented.
A portion of ITCs earned after April 19, 1983, and before December 31, 1988, not claimed in the year earned because of
insufficient tax payable, was (or will be) refundable in cash to the taxpayer. The refundable rate is 20 percent of unused credits for
large businesses, 40 percent for individuals and small businesses and 40 percent for approved project property (the Cape Breton
ITC). This type of refund applies only in the year the credit was earned, the remainder being carried forward in the manner
previously described.
Because the basic seven percent rate for "qualified property" is not limited to a specific enterprise or industry, or group of
enterprises or industries, or to companies within specific regions, we preliminarily determine it to be not countervailable.
However, because the additional rates of three and 13 percent for qualified property are limited to companies within certain
regions, we preliminarily determine those additional benefits to be countervailable. The 50 percent ITC rate for "certified
property" is also limited to specific regions. Thus, we preliminarily determine that the additional benefit above the basic rate of
seven percent is countervailable.
Because the 20 and 25 percent rates for scientific research ITCs are not limited to a specific enterprise or industry, or group of
enterprises or industries, or to companies in specific regions, we preliminarily determine
(Cite as: 51 FR 37453, *37458)
them to be not countervailable. Because the 30 percent rate is limited to companies in specific regions, we preliminarily
determine that the additional benefit above the basic rate of 20 percent is countervailable.
Because research and development ITCs are not limited to a specific enterprise or industry. or group of enterprises or industries,
or to companies within specific regions. we preliminarily determine them to be not countervailable.
The Cape Breton ITC was not claimed by manufacturers. producers, or exporters of the subject merchandise during the review
period.
Our standard methodology to calculate the benefit from a tax program would be to consider the benefit to be the amount of tax
credits claimed on the tax return filed during the review period. However, because the response contains tax information only
through 1983, we are using, as best information available, those tax credits claimed in 1983.
The Government of Canada was unable to segregate the total amount of credits claimed by manufacturers, producers, or
exporters of the subject merchandise in 1983. Therefore, we are using, as best information available, those credits claimed by
sawmills, planing mills, and miscellaneous wood products manufacturers. In addition, because the response did not identify
which of the 20 percent ITCs were for Scientific Research ITCs, we are assuming that all 20 percent ITCs were for investments in
qualified property, transportation, and construction equipment used in certain regions, and also qualified for the
(Cite as: 51 FR 37453, *37458)
basic seven percent rate. We divided the amount of claimed credits in 1983 by the total value of shipments of sawmills, planing
mills, and miscellaneous wood products in 1983 and calculated an estimated net subsidy of 0.047 percent ad valorem.
2. Program for Export Market Development (PEMD). PEMD is administered by the Department of External Affairs and is available
to exporting businesses in the manufacturing or service sectors. PEMD facilitates the development of export markets for Canadian
products by providing assistance for project bidding, market identification, export consortia, sustained export market
development, participation in trade fairs abroad, and bringing in foreign buyers. PEMD assistance is in the form of interest-free
loans with repayment terms dependent upon the success of the export promotion activity. If sales result from the export
promotion, the funds must be repaid at a rate of two percent of sales generated for a period of three years up to the amount of
assistance provided.
Since PEMD loans are provided for export activities at preferential rates, we *37459
(Cite as: 51 FR 37453, *37459)
preliminarily determine that assistance provided under the program to promote exports of the subject merchandise to the United
States confers benefits which constitute export subsidies. To calculate the benefit, we treated all loans which were still eligible for
repayment during the review period as short-term, interest-free loans and applied our short-term loan methodology. We used as
our benchmark the 90-day prime corporate paper rate as
(Cite as: 51 FR 37453, *37459)
reported by the Bank of Canada. We treated loans forgiven in fiscal years 1976 through 1985 as grants and expensed them in
the year of receipt. Adding the results and dividing by the value of softwood lumber shipments to the United States during the
review period, we calculated an estimated net subsidy of less than 0.001 percent ad valorem.
3. Reqional Development Incentive Program (RDIP). RDIP was administered by the Department of Regional Economic Expansion
(DREE) for the purpose of creating stable employment opportunities in areas of Canada where employment and economic
opportunities were chronically low. The program provided development incentives (usually grants) to manufacturers whose
capital investment projects for establishing new facilities or expanding or modernizing existing facilities would create jobs and
economic opportunities in areas designated as economically disadvantaged. Although the program was terminated in 1983, RDIP
grants were provided through 1985.
Because benefits were limited to companies located within specific regions in Canada, we determine that grants provided
through the RDIP program of DREE are countervailable. To calculate the benefits from this program, we took the amount of RDIP
grants received by manufacturers, producers, or exporters of the subject merchandise in the review period and divided by the
value of softwood lumber shipments during the review period. Using this methodology, we calculated an estimated net subsidy of
0.048 percent ad valorem.
(Cite as: 51 FR 37453, *37459)
4. Industrial and Regional Development Program (IRDP). IRDP was established in 1983 as the successor to RDIP and is
administered by the Department of Regional and Industrial Expansion (DRIE). Its goal is to increase industrial development and
improve the overall economy in Canada. To accomplish this, grants are provided for four major purposes: (1) To encourage
the development of new products and new processes and to increase industrial productivity and competitiveness; (2) to assist in
the establishment of new production facilities in less developed areas; (3) to increase industrial productivity through the
improvement, modernization and expansion of existing manufacturing and processing operations; and (4) for marketing
purposes.
Each of Canada's 260 census districts is classified into one of four tiers on the basis of the economic development of the
region. The most economically disadvantaged five percent of the population are included in Tier IV; the districts with the next 15
percent of the population (in terms of economic disparity) are classified as Tier III; the districts with the next 30 percent of the
population are classified as Tier II; and the districts with the remaining 50 percent of the population are classified as Tier I. The
Yukon and Northwest Territories are always classified in Tier III.
Those districts classified as Tier IV are authorized to receive the highest share of assistance under IRDP (as a percentage of
assistance per approved project); those in Tier I receive the lowest. Also, grants for the
(Cite as: 51 FR 37453, *37459)
establishment of new facilities, and for modernization and expansion are no longer provided to companies located in census
districts classified as Tier I.
Despite the Government of Canada's contention that the criteria for assignment to a tier may be neutral, the program
nevertheless authorizes benefits to vary from tier-to-tier and, thus, from region-to-region. Therefore, we determine that this grant
program provides regional subsidies and is countervailable.
Manufacturers, producers or exporters of the subject merchandise received IRDP grants during the review period. To determine
the level of benefits under this program, we found the difference between the level of assistance provided to these companies with
the average level of assistance provided to companies in Tier I during the review period. We divided the difference and divided by
the value of softwood lumber shipments during the review period. Using this methodology, we calculated an estimated net
subsidy of 0.145 percent ad valorem.
5. Community Based Industrial Adjustment Program (CIAP). CIAP was established in 1981 and terminated in 1984. The program
was one part of the Industrial and Labor Adjustment Program which was administered by the Department of lndustry, Trade and
Commerce. The objective of CIAP was to encourage businesses to undertake capital projects in certain designated communities
affected by serious industrial dislocations. CIAP financial assistance took the form of grants covering up to 75 percent of the
consulting costs associated with CIAP
(Cite as: 51 FR 37453, *37459)
projects, or repayable contributions coverjng up to 50 percent of the capital costs and pre-production expenses of the projects.
Terms and conditions for repayment were tailored to suit each applicant on a case-by-case basis.
Two producers of the subject merchandise had outstanding balances on repayable contributions during the review period.
Because repayable contributions under this program are limited to companies in specific regions, we preliminarily determine that
they are countervailable. To calculate the benefit, we treated repayable contributions as long-term interest-free loans. We used as
our benchmark the long-term corporate bond rate in Canada. Adding the benefits and dividing by the value of softwood
lumber shipments during the review period, we calculated an estimated net subsidy of 0.002 percent ad valorem.
C. Joint Federal-Provincial Programs
1. Agricultural and Rural Development Agreements (ARDAs). The Agricultural and Rural Development Act allowed the federal
government to enter into agreements with the provincial governments to promote economic development and to alleviate
coonditions of social and economic disadvantage in certain rural areas. The focus of these agreements was alternative land use,
soil and water conservation, and economic development in rural development regions. Funding for projects in these areas was
evenly split between the federal and provincial
(Cite as: 51 FR 37453, *37459)
governments. These agreements were negotiated with all provinces in Canada, except Prince Edward Island, which signed its
own Comprehensive Development Plan with the federal government in 1969. None of the General ARDAs signed with the
provinces provide benefits to manufacturers, producers, or exporters of the subject merchandise during the review period.
As a supplement to the General ARDA program, Special ARDAs were signed and aimed at improving employment and income
opportunities for people in rural areas. Of the Special ARDAs signed with the provinces and territories, those signed with
Manitoba, the Northwest Territories, the Yukon, and British Columbia have provided grants to manufacturers, producers, or
exporters of the subject merchandise during the review period.
*37460
(Cite as: 51 FR 37453, *37460)
Since the benefits of the Special ARDA program are limited to companies located in specific regions (i.e., rural areas), we
preliminarily determine that Special ARDAs confer subsidies.
To calculate the benefits from this program, we took the amount of grants received by manufacturers, producers, or exporters of
the subject merchandise in the review period and divided by the value of softwood lumber shipments during the review period.
Using this methodology, we calculated an estimated net subsidy of 0.003 percent ad valorem.
2. General Development Agreements (GDAs). GDAs provided the legal basis for departments of the federal and provincial
governments to cooperate in the
(Cite as: 51 FR 37453, *37460)
establishment of economic development programs. The GDAs were umbrella agreements which stated general economic
development goals. Ten-year GDAs were signed with all the provinces in 1976, except PEI, which had signed the Comprehensive
Development Plan in 1969. Five-year GDAs were signed with the Yukon in 1977 and with the Northwest Territories in 1979.
Pursuant to GDAs, subsidiary agreements were negotiated by the federal and provincial government departments. These
agreements established various programs, delineated administrative procedures and set out the relative funding commitments of
the federal and provincial governments. Subsidiary agreements typically were directed at establishing traditional government
programs, developing infrastructure, providing for economic development assistance for certain regions within the province, and
creating programs for specific industries.
Of the GDA subsidiary agreements, only the Manitoba Northern Development Agreement provided countervailable benefits to
manufacturers, producers, or exporters of the subject merchandise during the review period. This five-year agreement was signed
November 29, 1982, and terminates March 31, 1987. The purpose of the Manitoba Northern Development Agreement is to
support development of locally based income and employment opportunities in northern Manitoba by assisting organizations in
identifying and creating new opportunties. During the review period, grants were provided to manufacturers,
(Cite as: 51 FR 37453, *37460)
producers, or exporters of the subject merchandise under this Agreement.
Because the grants are limited to companies in specific regions, we preliminarily determine the program to be countervailable. To
calculate the benefits from this program, we divided the amount of grants which manufacturers, producers, or exporters of the
subject merchandise received in the review period by the value of softwood lumber shipments during the review period. Using
this methodology, we calculated an estimated net subsidy of 0.002 percent ad valorem.
3. Economic and Regional Development Agreements (ERDAs). ERDAs are essentially a continuation of the GDAs. ERDAs were
signed with every province (and two EDAs--Economic Development Agreements--with the territories) in the early 1980s. Similar
to GDA subsidiary agreements, ERDA subsidiary agreements establish programs, delineate administrative procedures, and set up
the relative funding commitments of the federal and provincial governments. Of the subsidiary agreements signed under ERDAs,
only the Saskatchewan Northern Economic Development Subsidiary Agreement provided countervailable benefits to
manufacturers, producers. or exporters of the subject merchandise during the review period.
Under the Saskatchewan Northern Economic Development Subsidiary Agreement, which was signed in 1984, the Governments of
Canada and Saskatchewan provided funds for developing opportunities in northern Saskatchewan. Projects within
(Cite as: 51 FR 37453, *37460)
the following four programs were eligible for funding: Economic Development. Human Resource Development, Capital
Investment, and Management and Coordination. Grants were provided to two producers of the subject merchandise during the
review period. Since grants provided under this subsidiary agreement are limited to companies located in a specific region of the
province, we preliminarily determine that they are countervailable.
To calculate the benefits from this program, we divided the amount of grants which manufacturers, producers, or exporters of the
subject merchandise received in the review period and divided by the value of softwood lumber shipments during the review
period. Using this methodology, we calculated an estimated net subsidy of 0.001 percent ad valorem.
4. Sawmill Improvement Program (SIP). The SIP is conducted by Forintek Canada Corporation (Forintek) and is funded by
federal and provincial grants. Forintek, a private, non-profit entity incorporated in 1979 under the Canada Corporation Act,
is Canada's "Wood Products Research Institute." Its member companies account for about 75 percent of Canada's
lumber production. Forintek receives its operating funds from membership fees and from contracts and contributions from the
federal and provincial governments. For more information on Forintek, see Forintek Research and Development under section
"Programs Determined Not To Confer Subsidies."
Under SIP, Forintek conducts studies of the operations of sawmills. The
(Cite as: 51 FR 37453, *37460)
objectives of SIP include evaluating and providing recommendations on improving conversion efficiency; providing a detailed
evaluation of sawing, edging, trimming and lumber seasoning practices; conducting a cost benefit analysis of mill operations when
changes in mill design, equipment, or alternative product- mix are recommended; conducting a global economic analysis to
determine the sensitivity of mill profit to lumber price, log processing rate, log cost, lumber recovery and total conversion cost
parameters, and to demonstrate to mill management how to improve resource utilization. The results of individual studies are
confidential, but a summary of the findings is made available to other mill owners.
Because the results of the individual SIP studies are confidential, we preliminarily determine that government grants provided to
Forintek to conduct studies under SIP are limited to an enterprise or industry, or group of enterprises or industries, and thus
countervailable. To calculate the benefits from this program, we divided the amount of grants provided for the SIP studies to
manufacturers, producers, or exporters of the subject merchandise in the review period by the value of softwood lumber
shipments during the review period. Using this methodology, we calculated an estimated net subsidy of 0.002 percent ad
valorem.
D. Provincial Programs
(Cite as: 51 FR 37453, *37460)
1. British Columbia: Critical Industries Act (CIA). The CIA, in effect since June 28, 1985, and scheduled to be repealed as of June
28, 1987, is administered by a commissioner through the Critical Industries Commission (the Commission) to provide a means of
aiding business enterprises facing financial difficulty. On behalf of particular companies which are bankrupt or threatened with
bankruptcy and which are in designated industries, the commissioner may recommend to the provincial government that certain
"imposts," such as rates, charges, tariffs, and taxes assessed, be redetermined under an "Economic Plan." The response states that
the provincial government may designate an industry as a "critical industry" based on *37461
(Cite as: 51 FR 37453, *37461)
economic conditions and the importance of the industry to the province.
No funds are provided to companies by the Commission under the CIA. However, during the review period, seven companies,
four of which produce the subject merchandise, received various benefits under Economic Plans drafted pursuant to the CIA. The
benefits to these four companies consisted of property tax reduction, forgiveness of back property taxes, a grant to cover logging
road and bridge rebuilding expenses, waiver of scaling fees and expenses, and subordination of a statutory claim on timber assets
by the Ministry of Forests.
Because benefits under the CIA are limited to firms in certain "critical" industries chosen at the provincial government's
discretion, and the provincial
(Cite as: 51 FR 37453, *37461)
government has not provided any objective criteria on the designation process of a "critical" industry, we preliminarily determine
that benefits under the program are limited to a specific enterprise or industry, or group of enterprises or industries, and thus
countervailable. To calculate the benefits, we added the amount of tax reductions and forgiveness and the grant provided during
the review period and divided by the value of softwood lumber shipments during the review period. Using this methodology, we
calculated an estimated net subsidy of 0.006 percent ad valorem.
2. British Columbia: Low Interest Loan Assistance (LILA). When the joint Canada-British Columbia Industrial Development
Subsidiary Agreement (IDSA) was signed in 1977, a program was established to provide loans at low interest rates. The
authorization of LILA was by administrative action after the IDSA was signed. In 1986, the Low Interest Loan Assistance
Revolving Fund Act was enacted to provide a statutory basis for the LILA program. Funding for LILA loans is provided by the
province. The British Columbia Development Corporation (BCDC) acts as trustee for the province in administering the LILA
program. From February 1978 to April 1979 the program's eligibility criteria were determined by the IDSA, and participation was
limited to areas outside the Lower Mainland and Southern Vancouver Island region. In April 1979, the province changed the
program criteria and LILA was made available to all regions of the province.
(Cite as: 51 FR 37453, *37461)
LILA loans are used for capital improvements, for plant expansions or modernization, or for the establishment of production
facilities which will create new economic activity and benefits. The loan rate, established twice a year, is equal to one-half the
BCDC prime commercial rate.
Two loans were given to manufacturers, producers, or exporters of the subject merchandise during the period from February
1978 to April 1979 when eligibility was limited to companies located outside the Lower Mainland and Southern Vancouver Island
regions. LILA loans given during that period are countervailable because their availability was limited to companies located in
specific regions, and because they were provided on terms inconsistent with commercial considerations. The terms for the two
loans given during the period February 1978 to April 1979 matched the economic life of the fixed assets purchased.
The interest rates on LILA loans are revised every six months. Since these are variable interest rate loans, we are using our
short-term loan methodology as specifed in the "Subsidies Appendix" to calculate a benefit on these loans. Because the response
did not provide the requested loan information, we are calculating the amount of interest paid on the loans as if the original
principal amounts were outstanding during our period of review. To calculate the benefit, we took the difference between the
amount of interest paid on the loans and the amount of interest the companies would have paid using our
(Cite as: 51 FR 37453, *37461)
benchmark. Since we are calculating the loans as short-term loans, we used the 90-day prime corporate paper rate as our
benchmark. We then divided the interest savings by the value of softwood lumber shipments and calculated an estimated net
subsidy of less than 0.001 percent ad valorem.
2. Quebec: Tax Abatement Program (TAP). The Government of Quebec operates TAP in accordance with Chapter S-34 of the Act
Respecting Fiscal Incentives to Industrial Development. This program, established on April 1, 1977, was available to those
manufacturing businesses not engaged in initial processing operations in a resource-based industry that were willing to make
capital investments in one of two regional zones. These two zones embraced all of the province of Quebec except Montreal. It
provided certificates allowing a firm to deduct from taxes payable 25 percent of the value of allowable capital investments, up to a
maximum of 50 percent of the year's income taxes due, but not in excess of $500,000 during the existence of the program. This
program was terminated in March 1981. However, firms participating in the program while it was in effect had the option to claim
their earned tax credit during the five years following the issuance of the certificates.
Since benefits under the TAP were limited to manufacturing businesses located in specific regions, we determine that tax benefits
provided under this program are countervailable. To calculate the benefit, we divided the total amount of tax credits which
manufacturers, producers, or exporters of the subject
(Cite as: 51 FR 37453, *37461)
merchandise claimed during the review period by the value of softwood lumber shipments during the review period. We
calculated an estimated net subsidy of 0.001 percent ad valorem.
>
3. Quebec: Export Promotion Assistance (APEX). APEX was created in 1972 by the Ministry of Industry, Commerce and Tourism
to encourage Quebec companies to develop markets and to enter into technological exchanges outside the province. In 1983, the
administration was transferred to the newly created Ministry of External Trade. In April 1985, APEX underwent a restructuring
and was split into two programs, APEX-Prospection and APEX-Marketing. APEX- Prospection provides grants to companies to
facilitate the initial phases of exporting outside Quebec. Assistance includes grants for participation in trade fairs, identifying new
markets and for negotiation of industrial agreements to expedite technology transfer. APEX-Marketing is designed to enable firms
which have identified a promising export market to analyze that market and to develop and implement a marketing strategy. The
program is broken down into two phases. Phase I provides a maximum of $5,000 for analysis and development and Phase II
covers implementation up to a maximum of $45.000.
Because assistance was provided to promote exports of the subject merchandise to the United States, we preliminarily determine
that this program provides a countervailable export subsidy. To calculate the benefit bestowed on the subject merchandise
exported to the United States, we divided the total
(Cite as: 51 FR 37453, *37461)
assistance provided to manufacturers, producers, or exporters of the subject merchandise on sales to the United States during the
review period by the value of softwood lumber shipments to the United States during the review period. Using this methodology.
we calculated an estimated net subsidy of less than 0.001 percent ad valorem.
4. Quebec: Assistance to and by The Forest Salvage, Management and Development Corporation of Quebec (REXFOR). REXFOR
was incorporated in 1973 under Quebec's REXFOR Act as *37462
(Cite as: 51 FR 37453, *37462)
a provincial Crown corporation. Under the joint trusteeship of the Ministry of Finance and the Ministry of Energy and Resources
of Quebec, its entire stock is allotted to the former, which approves REXFOR's operating and investment budgets.
REXFOR was created to manage specific provincially-owned forest lands, to preserve and protect provincial forest lands through
silviculture, and to encourage the development of the "forest industry" in Quebec. REXFOR owns sawmills and pulp and paper
mills, and produces the subject merchandise as well as a wide variety of products not under investigation. In carrying out these
activities, REXFOR receives funds from both the Canadian and Quebec governments, and is also an active investor and provider of
funds to the "forest products industry" in Quebec.
During the review period, the Government of Quebec (GOQ) made several equity installments totaling $12.5 million in REXFOR
under section 7 of the REXFOR
(Cite as: 51 FR 37453, *37462)
Act. This section provides that the proceeds of such equity purchases may be specifically directed by the GOQ to be used for loans
or equity purchases in third companies which may or may not be REXFOR affiliates, some of which produce the subject
merchandise. Under this section, the GOQ directed that its $12.5 million section 7 equity be given to a REXFOR subsidiary (BEQ)
for the purchase and reorganization of six sawmills. Consequently, REXFOR provided BEQ with a series of loans totaling $12.5
million beginning in September 1984. A portion of the loans was repaid by BEQ to REXFOR on April 25, 1985. The remainder was
rolled into a BEQ debenture carrying an interest rate of 12 percent (Charter Bank prime rate on the date the debenture was issued)
on March 31, 1986. It appears from the response that the loans made by REXFOR to BEQ were interest-free until the debenture
was issued. We, therefore, preliminarily determine that BEQ's use of these funds during the review period is countervailable since
they were provided to a specific enterprise on terms inconsistent with commercial considerations. Since these interest-free loans
were rolled over into the debenture with an interest rate of 12 percent (i.e., the rate varied), we are calculating a benefit from the
loans during the review period using our short-term loan methodology. To calculate the benefit, we determined what BEQ would
have paid in interest on the REXFOR loans, using as our benchmark the 90-day corporate paper rate in Canada. We divided
that amount of interest savings by the value of softwood lumber shipments during the
(Cite as: 51 FR 37453, *37462)
period of review and calculated an estimated net subsidy of 0.011 percent ad valorem.
In addition to the REXFOR loans, BEQ received large "special payments" during the review period from the GOQ for purposes of
carrying out the project involving the six sawmills. According to the response, BEQ was obligated to pay interest on a portion of
the payments. The interest totaled less than one percent of the payments. The response does not indicate that BEQ is required to
repay any of the principal or any more interest; nor does it state that the GOQ received any equity interest in return for the
payments. We therefore subtracted BEQ's interest payment from the GOQ allocations and treated the remainder as grants. We
preliminarily determine that the grants are countervailable because they were limited to a specific enterprise. To calculate the
benefit, we divided the amount of grants received in the review period by the value of softwood lumber shipments during the
review period. Using this methodology, we calculated an estimated net subsidy of 0.173 percent ad valorem.
5. Quebec: Industrial Development Corporation (SDI) Export Expansion Program. The SDI is a crown corporation which acts as an
investment corporation and administers development programs on behalf of the GOQ. Established in 1971 by the Quebec
Industrial Development Act, the program has been amended several times, including a reorganization in 1983 under an Act
Respecting the
(Cite as: 51 FR 37453, *37462)
Industrial Development Corporation of Quebec. Funding for SDI is obtained through the National Assembly, participation in
financial markets through the sale of notes, bonds and other securities, and by an endowment established by the GOQ at the time
of SDI's formation. Funding may also be provided through certain programs within SDI which are designed to provide profits for
the corporation.
SDI's current program authority falls into three general categories. These are: (1) Financing Assistance; (2) Development
Assistance; and (3) Export Programs. The first two categories, Financing and Development Assistance, are described later in the
"Programs Preliminarily Determined Not to Confer Subsidies" section of this notice. Certain programs under the third category,
Export Programs, are discussed later in "Programs Preliminarily Determined Not to be Used."
Under the Export Expansion Program, companies were offered interest cost reimbursements if they were able to demonstrate
significant growth in export sales. Reimbursements could equal two percent of export sales, to a maximum of $250,000 if export
sales expanded by 25 percent or more, judged against sales in the year of initial application. Payments were reduced to one
percent for a 20 percent increase, with no payments made for an increase of less than 20 percent in export sales. Although this
program terminated in 1981, interest reimbursements were provided on the basis of significant improvement in the
(Cite as: 51 FR 37453, *37462)
competitive position of the company over a five-year period. Therefore manufacturers, producers, or exporters of the subject
merchandise were eligible for interest cost reimbursements during the review period.
Since receipt of benefits under this program is tied to export performance, we preliminarily determine this program to be
countervailable. To calculate the benefit, we took the total amount of interest cost reimbursements provided to manufacturers,
producers, or exporters of the subject merchandise on sales to the United States during the review period and expensed them in
the year of receipt. Dividing the amount by the value of softwood lumber shipments to the United States during the review period,
we calculated an estimated net subsidy of 0.012 percent ad valorem.
6. Quebec: Lumber Industry Consolidation and Expansion Program (LICEP). In 1983, the Ministry of Energy and Resources
initiated a five-year program aimed at improving productivity in wood processing facilities. The program provides engineering
and management expertise to companies, giving them the technical capability to improve productivity, modernize equipment,
improve operational efficiency, consolidate and expand. The LICEP comprises three sectors: engineering studies, specialized
personnel and computerized management.
Under the engineering studies aspect of the program, the Ministry retained two industrial research institutes and a consultant to
conduct productivity analyses on a company-by-company basis. The cost of the studies is divided
(Cite as: 51 FR 37453, *37462)
between the Ministry and the company, with the Ministry's maximum contribution determined on a sliding scale ranging from 60
to 95 percent based on the size of the facility.
The subprogram for specialized personnel provides firms with financial assistance to employ experts specialized in production
management or engineering. The Ministry pays one-half the salary of one expert for a period of *37463
(Cite as: 51 FR 37453, *37463)
two years, subject to a maximum payment of $25,000 per year.
Under the computerized management subprogram, companies are provided with grant assistance to evaluate and purchase data
processing equipment and electronic measuring and recording devices. The Ministry reimburses eligible firms for 25 percent of
the cost of feasibility studies for computer systems and the cost of purchasing and installing software, computers, and peripherals
equipment, subject to a maximum of $25.000. Payment is made directly to the mill when the project is completed.
Because the response did not provide the information requested on the types of industries using this program, and the fact that
sawmills are given priority under the engineering studies aspect of the program, we preliminarily determine that the Lumber
Industry Consolidation and Expansion Program is limited to a specific enterprise or industry, or group of enterprises or
industries. To calculate the benefit, we divided the total amount of grants provided under this program to manufacturers,
producers or exporters cf the subject
(Cite as: 51 FR 37453, *37463)
merchandise during the review period by the value of softwood lumber shipments and calculated an estimated net subsidy of
0.007 percent ad valorem.
II. Programs Preliminarily Determined Not to Confer Subsidies
A. Joint Federal--Provincial Programs
1. Forestry Development Agreement for Improvement of Crown Land. Under ARDAs, ERDAs and GDAs, development and
subsidiary agreements have been signed between the federal and provincial governments to develop forest land held by Crown
and by private industrial and non-industrial owners.
ARDAs have been signed by the federal government and the provinces of Alberta, Manitoba and Saskatchewan implementing
reforestation programs in those provinces designed to reforest cut-over, burned-over, and otherwise denuded areas of provincial
forest. Subsidiary agreements under ERDAs have been implemented in Alberta, British Columbia, Quebec, Manitoba,
Newfoundland, and Saskatchewan to provide for funding of a variety of long-term forest management, silviculture, reforestation,
research and development, and administrative activities undertaken on federal and provincial Crown forest land and to private
non-industrial and industrial forest land. Subsidiary agreements under GDAs in Saskatchewan, New Brunswick and Nova Scotia
have been
(Cite as: 51 FR 37453, *37463)
implemented to improve overall management and administration of federal and provincial Crown timber. Services provided
under the subsidiary agreements are similiar to those provided under ERDAs.
According to provincial responses, none of the provisions under the forestry agreements relieve timber licensees of any
obligation. The responses also state that research projects funded under these agreements are undertaken on Crown land and the
results of such projects are made available to the public. Since research funded under this agreement is undertaken on Crown land
and any results thereof are made available to the public, we preliminarily determine such funding to be not countervailable.
Since the benefits, except funding for research and development, provided under these agreements accrue to the owner of the
land and the owner of the land, is not a producer of the subject merchandise, we preliminarily determine that these benefits are
not countervailable. Some grants were provided to private woodlot owners to promote effective management of their forest
resources and to support various silivicultural activities. Certain of these woodlot owners were manufacturers, producers, or
exporters of the subject merchandise during the review period.
In Softwood Products, we determined that such grants did not confer countervailable benefits because they were available to all
private landowners and were not limited to a specific enterprise or industry, or group of
(Cite as: 51 FR 37453, *37463)
enterprises or industries. During verification, we will closely examine whether there is de facto limitation in the provision of
grants under this program.
2. Newfoundland Rural Development Agreement. The Newfoundland Rural Development Agreement was a subsidiary agreement
signed under the GDA. The purpose of this Development Agreement was to expand the small industrial sector in rural areas.
Under the Small Business Incentives Programs, created under this Development Agreement, assistance was available for the
establishment, expansion, or modernization of manufacturing or processing companies; for industries using primary resources;
and for the service activities which primarily support manufacturing and processing operations. Grants were provided to sawmills
in the province during the review period.
According to the response, a company meeting the above criteria could receive grants under the program regardless of its
location in the province. Since the program is not limited to a specific enterprise or industry, or group of enterprises or
industries, or to companies located in specific regions, we preliminarily determine this program to be not countervailable.
3. Rail Transportation Facilities for the Lumber Industry. The petitioner alleged that the federal and provincial Governments of
Canada have spent large sums of money to provide facilities for transportation by rail for the lumber industry in British
Columbia and to support this allegation provided specific
(Cite as: 51 FR 37453, *37463)
information on the Fort Nelson Extension in that province. Petitioner stated that similar assistance may have been provided to
the lumber industry in Alberta, Ontario, and Quebec as well.
In Canada there are both federal and provincial rail lines. Railroad companies operating lines and services across the
Canada-U.S. border fall under federal jurisdiction. Railroad companies whose lines are contained within a province would fall
under provincial jurisdiction, unless such lines were declared by an Act of Parliament of Canada to be in the national interest,
or if any such intra-provincial railroad companies were not incorporated under a special act of a provincial government.
There are two major national railroad lines: Canadian National (CN) and Canadian Pacific (CP). CP is a private company, while CN
is a Crown corporation. With respect to CN, the government approves financial plans appoints its Board of Directors, and receives
dividends from its operations. According to the response of the Canadian government, it does not interfere with the normal
independent operations of CN except through federal laws and regulations which apply equally to Crown and private
corporations. The response also states that the federal government has not been involved in the decision to build railroad lines,
and that the federal government also has not built railroad lines at the request of private companies.
In Quebec, the Ministry of Transport is responsible for all transportation
(Cite as: 51 FR 37453, *37463)
under provincial jurisdiction. According to the response of the Province of Quebec, no railroad lines have been built by or on
behalf of the government at the request of lumber or sawmill companies. The province also states that no lines have been built by
that government to lumber producing or timber- harvesting regions and that there has been no financial involvement by the
Government of Quebec in the construction of railroad lines.
The Ontario Northland Transportation Commission (ONTC), a provincial *37464
(Cite as: 51 FR 37453, *37464)
Crown corporation incorporated in 1902, is responsible for railroad lines built by the Ontario Northland Railroad (ONR). The ONR
was constructed in the early 1900's to open up Ontario's frontier. According to the response, there is no other provincial agency
responsible for building and maintaining railroad lines in Ontario. The ONR built rail lines to handle traffic from Ontario mining
communities which were not being served by the transcontinental railroads and other railroads in the province. The ONR hauls
small amounts of softwood lumber. In 1985, softwood lumber represented 1.2 percent of total car loadings. The provincial
response states that railroad lines have not been built at the request of lumber or sawmill companies and that before any line or
spur is built it must be first determined that rail shipments generated by a user or potential user over a specified period of time
will justify the capital cost.
According to the response of the Province of Alberta, no agency of the
(Cite as: 51 FR 37453, *37464)
provincial government is responsible for the building or operation of railroad lines in the province. The province did provide
funds to CN for the construction of the Alberta Resources Railway. Construction of the line was undertaken by CN for the province
and was completed in 1970. Construction was paid for by the province and the line was built to provide access to coal deposits. At
the completion of the Alberta Resources Railway, the line was leased to CN by the provincial government under a 20 year
agreement. The province states that the line was not built at the request of any lumber or sawmill companies.
Based on the information contained in the responses, we preliminarily determine that the rail services described above are not
limited to a specific enterprise or industry, or group of enterprises or industries, or specific regions, and are therefore not
countervailable. For the Fort Nelson Extension in British Columbia, see the section of the notice entitled "Programs for Which
Additional Information is Needed."
4. Newfoundland Rural Development Subsidiary Agreement. Under the authority of the ERDAs, the Governments of Canada
and Newfoundland instituted the Canada/Newfoundland Rural Development II Subsidiary Agreement in 1984. This
agreement provided assistance through Business and Economic Development Funds for the establishment, expansion,
modernization, and servicing related to manufacturing operations. Assistance was intended to cover up to 50 percent of
(Cite as: 51 FR 37453, *37464)
the authorized capital cost of projects up to $25,000. Grants were provided under this program to manufacturers, producers, or
exporters of the subject merchandise during the review period.
According to the responses of Newfoundland and Canada, a wide and diverse range of industries in all regions of the province
benefited from assistance under this program. Therefore, we preliminarily determine that benefits conferred by this program are
not provided to a specific enterprise or industry, group of enterprises or industries, or to companies located in specific regions
and, therefore, are not countervailable.
5. Forintek Research and Development. As stated earlier in this notice. Forintek is a private, non-profit entity without share
capital, incorporated in 1979 under the Canada Corporation Act. The purpose and function of Forintek is (a) to carry on
research and development for wood-using industries for the governments in Canada; (b) to develop innovative products and
processes to improve utilization of forest resources; (c) to develop internationally accepted codes and standards for forest
products; (d) to provide technical services and information to governments and industry in Canada; and (e) to provide
research and consulting services under contract to sponsors in industry and government in Canada and abroad. Revenue to
support Forintek operations came from federal monies including direct contributions and contracts for specific studies;
provincial monies including grants, direct contributions and
(Cite as: 51 FR 37453, *37464)
contracts for individual studies; and industry monies including membership dues, contracts for proprietary studies and
contributions.
Besides the Sawmill Improvement Program which we found to be countervailable (see the "Programs Preliminarily Determined to
be Subsidies" section of this notice), Forintek also engages in other activities. Forintek undertakes research and development
projects in such areas as saw technology, resource utilization, adhesives, seasoning, and tree-growth and protection which are
made available to the public by such means as publication in research and trade journals, inter-library exchanges and in
international symposia. Some projects which are strictly independent contract work and proprietary in nature are not made
available to the public. However, the research and development projects undertaken by Forintek with government funds which
are made publicly available and benefit more than a specific enterprise or industry, or group of enterprises or industries, are
preliminarily determined to be not countervailable.
B. Provincial Programs
1. Quebec: Industrial Development Corporation Financinq and Development Assistance Programs. Under the various financing
programs of the SDI, companies in the manufacturing, tourism, research and certain service industries are
(Cite as: 51 FR 37453, *37464)
eligible for certain benefits, including market rate loans, loan guarantees, equity participation and protection against interest cost
increases. According to the response, manufacturers, producers, or exporters of the subject merchandise participated in two of
these programs during the review period.
Under the Financing Program for Manufacturing Business, manufacturers, producers, or exporters of the subject merchandise
received loans having terms of between eight and fifteen years, with interest rates based on a composite rate of the ten major
lenders in Canada. Under the Business Financing Program (also known as the "Biron II Plan"), which expired in March 1986,
manufacturers, producers, or exporters of the subject merchandise received loan guarantees and protection against interest
increases. Manufacturing, tourism and service industries in Quebec, regardless of geographic location, were eligibile to
participate in both programs.
Of the various development assistance programs of the SDI, manufacturers, producers, or exporters of the subject merchandise
participated in the following four programs during the review period: (a) Assistance Program for Advanced Technology
Enterprises; (b) Assistance Program for Dynamic Enterprises; (c) Assistance Program for Mergers and Acquisitions (terminated in
1982); and (d) Small Business Emergency Assistance Program (terminated in 1984). These programs provided benefits which
included interest assumption payments, equity participation, loan guarantees and interest free loans.
(Cite as: 51 FR 37453, *37464)
Manufacturing, tourism and service industries in Quebec, regardless of geographic location, were eligibile to participate in both
programs.
Because benefits under the above cited programs were not limited to a specific enterprise or industry, or group of enterprises or
industries, we preliminarily determine that these programs are not countervailable.
2. British Columbia: Forest Stand Management Program (FSMP). This *37465
(Cite as: 51 FR 37453, *37465)
program became effective June 17, 1986. It provides individuals receiving income assistance (i.e., welfare) with forestry work and
training such as spacing, brushing and weeding, and trail clearing. The work done under this program, according to the response,
does not relieve timber licensees of any obligations or responsibilities, nor does it provide benefits to manufacturers, producers,
or exporters of the subject merchandise. As such, we preliminarily determine that FSMP confers no countervailable benefit to the
manufacturers, producers, or exporters of the subject merchandise.
3. British Columbia: Small Business Venture Capital Program (SBVCP). The SBVCP encourages investment in equity capital of
certain small businesses in British Columbia by providing investment incentives to investors in "venture capital corporations"
(VCCs). The Small Business Venture Capital Act (SBVCA), in effect since September 1985, limits eligible small businesses under the
program to those engaged in prescribed research and development, prescribed tourism, or prescribed aquaculture. The SBVCA
"prescriptions" for these
(Cite as: 51 FR 37453, *37465)
categories do not limit the eligible small business to only certain industries or regions or to export-oriented companies.
Moreover, the response of British Columbia indicates that, as of March 31, 1986, only one of the eight VCC investments made in
eligible small businesses involved in the production of the subject merchandise. We therefore preliminarily determine that
benefits provided under this program are not limited to a specific enterprise or industry, or group of enterprises or industries,
and hence not countervailable.
4. Alberta: Research Projects for Forest Industry. Petitioner alleged that the Alberta government funds research projects
specifically to benefit the forest industry. According to the response, the results of such research are available to all interested
parties both within and outside Alberta. We thus preliminarily determine that these alleged projects are not countervailable.
III. Programs Preliminarily Determined Not To Be Used
We preliminarily determine that manufacturers, producers, or exporters of the subject merchandise did not use the following
programs during the review period:
A. Federal Programs
(Cite as: 51 FR 37453, *37465)
1. Special Areas Act. The Special Areas Act (SAA) was part of the Government Organization Act of 1983 and came into force with
the organization of the Department of Regional Industrial Expansion (DRIE) in late 1983. DRIE has responsibility for
administering this program, which is still in effect.
The SAA is designed to provide assistance to manufacturing activities in areas designated for reason of exceptional inadequacy of
employment opportunities and weak economic environment. According to the response, no Special Areas have been designated
under the SAA, and no funds have been disbursed under the provisions of the SAA.
2. Forest Industry Renewable Energy Program. The Forest Industry Renewable Energy (FIRE) program is administered by the
federal Department of Energy, Mines and Resources. The purpose of the program, which began in 1979, is to encourage the
substitution of biomass energy sources for fossil fuels by companies that would otherwise have no economic incentive to do so.
FIRE assistance is given in the form of grants that are tied to the purchase of capital equipment (facilities for burning biomass in
place of fossil fuels).
In Softwood Products, only FIRE grants provided prior to April 1, 1981, were determined to be countervailable. Since we are
expensing all grants in the year of receipt, we preliminarily determine that countervailable benefits were not provided under this
program to the manufacturers, producers, or exporters of the subject merchandise during the review period.
(Cite as: 51 FR 37453, *37465)
B. Joint Federal Provincial Programs
1. Prince Edward Island (PEI) Comprehensive Development Plan. The PEI Comprehensive Development Plan (the Plan) was
negotiated in 1969 by the federal and provincial governments. The Plan operated until 1984. The federal statutory authority for
the Plan was the Fund for Rural Economic Development. The Plan provided for joint federal-provincial government cooperation
on devising and implementing economic development programs. The programs instituted under the Plan affected fisheries,
agriculture, tourism, forestry, industrial development, land use, educational facilities, and transportation.
Benefits under this program were not provided to manufacturers, producers, or exporters of the subject merchandise during the
review period. Therefore, we preliminarily determine this program not to be used.
C. Provincial Programs
1. British Columbia: Preferential Rail Rates. According to the response of the provincial government of British Columbia,
manufacturers, producers, or exporters of the subject merchandise have not negotiated freight rate concessions with the
provincial government.
(Cite as: 51 FR 37453, *37465)
2. British Columbia: Market Development Assistance (MDA). The MDA program is intended to generate an expansion in the export
of British Columbian manufactured and processed goods by assisting companies to assess potential export market opportunities,
to establish appropriate marketing arrangements in markets outside British Columbia (including the rest of Canada), and
make required follow-up calls on new accounts or representatives. This program is designed to benefit manufacturers of new,
innovative products who are attempting to develop new export markets. Only three manufacturers, producers, or exporters of
the subject merchandise have received support under this program, and all were assessing markets other than the United States.
Therefore, we preliminarily determine that this program was not used.
3. Quebec: Industrial Development Corporation Program to Promote the Export of Products and Services. This program,
implemented in December 1982, comprises three separate divisions to expand SDI's export promotion efforts. Under the
Financing of Exports Program, benefits are provided in the form of market rate loans or loan guarantees. Under the Consortium
Program, assistance is provided through SDI venture capital to stimulate businesses to group together in a consortium to
promote and sell outside of Quebec goods or services manufactured in Quebec. Lastly, under the New Market Establishment
Program, companies attempting to establish new markets outside Quebec are eligible for market rate loans, assumption of interest
costs and/or partial forgiveness of loans.
(Cite as: 51 FR 37453, *37465)
According to the response, no manufacturers, producers, or exporters of the subject merchandise received benefits under these
programs as of March 31, 1986.
4. Quebec: Laws Concerning Forest Credit. Established in 1975 under the Law on Forest Credit and restructured under the Act to
Promote Forest Credit by Private Institutions in 1984, this program provides loans and interest cost reimbursements to persons
and/or associations in Quebec who own or lease forest land in Quebec and intend to engage in harvesting operations. Assistance
under the program is not available to applicants who process wood, or hold a majority interest in a plant that processes wood
other than on *37466
(Cite as: 51 FR 37453, *37466)
a small scale, i.e., less than 1,500 solid cubic meters of timber annually.
According to the response no manufacturers, producers, or exporters of the subject merchandise have received benefits under
either type of assistance described above.
5. Quebec: Reimbursement of Real Estate Taxes. This program, which began on January 22, 1986, is available to all persons
holding a valid timber producers certificate in Quebec. Administered by the Quebec Ministry of Energy and Resources and the
Quebec Ministry of Revenue, the program allows eligible recipients to receive a reimbursement of up to 85 percent of real estate
taxes paid on production assets, with reimbursement given as a credit against
(Cite as: 51 FR 37453, *37466)
provincial income taxes. A timber producer has two years in which to claim the refund.
According to the response, no benefits were claimed under this program by manufacturers, producers, or exporters of the subject
merchandise on tax returns filed during the review period.
6. British Columbia: Income Tax Holidays. Petitioner alleged that the B.C. government provided a five year provincial income tax
holiday to a producer of waferboard. Petitioner thus requested that we investigate the possibility that manufacturers, producers,
or exporters of the subject merchandise in British Columbia received similar tax holidays. According to the response, no
manufacturer, producer, or exporter of subject merchandise has been granted tax holidays under British Columbia's only tax
relief act, the Special Enterprise Zone and Tax Relief Act.
7. British Columbia: Development Corporation Industrial Parks. Petitioner alleged that the B.C. Development Corporation has
established industrial parks in certain communities to promote the exportation of forest products. According to the response,
eligibility for firms to locate in an industrial park is not contingent on export orientation nor is it limited to certain industries.
Moreover, the response indicates that no benefits are conferred on companies simply for locating in the industrial parks, and that
no manufacturers, producers, or exporters of the subject merchandise have used
(Cite as: 51 FR 37453, *37466)
industrial park services.
8. Alberta: Timber Salvage Program. This program provided incentives to timber harvesters to cut fire- and insect-damaged
timber. The program ended in 1983 and no grants were provided.
IV. Programs for Which Additional Information is Needed
1. Fort Nelson Extension In British Columbia. In 1918, the provincial government took over the assets of the Pacific Great Eastern
Railway and created the British Columbia Railway Company (BC Rail) which now operates as a Crown Corporation. In 1984, BC
Rail was reorganized and its railroad operating assets were established as a taxable corporation with the provincial government
owning 100 percent of the common shares of the railway. In 1971, the Fort Nelson Extension became operational after a
construction period of three years. The cost of constructing the extension was $47 million and was funded by BC Rail through
borrowing guaranteed by the provincial government. The Fort Nelson Extension is 250 miles long and runs from Fort St. John to
Fort Nelson.
The response states that BC Rail, like private rail carriers in the province, evaluates proposals to build new lines on a commercial
basis, and makes decisions to proceed with new construction on the basis of expected traffic, returns, and risks. Since all regions
of the province are timber-
(Cite as: 51 FR 37453, *37466)
harvesting or lumber-producing regions, revenues from forest producers, including lumber revenues, are a consideration in the
commercial assessment carried out by the railways for any extension to their systems.
Submitted with the petition was a copy from the 1978 Royal Commission Report on the BC Railway which became the basis for the
initiation of this allegation. The Commission Report stated that the operation of the Fort Nelson Extension would result in further
capital cost and operating losses of over $90 million in the next five years with continuing losses thereafter. The Commission
Report also stated that the only significant shippers using the line were two sawmills.
At the time of the Commission Report, it appeared that two sawmills were the major users of the railway service. According to the
response there is only one forest products company currently using the extension. The response also states that logs are shipped
by another company for only a short distance on the southern portion of the extension. According to the breakdown of products
transported on the extension (which we have from 1976-1985), those two companies accounted for 72.7 percent of carloading in
1983, 74.0 percent in 1984 and 74.4 percent in 1985. According to information in the response, sulfur, oil and petroleum have
also been shipped on the Extension.
Submitted with the response of the Province of British Columbia were the annual reports for 1983/84 and 1984/85 for the
Ministry of Transportation and
(Cite as: 51 FR 37453, *37466)
Highways. These are the last two annual reports available from the Ministry. In 1983, the Ministry provided $4,500,000 for
support of the operation of the Fort Nelson Extension and, in 1984, the Ministry provided BC Rail with grants totalling
$3,300,000 for operation of the Fort Nelson Extension. According to the annual reports, the funds provided to BC Rail by the
Ministry were to compensate the railway for the operating loss for government-mandated services.
After reviewing the information on the record on the Fort Nelson Extension, we have determined that we need additional
information from the Government of the Province of British Columbia and from BC Rail. On October 6, 1986, we presented a
supplemental questionnaire to the Embassy of Canada requesting this information.
We note that this decision is different from our decision to use best information available in our determination of the
countervailability of stumpage rather than seeking additional information. For stumpage we solicited from the Canadian
governments and the lumber industry all the information necessary for us to make a determination on whether stumpage was
countervailable. It was their inability to answer adequately the questions in our original and supplemental questionnaires that
necessitated our use of best information available.
V. Program Preliminarily Determined Not To Exist
(Cite as: 51 FR 37453, *37466)
1. Quebec: Office of Planninq and Development (QOPD) Exports Assistance Program. In the August 11, 1986, submission by
petitioner alleging certain additional programs which may provide benefits to manufacturers, producers, or exporters of the
subject merchandise, the QOPD Exports Assistance Program was cited as possibly providing certain types of export assistance to
the manufacturing sector. According to the response, the QOPD does not administer an Exports Assistance Program, nor has the
QOPD provided export assistance to manufacturers, producers, or exporters of the subject merchandise. Therefore, we
preliminarily determine that this program does not exist.
Suspension of Liquidation
In accordance with section 703(d) of the Act, we are directing the U.S. *37467
(Cite as: 51 FR 37453, *37467)
Customs Service to suspend liquidation of all entries of the subject merchandise from Canada which are entered, or
withdrawn from warehouse, for consumption on or after the date of publication of this notice in the Federal Register and to
require a cash deposit or bond equal to 15.00 percent ad valorem for each entry of this merchandise. The following companies are
excluded from the suspension of liquidation:
- J.D. Irving, Inc.
(Cite as: 51 FR 37453, *37467)
- Primex Forest Products, Ltd.
- Herb Shaw and Sons, Ltd.
- Bois Daaquam Inc/Daaquam Lumber, Ltd.
- J. A. Fontaine et Fils, Inc.
- Les Industries Grondin, Ltee.
- Precibois, Inc.
- Rene Bernard, Inc.
- Conrad Poulin et Fils, Ltee.
- Dead River, Ltd.
- Fraser, Inc.
- Francois Giguere, Inc.
- Devon Lumber Co., Ltd.
- Allwood Industries, Ltd.
- Harold's Lumber Manufacturing, Ltd.
- Delta Cedar Products, Ltd.
- Fawcett Lumber Co.
- Kaloka Forest Products
- Namu Forest Products, Ltd.
- Phoenix Millwork, Ltd.
Verification
(Cite as: 51 FR 37453, *37467)
In accordance with section 776(a) of the Act, we will verify the information used in making our final determination.
ITC Notification
In accordance with section 703(f) of the Act, we will notify the ITC of our determination. In addition, we are making available to
the ITC all nonprivileged and nonproprietary information relating to this investigation. We will allow the ITC access to all
privileged and proprietary information in our files, provided the ITC confirms that it will not disclose such information, either
publicly or under an administrative protective order, without written consent of the Deputy Assistant Secretary for Import
Administration.
If our final determination is affirmative, the ITC will determine whether these imports materially injure, or threaten material
injury to, a U.S. industry within 45 days after the Department makes its final determination.
Public Comment
In accordance with section 355.35 of the Commerce Regulations (19 CFR 355.35)
(Cite as: 51 FR 37453, *37467)
we will hold a public hearing, if requested, to afford interested parties an opportunity to comment on this preliminary
determination, at 1:30 p.m. on December 1, 1986, at the U.S. Department of Commerce, Room 6802, 14th Street and Constitution
Avenue NW., Washington, DC 20230. Individuals who wish to participate in the hearing must submit a request to the Deputy
Assistant Secretary, Import Administration. Room B-099, at the above address within ten days of the publication of this notice in
the Federal Register.
Requests should contain: (1) The party's name, address, and telephone number; (2) the number of participants; (3) the reason for
attending; and (4) a list of the issues to be discussed. In addition, at least ten copies of the proprietary version and seven copies of
the nonproprietary version of the pre-hearing briefs must be submitted to the Deputy Assistant Secretary by November 24, 1986.
Oral presentations will be limited to issues raised in the briefs. In accordance with 19 CFR 355.33(d) and 19 CFR 355.34, all
written views will be considered if received not less than 30 days before the final determination is due, or, if a hearing is held,
within ten days after the hearing transcript is available.
This determination is published pursuant to section 703(f) of the Act [19 USC 1671b(f)].
Gilbert B. Kaplan,
(Cite as: 51 FR 37453, *37467)
Deputy Assistant Secretary for Import Administration.
October 16, 1986.
Appendix A--Provincial Stumpage Programs
Alberta
1. Forest Management Agreement (FMA)
FMAs are 20-year, renewable agreements which grant the holder the right to manage, on a sustained-yield basis, the timber
within the Agreement area. The holder selects areas to be harvested in accordance with a management plan which the Forest
Service must approve. The holder is also required to develop "major timber processing facilities," such as pulp mills, sawmills and
plywood mills. In 1985-86, there were six FMAs in effect, accounting for 29 percent of the total provincial harvest.
The province considers several factors when evaluating proposals for Forest Management Agreements, including the level of
capital investment, potential for employment, protection of the environment, and capability to provide long-term
(Cite as: 51 FR 37453, *37467)
forest management. The holder must deposit with the province a performance guarantee based on the extent of the capital
investment obligations assumed, and pay an annual holding and protection charge based on the area covered under the
Agreement.
Stumpage dues for FMAs are specified either in the Agreements themselves or in the Timber Management Regulation. Rates are
generally negotiated in advance of the Agreement, and they may vary according to a formula specified in the Agreement.
2. Timber Quota Certificate
Timber Quotas provide holders with a long-term right to harvest a specified volume of timber. The Forest Service is responsible
for developing sustained- yield Forest Management plans and for issuing timber licenses which authorize the actual cutting of a
holder's Quota volume. The holder must pay annual holding and protection charges; smaller quota holders must either conduct
reforestation or pay a reforestation levy, while larger holders must carry out reforestation at their own expense. In 1985-86,
quotas accounted for 46 percent of the provincial harvest.
Quotas are offered for sale competitively, with applicants bidding a lump sum for the actual Quota Certificate. When holders are
ready to cut, the Forest
(Cite as: 51 FR 37453, *37467)
Service issues a timber license and specifies an appraisal factor for the proposed harvest. The appraisal factor adjusts the
regulation stumpage dues rate to account for differences in timber quality and accessibility. The appraisal factor is based on four
variables: (1) Average haul distance; (2) average gross volume per harvestable acre; (3) average gross volume per tree; and (4)
average cull (amount of defect) as a percentage of gross volume. A minimum price for stumpage is set by regulation, regardless of
a low appraisal factor.
When Timber Quotas were established in 1966, they were granted to all existing operators who qualified. During the last three
years, 96 percent of Quota Certificates have been sold through competitive bidding.
3. Commercial Timber Permit
Commercial Timber Permits are short-term dispositions which authorize the harvest of a small volume of timber. They are
generally sold at public auctions to the highest bidder. Holders must deposit a performance guarantee and pay both holding and
protection charges and a reforestation levy. In 1985- 86, Commercial Timber Permits accounted for nine percent of the total
provincial harvest.
The bidding for Commercial Timber Permits determines the actual stumpage dues
(Cite as: 51 FR 37453, *37467)
rate. The final rate consists of (1) the regulation rate; (2) an appraisal factor (see Timber Quota Certificate above); and (3) the bid
rate.
British Columbia
1. Tree Farm License (TFL)
A TFL is a forest management agreement covering a described area of provincial and private lands to be managed as one entity.
There are 32 TFLs accounting for approximately 28 percent of the provincial annual allowable cut (AAC). The term of a TFL is 25
years and can be revised at each succeeding ten-year anniversary under an "evergreen arrangement," which allows for a new
25-year replacement license.
Advertisement for a new TFL may or may not require that the applicant own specific equipment. Bid proposals are examined at
public hearings and evaluated according to the requirements specified in the advertisement and the criteria given in the Forest
Act. These criteria include: creation of *37468
(Cite as: 51 FR 37453, *37468)
employment, management and utilization of timber, the furthering of provincial development objectives, environmental
protection and contribution of revenue. After a recommendation by the Minister of Forests and approval by the Cabinet, a TFL is
entered into by the applicant and the Minister of Forests.
(Cite as: 51 FR 37453, *37468)
The stumpage rate for TFL holders is determined by an appraisal based on the residual value system. This method takes into
account three components: (1) The selling price of the end product (logs on the Coast; lumber and woodchips in the Interior); (2)
allowances for production and operating costs; and (3) allowances for profit and risk. The amount remaining, after allowances for
cost and profit are deducted from the selling price, is the price charged for stumpage. In addition to the stumpage fees, an annual
rent is required.
2. Forest License
A Forest License is a volume agreement providing the licensee with the right to harvest a specified amount of the AAC. Forest
licenses account for approximately 60 percent of the AAC. The term of the license may be for up to 20 years and can be revised at
each succeeding five-year anniversary under an "evergreen arrangement," which allows for a new 20-year replacement license.
Advertisement for a new Forest License may or may not require that the applicant own specific equipment. Bid proposals are
evaluated according to the same criteria as TFLs and the requirements specified in the advertisement. Following a
recommendation to, and approval by the Chief Forester, a Forest License is entered into by the successful applicant and the
appropriate Regional Manager of the Ministry of Forests.
(Cite as: 51 FR 37453, *37468)
The stumpage rate to be paid by the FL holder is determined by the appraisal system. An annual rent is also required.
3. Timber Sale License (Major) (TSL)
A TSL generally has the same requirements as the Forest License. TSLs account for approximately one percent of the AAC. The
term of the license may not exceed ten years. While there is no provision for replacement of a TSL, cutting rights are renewable. A
TSL is generally used in circumstances where an evergreen replacement feature would not be appropriate because an on-going
supply of timber is not expected due to a flood, a fire or an insect infestation.
The award of a new TSL is by the appropriate Regional Manager or District Manager. The applicant with the highest bonus bid is
awarded the license.
The stumpage rate is determined by the appraisal system; an annual rent is also required.
4. Timber Sale License (Minor) (TSLM)
TSLMs are a flexible type of license used to accommodate a variety of purposes. It is used primarily for timber sales under the
Small Business
(Cite as: 51 FR 37453, *37468)
Enterprise Program. Approximately seven percent of the AAC is cut under TSLMs. The term of the license varies but is usually less
than the maximum of 10 years. A TSLM is not replaceable.
TSLMs are generally allocated through an auction process with the opening bid price being either the appraised value or the
statutory minimum (i.e., three percent of the selling price of the end product). A large portion of TSLMs are also sold directly
without going through an auction process. In addition to stumpage, an annual rent is required.
5. Pulpwood Agreements
The purpose of the Pulpwood Agreements is to provide for an emergency supply of fiber in case wood chips from timber
processing facilities are not sufficient. A Pulpwood Agreement also provides that the Province will reserve the right in Forest
license and TSLs to provide a right of first refusal on chips generated from harvests within the area of a pulpwood agreement to the
holder of the Agreement. The holder must ensure that he first exhausts all feasible sources of chips before exercising his right to
cut standing timber. Pulpwood Agreements may be for a term not exceeding 25 years with evergreen replacement at ten-year
intervals.
The application and approval process are essentially the same as for TFLs. The
(Cite as: 51 FR 37453, *37468)
stumpage rate is determined according to the appraisal system.
6. Woodlot Licenses
A Woodlot License has the characteristics of a small TFL. Its purpose is to provide an appropriate level of forest management to
small isolated blocks of provincial forest land, and if possible, to combine their management with similar forest management
practices on private forest land. Woodlot Licenses comprise less than one percent of the stumpage rights in the Province. Woodlot
Licenses have a term of 15 years with evergreen replacement, at five-year intervals under the same conditions as for TFLs.
Woodlot licenses are not issued to anyone who owns a wood processing facility. The criteria used by the District Manager to
evaluate applications are: the amount and quality of private land to be contributed, the residence of the applicant and the amount
of forestry training and experience of the applicant.
The stumpage rate is determined by the appraisal system.
7. Timber Licenses
Timber Licenses are designed to consolidate and replace old temporary tenures
(Cite as: 51 FR 37453, *37468)
without abrogating the rights granted under them. Timber Licenses account for approximately five percent of the amount
harvested in the Province.
Timber Licenses require the payment of royalties, annual dues and a fire protection tax. Once all the timber under the license is
removed, all rights revert back to the Province.
Ontario
1. Large Order-in-Council Licenses
Large Order-in-Council licenses authorize long-term (21 years), sustanined- yield timber harvesting for a given area. Provincial
foresters supervise harvesting, silviculture and reforestation efforts. Holders must pay an area charge for each square kilometer
under license; the charge is designed to discourge licensees from holding timber they will not harvest, and is not intended to
recover specific costs. In 1985-86, Large Order-in-Council licenses accounted for 28 percent of the total area under license.
The Province considers several factors when allocating stumpage under Order- in-Council licenses, including the location and
availability of timber, the applicant's resources and financial responsibility, environmental impacts, and the potential for revenue
generation. Once a license is awarded, additional
(Cite as: 51 FR 37453, *37468)
terms and conditions are negotiated with the licensee for site-specific requirements.
Stumpage charges for Order-in-Council licenses consist of statutory, index- based crown dues and negotiated bonus prices. The
Province indexes dues to commodity sales prices for pulp, paper and lumber products. The Province also differentiates between
integrated and non-integrated stumpage holders when calculating the base rate of dues in an effort to recover greater revenue
from more cost-effective integrated producers. In addition to the statutory dues, the Province sometimes negotiates a bonus
price for high-value or easily accessible timber.
2. Forest Management Agreement (FMA)
FMAs authorize holders to harvest and manage timber in a given area. Holders are responsible for significant forest management
tasks, including reforestation, silviculture and roadbuilding. Recently, the Province has been converting Order-in-Council
licenses into FMAs in an effort to transfer forest management responsibilities to private companies. Currently, FMAs cover 57
percent of the total area under license.
FMAs replace one or more Order-in-Council licenses held by the present license holder. Order-in-Council licenses are converted
to FMAs in negotiations
(Cite as: 51 FR 37453, *37468)
between the Province and the company. Stumpage dues for FMAs include statutory crown dues and negotiated bonus prices (see
Order-in-Council licenses above). Bonus prices are negotiated at the beginning of each FMA and are subject to review after five
years.
Quebec
1. Timber Limits
Timber Limits were the only form of allocation arrangements issued by the Province of Quebec before the early 1970's. Pulp and
paper companies received the vast majority of limit allocations because Quebec timber was generally suitable only for pulp
production until technological advances in the sawmill industry during the late 1960's created a use for small-diameter timber for
lumber and related wood products producers. Limits currently account for 41 percent of provincial allocation. They are
essentially area agreements under which holders can harvest all species within a designated area.
Timber Limit agreements require the holder to assume substantial forest management obligations. The holder must submit a
forest management plan and must undertake substantially all silviculture, reforestation, and fire prevention activities. The holder
also assumes one-third of insect and disease
(Cite as: 51 FR 37453, *37468)
protection costs and is reimbursed for 50 *37469
(Cite as: 51 FR 37453, *37469)
percent of the costs of building main access roads.
The Province established no express eligibility requirements and negotiated agreements on an individual basis for large tracts of
unused timberland. It was considered essential to award large reserves of timber to ensure establishment of large, long-term
operations in the Province. Although the term of an arrangement is indefinite, holders must apply annually for cutting permits.
Since 1969, no new timber limits have been issued and existing ones are being gradually revoked as cutting permits come up for
renewal.
Only those holders who continue to utilize all trees in their limit area have their permits renewed. Those that have been revoked
are converted to domanial forests on which supply agreements are convened.
The Province sets stumpage prices legislatively based on location, species, harvesting difficulties, and volumes per acre. Rates
were last changed in 1984. An annual ground rent is also required.
2. Supply Agreements on Domanial Forests
The increased demand for timber in the 1970's, apparently arising from newly- established sawmills, led the government to create
"domanial forests" on vacant land and from recently revoked timber limits. In contrast to the character of
(Cite as: 51 FR 37453, *37469)
timber limits, supply agreements allocated from domanial forests permit holders to cut only specific quantities of certain species
within a designated area. The stated objective has been to encourage full utilization of all species on allocated provincial lands.
Supply agreements are currently the only form of allocation arrangement issued by the Province. Currently, 59 percent of
provincial land is allocated under supply agreements.
No explicit eligibility requirements are in force. The Ministry of Energy and Resources chooses between competing applications
by considering factors of technology efficiency, availability of timber within a designated area, and perceived economic benefit to
the Province. Supply agreements run for ten-year terms and cutting permits are renewed annually.
Stumpage rates for supply agreements are also set legislatively and were last modified in 1984. Rates vary based on geographic
location and quality of timber and species. The holder must also pay certain fees, set legislatively, for reforestation, fire
prevention and suppression, and insect and disease protection. The holders must build and maintain roads but are reimbursed for
50 percent of the costs of building main access roads.
[FR Doc. 86-23861 Filed 10-21-86; 8:45 am]
BILLING CODE 3510-DS-M