C-122-839 Investigation Public Document DAS II/Office VI March 21, 2001 MEMORANDUM TO: Faryar Shirzad Assistant Secretary for Import Administration FROM: Bernard T. Carreau Deputy Assistant Secretary for AD/CVD Enforcement II SUBJECT: Issues and Decision Memorandum: Final Results of the Countervailing Duty Investigation of Certain Softwood Lumber Products from Canada SUMMARY: We have analyzed the comments and rebuttal comments of interested parties in the final determination of the above-mentioned countervailing duty (CVD) investigation covering the period April 1, 2000 through March 31, 2001 (the POI). As a result of our analysis, we have made certain modifications to our Preliminary Determination. Below are the "Methodology and Background Information" and "Analysis of Programs" sections of this memorandum that describe the decisions made in this CVD investigation. Also below is the "Analysis of Comments" section in which we discuss the issues raised by interested parties. We recommend that you approve the positions we have developed below in this memorandum. METHODOLOGY AND BACKGROUND: Scope of the Investigation The products covered by the antidumping (AD) and countervailing duty investigations are softwood lumber, flooring and siding (softwood lumber products). Softwood lumber products include all products classified under headings 4407.1000, 4409.1010, 4409.1090, and 4409.1020, respectively, of the Harmonized Tariff Schedule of the United States (HTSUS), and any softwood lumber, flooring and siding described below. These softwood lumber products include: (1) coniferous wood, sawn or chipped lengthwise, sliced or peeled, whether or not planed, sanded or finger-jointed, of a thickness exceeding six millimeters; (2) coniferous wood siding (including strips and friezes for parquet flooring, not assembled) continuously shaped (tongued, grooved, rabbeted, chamfered, V-jointed, beaded, molded, rounded or the like) along any of its edges or faces, whether or not planed, sanded or finger-jointed; (3) other coniferous wood (including strips and friezes for parquet flooring, not assembled) continuously shaped (tongued, grooved, rabbeted, chamfered, V-jointed, beaded, molded, rounded or the like) along any of its edges or faces (other than wood mouldings and wood dowel rods) whether or not planed, sanded or finger- jointed; and (4) coniferous wood flooring (including strips and friezes for parquet flooring, not assembled) continuously shaped (tongued, grooved, rabbeted, chamfered, V-jointed, beaded, molded, rounded or the like) along any of its edges or faces, whether or not planed, sanded or finger-jointed. Although the HTSUS subheadings are provided for convenience and U.S. Customs purposes, the written description of the merchandise under investigation is dispositive. Preliminary scope exclusions and clarifications were published in three separate federal register notices. Final Scope Exclusions On February 11, 2002, we published an amendment to the preliminary antidumping determination which modified the list of products excluded from the scope of the AD and CVD softwood lumber investigations. See Notice of Amendment to Preliminary Determination of Sales at Less Than Fair Value: Certain Softwood Lumber Products from Canada; Amendment to Preliminary Affirmative Countervailing Duty Determination, Preliminary Affirmative Critical Circumstances Determination, and Alignment of Final Countervailing Duty Determination with Final Antidumping Determination: Certain Softwood Lumber Products from Canada, 67 FR 6230, 6231 (February 11, 2002) (Amended Preliminary). In our review of the comments received throughout the course of these proceedings, we found that the definitions for some of the excluded products required further clarification and/or elaboration. Based on our analysis of the comments received, we have modified the list of excluded products as follows: (1) Softwood lumber products excluded from the scope only if they meet certain requirements: 1. Stringers (pallet components used for runners): if they have at least two notches on the side, positioned at equal distance from the center, to properly accommodate forklift blades, properly classified under HTSUS 4421.90.98.40. 2. Box-spring frame kits: if they contain the following wooden pieces - two side rails, two end (or top) rails and varying numbers of slats. The side rails and the end rails should be radius-cut at both ends. The kits should be individually packaged, they should contain the exact number of wooden components needed to make a particular box spring frame, with no further processing required. None of the components exceeds 1" in actual thickness or 83" in length. 3. Radius-cut box-spring-frame components, not exceeding 1" in actual thickness or 83" in length, ready for assembly without further processing. The radius cuts must be present on both ends of the boards and must be substantial cuts so as to completely round one corner. 4. Fence pickets requiring no further processing and properly classified under HTSUS 4421.90.70, 1" or less in actual thickness, up to 8" wide, 6' or less in length, and have finials or decorative cuttings that clearly identify them as fence pickets. In the case of dog-eared fence pickets, the corners of the boards should be cut off so as to remove pieces of wood in the shape of isosceles right angle triangles with sides measuring 3/4 inch or more. 5. U.S. origin lumber shipped to Canada for minor processing and imported into the United States, is excluded from the scope of the investigations if the following conditions are met: 1) the processing occurring in Canada is limited to kiln-drying, planing to create smooth-to-size board, and sanding, and 2) if the importer establishes to Customs' satisfaction that the lumber is of U. S. origin. 6. Softwood lumber products contained in single family home packages or kits, regardless of tariff classification, are excluded from the scope of the orders if the following criteria are met: A. the imported home package or kit constitutes a full package of the number of wooden pieces specified in the plan, design or blueprint necessary to produce a home of at least 700 square feet produced to a specified plan, design or blueprint; B. the package or kit must contain all necessary internal and external doors and windows, nails, screws, glue, subfloor, sheathing, beams, posts, connectors and if included in purchase contract decking, trim, drywall and roof shingles specified in the plan, design or blueprint; C. prior to importation, the package or kit must be sold to a retailer of complete home packages or kits pursuant to a valid purchase contract referencing the particular home design plan or blueprint, and signed by a customer not affiliated with the importer; D. the whole package must be imported under a single consolidated entry when permitted by the U.S. Customs Service, whether or not on a single or multiple trucks, rail cars or other vehicles, which shall be on the same day except when the home is over 2,000 square feet; E. the following documentation must be included with the entry documents: 1. a copy of the appropriate home design, plan, or blueprint matching the entry; 2. a purchase contract from a retailer of home kits or packages signed by a customer not affiliated with the importer; 3. a listing of inventory of all parts of the package or kit being entered that conforms to the home design package being entered; 4. in the case of multiple shipments on the same contract, all items listed in E(3) which are included in the present shipment shall be identified as well. We have determined that the excluded products listed above are outside the scope of this investigation provided the specified conditions are met. See Section C (Scope Issues) and Section D (Scope Exclusion Analysis) of the March 21, 2002, Issues and Decision Memorandum for the Antidumping Duty Investigation of Certain Softwood Lumber Products From Canada for further discussion. Lumber products that Customs may classify as stringers, radius cut box-spring-frame components, and fence pickets, not conforming to the above requirements, as well as truss components, pallet components, and door and window frame parts, are covered under the scope of these investigations and may be classified under HTSUS subheadings 4418.90.40.90, 4421.90.70.40, and 4421.90.98.40. On January 24, 2002, Customs informed the Department of certain changes in the 2002 HTSUS affecting these products. Specifically, subheading 4418.90.40.90 and 4421.90.98.40 were changed to 4418.90.45.90 and 4421.90.97.40, respectively. Therefore, we are adding these subheadings as well. Company Exclusions Based upon our review of exclusion requests received prior to the Preliminary Determination, the Department preliminarily excluded Frontier Lumber from the investigation. We noted that our normal practice would be to deduct the company's sales from our sales denominator in calculating the Canada-wide subsidy rate. However, we added that, given the size of the company's sales, we did not make an adjustment because any adjustment would have no effect on the calculated subsidy rate for any of the investigated programs. Since the Preliminary Determination, we received additional exclusion requests directly from companies and through the Government of Canada (GOC). In a memorandum of February 20, 2002, the Department announced that we found it practicable to consider only 30 of the more than 300 company- specific requests for exclusion. See Memorandum to Faryar Shirzad, Assistant Secretary for Import Administration, from Bernard T. Carreau, Deputy Assistant Secretary for Group II, concerning the countervailing duty investigation on softwood lumber products from Canada, February 20, 2002 (Exclusion Memo). We sent supplemental questionnaires to the selected companies and conducted verification of each of the company responses received. Parties commented on the February 20, 2002, memorandum in their case and rebuttal briefs. In addition, after releasing the verification report, we received briefs and rebuttal briefs on issues raised at verification. For this final determination, on a company- or mill-specific basis, we applied the applicable Province-specific rate to all purchases of Crown logs and Canadian lumber to derive any benefit from stumpage programs. We added any benefit from other programs and divided the total company/mill benefit by the total company/mill shipment value to determine whether the requesting company received a zero or de minimis benefit. See Calculation Memorandum res. Exclusion Requests, March 21, 2002. Consistent with section 351.204(e) of the regulations, where a reviewed company/mill received a zero or de minimis benefit during the POI, we have excluded that company or mill from this investigation. Authority Petitioners argue that, in accordance with the statute, in an investigation such as this in which the Department has determined that it is not feasible to calculate individual rates, there is no statutory authority for the Department to entertain company exclusion requests. Rather, the Department must determine a single rate applicable to all exporters and producers. Further, petitioners argue that the Department's regulation with respect to company exclusions from aggregate cases is contrary to the statute. The GOC, Provincial governments, and several other parties (2) argue that the Department has a statutory obligation to consider and investigate the applications for company exclusion and to exclude all companies that received zero or de minimis benefit under the alleged subsidy programs. Respondents assert that, contrary to the position of petitioners, the Department is not relieved of this obligation because it decides to conduct an investigation on an aggregate basis. In rebuttal, petitioners assert that, contrary to respondents' argument that the Department was bound by statute and an alleged commitment to examine all company exclusion requests, the Department is, in fact, prohibited from granting company-exclusion requests in a country-wide investigation. Respondents argue that, contrary to the position of petitioners, the Department has the authority, and in fact is required to, exclude from any order, merchandise that is not subsidized. Additionally, respondents argue that petitioners are incorrect in their assertion that the Department does not have the statutory authority to exclude companies from an investigation conducted on an aggregate basis. Respondents argue that it is clear that the Department's regulations provide for company-specific exclusions and, contrary to the position of petitioners, the Department's regulations are entirely consistent with the statute. Department's Position We do not agree with petitioners that the statute prohibits company- specific exclusions in investigations conducted on an aggregate basis. Nor, however, do we agree with respondents that we are required to exclude companies. With respect to investigations conducted on an aggregate basis, there is no legal requirement that the Department exclude individual companies. The exclusion of companies in an investigation conducted on an aggregate basis, consistent with the regulations, is entirely discretionary. See 19 CFR 351.204(e)(4). The Department's response to these arguments is provided in the Exclusion Memo which we incorporate by reference. Neither party has raised any new legal arguments since that memorandum and we have not altered our position. Practicability Petitioners argue that, if the Department determines it has the statutory authority to consider exclusion requests, the regulation provides for consideration of company exclusion requests only to the extent practicable. Given the large number of requests, which petitioners identify as 391, petitioners argue that the Department could never satisfy any minimum investigatory standards. Petitioners argue that no steps by respondents can obviate the Department's investigatory obligations. Nor can the Department satisfy its investigatory obligation through a sampling of company exclusion verifications. Therefore, the Department correctly rejected most of the company-specific exclusion requests as impracticable to consider without undermining the Department's ability to conduct the investigation in a thorough and timely manner. Respondents argue that the Department accepted the GOC's proposal for an exclusion process by letter and decision memorandum dated August 1, 2001, and, in accepting the GOC proposal, the Department noted that the GOC's exclusion proposal would streamline the process of considering exclusion requests. Further, respondents argue that the GOC's organization and categorization of the requests along with the provision of the database accompanying their October 29, 2001, submission, made it practicable for the Department to consider and grant all of the requested exclusions. Several respondents argue that the Department's rationale that it was impracticable to exclude them, despite the GOC's careful construction of 19 groups and subgroups from which the Department could first rule on the substantive claims for exclusion and then evaluate the companies, raises due process issues that cast doubt on the validity of the proceeding and any resulting countervailing duty order. Further, respondents argue that the Department's conclusion that it was not practicable to consider more than 30 company-specific requests for exclusion is unsupported by substantial evidence on the record and is otherwise contrary to law. Respondents assert that failure to consider the exclusion requests would be an abuse of discretion and inherently unfair. Additionally, they argue that the Department's handling of exclusion requests has violated fundamental principles of fairness and due process. Several of these parties suggest that the Department consider that any administrative convenience achieved by refusing to consider exclusion requests during the investigation will be outweighed by the burden of conducting more than 300 individual expedited reviews immediately upon the conclusion of the proceeding. More specifically, respondents assert that petitioners' reliance on the Department's decision in Certain Softwood Lumber Products from Canada, 57 FR 22570, 22584 (May 28, 1992)(Lumber III), as support for denying exclusion requests is misplaced. Additionally, respondents argue that verification of all exclusion requests is unnecessary under the law as the Department itself recognized in Lumber III where the Department opined that the data and analysis required to investigate a company-specific exclusion request are not as extensive as that needed for investigating a company in a normal investigation. Respondents argue that the Department (1) has a legal obligation to consider whether arm's-length sales operate to extinguish the alleged subsidies, (2) is not required to perform verification of each exclusion applicant, (3) may not treat company certifications related to affiliation and/or cross-ownership as false based on speculation that applicants may not have considered blood lines or close supplier relationships, and (4) has previously issued Customs instructions based on specific producer-exporter pairs and, therefore, could simply issue instructions that relate only to specific products remanufactured by specific producers. Additionally, Goodfellow argues that petitioners' conditional upstream subsidy allegation was untimely, inadequate and must be rejected. In rebuttal, petitioners assert that respondents' selective quotation from Department documents (referring to the letter from B. Carreau, Department of Commerce to P. Bailey, Embassy of Canada, dated August 1, 2001) does not establish that the Department made a commitment to review the submissions. In addition, petitioners assert that their brief fully addressed the flaws in respondents' company exclusion application process including the impracticability of examining and verifying almost 400 applications, Canadian authorities' attempt to turn the process into an exercise in self-verification in which the Department is urged to forego its requirement to verify all information used in making a final determination, the flaws in the information submitted by applicant companies even following the allegedly exhaustive Canadian review process, and the impossibility of sampling applicant companies for purposes of verification. Additionally, petitioners assert that they have never agreed with respondents that the Department must conduct an upstream subsidy investigation. Fred Tebb and Sons, Inc. (Tebb), a U.S. remanufacturer and secondary manufacturer of lumber products, supports petitioners' opposition to the Department's consideration of broad requests for exclusion for nearly 400 Canadian companies, including particularly Canadian remanufacturers, and opposes consideration of any company- specific exclusion request. Tebb asserts that the Department must consider suspect the steps the GOC has taken to minimize the Department's work and the GOC's arguments that there is no need to issue individual questionnaires, analyze responses, or verify company-specific information. Respondents argue that petitioners are incorrect in their assertion that each and every company requesting exclusion need be examined and verified. Rather, they assert that, unlike Lumber III, the Department need only examine and verify a few randomly selected companies from each of the 19 groups presented by the GOC. They conclude, therefore, that it was practicable to address each of the company-specific exclusion requests. Goodfellow argues that the principle that countervailing duties may be imposed only in the amount of the actual subsidies is the one bedrock principle on which the entire World Trade Organization Agreement on Subsidies and Countervailing Measures (Subsidies Agreement) is based. Therefore, if impracticality is to be invoked as the reason for disregarding the most fundamental principle of the CVD law, the impracticality ought to be real and insurmountable, not imaginary. Goodfellow asserts that both petitioners and the Department vastly overstated the alleged practical and legal hurdles that must be cleared in order to administer the exclusion requests filed by remanufacturers such as Goodfellow. Goodfellow argues that questionnaires are not required for company exclusion applicants, nor is verification required. Further, if verification is not practicable, the Department is required to use facts otherwise available, such as the documentation already provided by Goodfellow, the affected government, and other exclusion applicants. Respondents argue that the Department must exclude (1) all companies that demonstrate that they received no benefit from any of the programs under investigation, (2) all companies that received de minimis benefit, and (3) shipments by wholesalers that purchase from suppliers receiving zero or de minimis benefit. Department's Position As an initial matter, we take exception to respondents' assertion that the Department committed, by letter of August 1, 2001, to review all of the company-specific exclusion request submissions and then failed to do so. To the contrary, in that letter we noted that the documents provided did not contain all the information we are required to examine in considering company exclusions. We did state, however, that we found that the GOC's proposed pre-certification of applications and submission by category would "somewhat" facilitate the Department's task. We made no representation as to whether consideration of exclusions was practicable and, if so, whether any exclusions were warranted. Section 351.204(e)(4) of the regulations states that the Secretary will consider and investigate requests for exclusion to the extent practicable; it does not require exclusion. Whether the Department conducts its investigation on an aggregate basis, or investigates some specific companies and calculates an "all others" rate, the rate applied to the non- investigated companies is based on the amount of the subsidies found to exist in the investigation. Respondent's argument to the contrary completely ignores the statutory framework, which recognizes that it is not always possible to investigate each exporter or producer individually and specifically provides for such circumstances. In particular, as in this case, the statute permits the Department, after determining the aggregate amount of the subsidy, to take the amount of the subsidy found to exist and allocate it over all production of the subject merchandise to determine a country-wide rate. While the Department retains the discretion to exclude specific companies when this methodology is employed, it will do so only to the extent practicable. Nor do we agree that it was practicable to review all of the exclusion requests. While respondents would have us believe that it was a simple matter to first rule on the substantive claims for exclusion and then evaluate the companies, we disagree. As noted in our memorandum of February 20, 2002, our goal was to examine the maximum number of requests that did not impose an extraordinary administrative burden. The Department determined that the criteria used by the GOC to define most of the exclusion groups were not criteria that could be investigated and evaluated without imposing an extraordinary burden on the Department's already scarce resources. See Exclusion Memo. Nevertheless, to achieve our goal of considering as many requests as practicable, we established a criterion that would be administratively feasible, i.e., input source, and examined companies that met that criterion. Specifically, we limited our consideration to companies that produce lumber from logs harvested in the Maritime Provinces, the United States, or on private lands in Canada. That criterion provided a simple, factual, and easily verifiable basis to consider exclusion. See Exclusion Memo. Methodology Petitioners argue that the Department erred in not rejecting all of the company exclusion requests. In this context, petitioners argue the Department's proposed exclusion methodology is problematic because the application of a Province-specific stumpage rate to a requestor's purchases of Crown stumpage is an inaccurate measure of the requestor's subsidy rate, which must be determined on a company-specific basis. Additionally, the Department's proposed methodology fails to take into account the subsidy resulting from the log export restriction. Tebb argues that petitioners have correctly pointed out that the Department has incorrectly assumed that non-Crown source saw logs are not subsidized when in fact, all lumber from Canada is subsidized. Tebb also asserts that, regardless of the facts at the time of the investigation, once a company- specific exclusion is granted, the excluded company will source its raw material from whatever source can deliver and the Department does not have the resources or authority to investigate the sources used by an excluded company. Tebb argues that company-specific exclusions will create a giant loophole for moving lumber through certain Canadian companies with no duty. Respondents argue that petitioners' contention that the Department must consider each company's individual level of subsidization rather than relying on the Province-specific benefit lacks supporting authority and overlooks the precedent for, and reasoning behind, the Department's methodology. Respondents dispute petitioners' assertion that log export restrictions are subsidies that the Department has failed to consider in its company-specific exclusion deliberations. Finally, respondents urge the Department to consider exclusion requests on behalf of manufacturers and to rely on statistically valid sampling to reduce any administrative burden imposed by such review. Department's Position We agree with respondents that the Department's use of the Province-wide subsidy rate to measure whether a requestor received a de minimis benefit is appropriate and consistent with past practice (see Lumber III). Additionally, the Department's calculation methodology is designed to measure the full amount of the subsidy provided by each Province. Therefore, as detailed in the Exclusion Memo, we have applied the Province- specific rate to all purchases of Crown logs and Canadian lumber to derive any benefit from stumpage programs. We have added any benefit from other programs and divided the total company benefit by the total shipment value to determine whether the requesting company received a zero or de minimis benefit. Results We received comments from parties on the verification report. The GOC and Provincial governments assert that, since the verification disclosed no substantial discrepancies between the information submitted and the documents reviewed at verification, the verification should be considered a spot verification of the exclusion process, and all applicants for whom completed applications were submitted to the Department on October 29, 2001 should be excluded from any order that might be issued. Petitioners argue that the GOC's request that the verification be considered a sample verification, and that all applications for exclusion be granted, is unsupportable. Petitioners reiterate their prior comments that the statute does not permit the Department to base an exclusion determination on unverified information. In addition, petitioners argue that sampling is incompatible with the Department's practice on company exclusions. Finally, petitioners argue that not all companies passed verification and, in fact, at least one company abandoned the rationale for its application as a result of findings at verification. Because the verification confirmed that information in the companies' applications was inaccurate or incomplete, petitioners argue that the companies selected for verification could never serve the purpose of sampling as requested by the GOC. The GOC and the Quebec Lumber Manufacturer's Association (QLMA) assert that, with minor corrections, the Department verified that the exclusion applications and the supplemental questionnaire responses of all applicants were accurate. As such, they argue that each applicant that received zero or de minimis subsidies during the period of investigation (POI) must be excluded. J.D. Irving, Limited (J.D. Irving) commented that the Department did not note any discrepancies in the comprehensive information it provided. J.D. Irving asserts, therefore, that the Department should grant its request for exclusion from any order. Department's Position We do not agree with the GOC that, because we were able to verify the 28 companies, we should accept as verified all companies that submitted completed applications by October 29, 2001. As the verification report reflects, certain discrepancies were identified at verification. For example, we identified the receipt of an additional benefit pursuant to a program the Department has previously found countervailable. Because we were able to collect at verification information to correct for the discrepancies, we did so rather than reject the information submitted and certified as accurate. More fundamentally, however, the 28 company verifications we conducted were designed to confirm the single criterion we chose as the basis for exclusion - namely, the source of the input. All of the other company exclusion requests involved very different criteria, such as affiliation and arm's-length transactions. To draw any conclusions about these complex issues for the remaining hundreds of companies based on a verification scheme designed only to confirm input sourcing would be completely incongruous and inappropriate. Denominator Finally, petitioners argue that if the Department does exclude any companies (the only companies about which petitioners would agree are those companies purchasing 100 percent of their logs from the United States), the value of their production would need to be excluded from the stumpage subsidy calculation denominator of the Provinces in which they are located. Respondents argue that deducting an excluded company's sales from the sales denominator is a violation of the statute, controlling court decisions, and the Department's prior practice. Respondents assert that, in light of the case law and the Department's consistent practice, the denominator used in calculating any country-wide subsidy rate must include the sales of all producers or exporters of softwood lumber in Canada, including any company that has been excluded. Department's Position We have determined that it is appropriate to exclude from the denominator the sales of companies granted a company-specific exclusion. We note that, contrary to the assertion of respondents, this is consistent with prior practice, particularly Lumber III, in which we adjusted the country-wide and appropriate Provincial rate calculations to remove the effect of the excluded companies (see Preliminary Affirmative Countervailing Duty Determination: Certain Softwood Lumber Products From Canada, 57 FR 8800, at 8801 (March 12, 1992)). With respect to the case law cited by respondents, we note that those determinations were all made in connection with the calculation of a country-wide rate (i.e., "all others" rate) under the pre-Uruguay Round Agreements Act (URAA) statute. The cited cases related to whether the Department should include or exclude from the calculation of the "all others" subsidy rate, the rates of companies that had been determined to be significantly different from the weighted- average net subsidy calculated on a country-wide basis. We disagree that the principle applies with respect to the country-wide rate envisioned in section 777A(e)(2)(B) of the Act. Unlike the pre-URAA country-wide rate, the calculation of a country-wide rate in accordance with section 777A(e)(2)(B) of the Act is based on an allocation of the aggregate amount of the subsidy information, not the weighting of company-specific subsidy rates. If we were to allocate a portion of the aggregate subsidy to companies excluded because they did not receive subsidies, we would fail to offset the full amount of the subsidy found to exist. Further, we note that to determine whether to exclude specific companies from this investigation, we have applied the Province-specific subsidy rate as opposed to calculating company-specific rates based on company-specific information. As a result, the case law cited by respondents is not dispositive. Additional Company-Specific Comments Age Cedar Products (Age Cedar), an exporter of softwood lumber from Canada made exclusively from Alaskan logs, argues that it can clearly and easily demonstrate that there are no subsidies attached to its lumber exports from Canada. This is because Age Cedar sources all of its U.S. logs from Alaska. These logs are processed into lumber by an unrelated toll-processing mill in British Columbia. The finished lumber, which Age Cedar imports into the continental United States, is tied directly to the input Alaskan logs. As such, Age Cedar argues that its imports should be excluded from the investigation. Age Cedar, while disagreeing with many of petitioners' comments, agrees with what it describes as petitioners' position that products imported from Canada by Age Cedar should be excluded from any countervailing duty imposed. Age Cedar cites to the statement in petitioners' brief that it does not object to exclusions for mills verified to purchase 100 percent of their timber from U.S. lands. Age Cedar claims that because its lumber imports into the United States are processed by an unrelated toll-processing mill in British Columbia from logs sourced entirely from Alaska, there are not subsidies attached to its lumber exports from Canada and, therefore, the Department should promptly address its exclusion request. Goodfellow argues that it should be excluded from any resulting order because it received no subsidy benefits during the period of investigation with respect to its remanufactured softwood lumber products, and zero or de minimis net countervailable benefits with regard to its total sales even if wholesaling activities are included. Further, even in the context of an upstream subsidy investigation, Goodfellow argues it did not receive a competitive benefit as its exclusion request demonstrated through contemporaneous price comparison of Goodfellow's purchases of subsidized and unsubsidized (i.e., lumber purchased from the United States and Maritime Provinces) lumber. Department's Position The exclusion process at issue is one in which the Department considers requests to exclude particular exporters or producers of the subject merchandise, not requests to exclude certain imports. We did not receive a request for exclusion from the Canadian mill that produces Age Cedar's lumber; therefore, we have no basis to address Age Cedar's claim that it be excluded. As noted above, with respect to Goodfellow's claim, we determined that it was not practicable to consider an exclusion requests except those based on sourcing. Company-Specific Rates In the Preliminary Determination, we noted that we had received a request from Canfor Corporation (Canfor) for a company-specific rate. Canfor argues that the Department's Preliminary Determination failed to provide any justification for its refusal to calculate a company-specific subsidy rate as required by the statute. Further, Canfor argues that the Department failed to respond to, or even acknowledge, Canfor's timely request for a company-specific rate. Because of the Department's failure, Canfor could not submit a voluntary response to a questionnaire that did not exist. Additionally, Tembec Inc. (Tembec) argues that if the Department erroneously issues a final determination in this investigation, it should make a company-specific determination with respect to Tembec. Tembec asserts that it filed a request for a company-specific rate on December 21, 2001, supported by the relevant shipment data that would enable the Department to calculate such a rate. Tembec argues that, since the Department failed to meet its statutory burden to set forth the information necessary for the calculation of an individual rate for those exporters or producers that may request it, the Department must calculate a company-specific rate based on the information provided. Department's Position In the Preliminary Determination, we focused on Canfor's failure to make a timely request or timely submit a questionnaire response. More fundamentally, however, the statute and regulations generally do not provide for voluntary respondents in aggregate cases. Section 782(a) of the Act provides that the Department may consider voluntary respondents in countervailing duty cases in which the number of respondents is limited pursuant to section 777A(e)(2)(A) of the Act. There is no provision in section 782(a) of the Act for consideration of voluntary respondents in cases conducted on an aggregate basis pursuant to section 777A(e)(2)(B) of the Act. Moreover, the statute contemplates that the Department would have requested information from "exporters or producers selected for examination." In an aggregate case, there are no exporters or producers selected for examination. Thus, while the reference in section 777A(a)(1)(B) to the timing of government responses in aggregate cases gives rise to an ambiguity in the statute, the general statutory rule does not provide for voluntary respondents in aggregate cases. That general rule is also codified in the regulations at 19 CFR 351.204(d). Therefore, it is not clear that we could consider such requests even if they had been timely. Nevertheless, the statute requires parties who wish to be considered as voluntary respondents to submit timely a complete questionnaire response. Canfor ignores the fact that it could have responded to the questionnaire provided to the GOC, as Canfor proposed in its request. Absent a timely filed company-specific response, the issue of whether we could have considered such a response is moot. With respect to Tembec, we note that Tembec did not file its request for a company-specific determination until four months after the Department's Preliminary Determination. Further, the information provided by Tembec related to its softwood lumber shipments from timber harvested on Crown lands in three Provinces and, separately, from sources not alleged to be subsidized. Tembec did not address its usage, or lack thereof, of any of the other programs alleged to be subsidies. Nor, did Tembec provide any of the certifications required in accordance with section 351.204(e)(4) of the regulations with respect to company-specific exclusions. Further, although Tembec asserts that its provision of this data was timely in accordance with section 351.301(b)(1) of the regulations, the applicable deadline is that found section in 782(a)(1)(B) of the Act, which is the date specified for the submission of information by the foreign government. Tembec's submission was not made within that deadline and, therefore, was untimely. Period of Investigation The period of investigation (POI) for which we are measuring subsidies is April 1, 2000, through March 31, 2001, which is the most recently completed fiscal year of the GOC. Critical Circumstances We preliminarily determined that critical circumstances exist with respect to imports of softwood lumber from Canada. Section 703(e)(1) of the Act provides that the Department, upon receipt of a timely allegation of critical circumstances, will determine whether there is a reasonable basis to believe or suspect that: (A) the alleged countervailable subsidy is inconsistent with the Subsidies Agreement, and (B) there have been massive imports of the subject merchandise over a relatively short period. In our Preliminary Determination, we determined that both prongs of the statute regarding critical circumstances were met. Specifically, we found that the first prong of the statute was satisfied based on our Preliminary Determination that Export Assistance from Investissement Quebec is a countervailable export subsidy. We found that the second prong of the statute was satisfied, i.e., that there had been massive imports of lumber from Canada over a relatively short period of time, based upon a comparison of import volume during the period January through March 2001 with the seasonally adjusted import volume during the period April 2001 through June 2001, which showed an increase of 23.34 percent. Respondents and American Consumers for Affordable Homes, Canfor, West Fraser Mills Ltd., Tembec, the Ontario Forest Industries Association, and the Ontario Lumber Manufacturers Association argue that critical circumstances are not present and the Department should issue negative critical circumstances findings as part of its final determination. Respondents et al., argue that neither of the statutory criteria for an affirmative finding is present: there is no subsidy inconsistent with the Subsidies Agreement, nor have there been massive imports within a relatively short period of time. Petitioners argue that the Department should make an affirmative critical circumstances finding in its final determination. Petitioners argue that the Department correctly identified Export Assistance from Investissement Quebec as a subsidy program that is inconsistent with the Subsidies Agreement. In addition, petitioners argue that they also identified the federal Export Development Corporation (EDC) as a subsidy inconsistent with the Subsidies Agreement. Finally, petitioners argue that imports have been massive over a relatively short period of time as demonstrated by the fact that, even after adjustment for seasonal trade patterns, imports of softwood lumber were more than 23 percent higher in the three-month period after the petition was filed than in the three-month period before the petition was filed. Respondents assert that the Department did not initiate an investigation regarding the EDC; nor does the EDC provide a prohibited subsidy. Therefore, the EDC cannot serve as a basis for an affirmative critical circumstances finding. Department's Position We agree with respondents et al., and are not finding critical circumstances in this final determination. As discussed elsewhere in this memorandum, we find that the Export Assistance from Investissement Quebec program did not confer a countervailable subsidy on exports of subject merchandise. Further, we did not initiate an investigation with respect to the EDC. Absent the finding of a subsidy inconsistent with the Subsidies Agreement, the statutory requirements for an affirmative critical circumstances finding are not present. Subsidies Valuation Information Aggregation In the Initiation Notice, we stated that, due to the extraordinarily large number of Canadian producers, we anticipated that we would conduct this investigation on an aggregate basis consistent with section 777A(e)(2)(B) of the Act. No parties objected to this. (3) For the purposes of this final determination, we have aggregated the subsidy information on an industry-wide basis. Specifically, we used the information provided by the GOC and the Provincial governments and calculated one subsidy rate for the Canadian softwood lumber industry for exports of softwood lumber to the United States. Allocation Period Pursuant to section 351.524(d)(2) of the Regulations, we have presumed the allocation period for non-recurring subsidies to be the average useful life (AUL) of renewable physical assets for the industry concerned, as listed in the Internal Revenue Service's (IRS) 1977 Class Life Asset Depreciation Range System, as updated by the Department of the Treasury. This presumption applies unless a party has claimed and established that these tables do not reasonably reflect the AUL of the renewable physical assets for the company or industry under investigation, and the party has established that the difference between the company-specific and country- wide AUL for the industry under investigation is significant. In this investigation, the Department has examined non-recurring subsidies. We have allocated, where applicable, all of the non-recurring subsidies provided to the producers/exporters of subject merchandise over the AUL listed in the IRS tables for the softwood lumber industry. Therefore, in accordance with section 351.524(d)(2) of the Regulations, the Department is using an allocation period of 10 years. No interested party has challenged the 10 year AUL derived from the IRS tables. Benchmarks for Loans and Discount Rate Because this investigation has been conducted on an aggregated basis, for those programs requiring a Canadian dollar-denominated discount rate or the application of a Canadian dollar-denominated, long-term benchmark interest rate, we used for our Preliminary Determination the national average interest rates on commercial long-term, Canadian dollar- denominated loans as reported by the GOC. The information reported by the GOC was for fixed-rate long-term debt. Some of the investigated programs provided long-term loans to the softwood lumber industry with variable interest rates instead of fixed interest rates. Because we were unable to gather information on variable interest rates charged on commercial loans in Canada, we have used as our benchmark for those loans the rate applicable to long-term fixed interest rate loans for the POI as reported by the GOC. Recurring and Non-Recurring Benefits The major subsidy allegations in this investigation concern the timber management systems maintained by the Provinces. Petitioners have alleged that the stumpage fees paid to harvest and cut timber by softwood lumber producers, which are set by the Provincial governments, confer a countervailable benefit on the production and exportation of the subject merchandise. As discussed below, this type of subsidy constitutes the provision of a good or a service for less than adequate remuneration, within the meaning of sections 771(5)(D)(iii) and 771(5)(E)(iv) of the Act. Under section 351.524(c)(1) of the Regulations, subsidies conferred by the government provision of a good or service provide recurring benefits. Therefore, any benefits conferred by the Provinces' administered stumpage programs have been expensed in the year of receipt. The Department has also investigated a number of other programs which provide grants to producers and exporters of softwood lumber. Pursuant to section 351.524(c)(1) of the Regulations, grants are normally treated as providing non-recurring benefits. Under section 51.524(b)(1) of the Regulations, grants providing non-recurring benefits are allocated over time corresponding to the AUL of the industry under investigation. However, under section 351.524(b)(2) of the Regulations, grants which provide non-recurring benefits will also be expensed in the year of receipt if the amount of the grant under the investigated program is less than 0.5 percent of relevant sales during the year in which the grant was approved (referred to as the 0.5 percent test). The grants provided under the investigated programs were less than 0.5 percent of the relevant sales of softwood lumber and, thus, were expensed in the year of receipt. Subsidy Rate Calculation In this final determination, we are investigating programs administered by the GOC and programs administered by the individual Provinces. For the programs administered by the GOC, we divided the aggregate benefit conferred by each of the federal programs by the total value of Canadian softwood lumber sales. For programs administered by the relevant Provinces, we calculated the program subsidy rate by dividing the aggregate benefit conferred by each specific Provincial program by the total sales of softwood lumber from that Province. As required by section 777A(e)(2)(B) of the Act, we have calculated a single country-wide subsidy rate. To calculate the country-wide subsidy rate conferred on the subject merchandise from all investigated countervailable subsidy programs, we weight-averaged each Provincial subsidy program by the respective Provinces' relative shares of total exports to the United States of the investigated subject merchandise, which, as explained above, does not include exports from the Maritime Provinces. As noted above, certain companies have qualified for a company exclusion. Consistent with our normal practice, we have deducted the sales from excluded companies from our sales denominators in calculating the program rates and the Canada-wide subsidy rate. Respondents argue that the Department should provide a separate Province- specific rate for Quebec. They argue that not providing a Province- specific rate for Quebec is unlawful because it necessarily imposes CVD duties on imports that admittedly are not subsidized or that are subsidized at different rates. Respondents also point out that nearly all of the allegations of subsidies, including those pertaining to stumpage, are focused on Provincial programs. They argue that based on the text and legislative history of the countervailing duty statute, the Department has clear authority to determine Province-specific rates in this investigation. Respondents state that the statute defines the term "country" to include a political subdivision. Department's Position We are not calculating or applying Province-specific rates in this determination. This is consistent with the Department's long-term policy and, more importantly, the statute. Because of the large number of Canadian producers and exporters of the subject merchandise, this investigation is being conducted under section 777A(e)(2)(B) of the Act. This section of the Act specifically states that the Department may "determine a single country-wide subsidy rate to be applied to all exporters and producers." Therefore, consistent with this provision of the Act, the Department, as stated above, is determining a single country-wide subsidy rate for this investigation. While respondents are correct that section 771(3) does include the term "political subdivision" within the definition of the term "country," respondents have misinterpreted the language and purpose of this section of the statute. Obviously, the meaning of the term "country" depends on its context. This definition of "country" pursuant to section 771(3) of the Act is used to make clear that subsidies provided by state and regional governments within a country, not just subsidies provided by the national or federal government, fall under the scope of the CVD law, and that those governments would also qualify as interested parties under the statute. The language in section 771(3) does not mean that the term "Province" is interchangeable with the word "country" under the CVD law. Such an expansive definition proposed by respondents is without legal merit. If this were the case, then an industry in the United States could bring a CVD case against Quebec. Because Quebec is not a "Subsidies Agreement Country" within the meaning of section 701(b) of the Act, no injury determination would be required. This scenario, which is inherent in the definition of the term "country" as espoused by respondents, clearly demonstrates the legal absurdity of respondents' position on this issue. The Government of Quebec also requested the Department to amend the Notice of Initiation of this investigation to exempt the Province of Quebec from this investigation. However, as is clearly demonstrated from the record of this investigation, the factors which led to the exemption of certain softwood lumber products produced in the Maritime Provinces are not present with respect to Quebec. For example, there are subsidy allegations with respect to programs administered by the Government of Quebec. Indeed, the Department has determined that the Provincially- administered stumpage program in Quebec is countervailable. Upstream Subsidies Upstream subsidies are addressed in sections 701(e) and 771A of the Act and in section 351.523 of the CVD Regulations. Section 701(e) of the Act provides that whenever the Department has reasonable grounds to believe or suspect that an upstream subsidy, as defined in section 771A(a), is being paid or bestowed, then the Department "shall investigate whether an upstream subsidy has in fact been paid or bestowed, and if so, shall include the amount of the upstream subsidy" in the calculated subsidy rate for the investigated good. Section 771A(a) of the Act defines an upstream subsidy as any subsidy that is bestowed on an input product used in the manufacture of the merchandise subject to investigation, if there is a competitive benefit bestowed on the subject merchandise that has a significant effect on the cost of manufacturing the subject merchandise. Respondents argue that the Department cannot attribute the benefit from the Provincial stumpage programs to the subject merchandise without conducting an upstream subsidy investigation. They state that, based upon the clear mandate of the statute and relevant case law, any alleged subsidies provided by the investigated stumpage programs must be addressed in the context of an upstream subsidy investigation. Respondents state that the stumpage programs involve an alleged benefit provided to timber and logs, inputs to the production of the subject merchandise, and not the subject merchandise itself. Respondents state that harvested timber (i.e., timber converted into logs) is a definable good that is traded in an established market, which is used in the manufacture and production of softwood lumber. Thus, they argue that standing timber and logs fall within the plain meaning of the term "input" as used by the statute. Petitioners assert that respondents' position is directly contrary to statute, regulation, and Department precedent, including Lumber III. Petitioners argue that subsidies of any kind provided by a government directly to companies that produce the subject merchandise are not upstream subsidies. In this case, the timber subsidies are provided directly by the government to the timber tenure holders, the timber mills. The Department has reviewed the arguments raised by respondents with respect to an upstream subsidy investigation. Based upon examination of the statute and regulations, we conclude that respondents have misinterpreted CVD law and precedent with respect to this issue. In an upstream subsidies investigation, the Department examines whether a product that is an input used to produce the subject merchandise has received a subsidy and whether that subsidy provides a competitive benefit to the subject merchandise. That situation does not present itself here. The subsidy at issue is a subsidy to the production of lumber, not the production of timber or logs, as respondents suggest. As discussed below, the government's provision of timber is, in fact, the vehicle (i.e., the financial contribution) by which a subsidy is provided to lumber producers. Thus, in this investigation, the companies that are direct recipients of subsidies are the producers of the subject merchandise. As a result, the upstream subsidies provision of the CVD law does not apply. Respondents also argue that the requirement for an upstream subsidy investigation is equally applicable with respect to remanufactured products. Petitioners disagree with respondents and cite to Delverde I (989 F. Supp. at 224). Specifically, "when Commerce investigates a product that is upstream to another, but both products are subject merchandise, both products are investigated without the necessity of a separate 'upstream subsidy allegation,' because neither is upstream to subject merchandise." 989 F.Supp at 224 (emphasis added). Petitioners argue that since both "first-mill" lumber and remanufactured lumber are subject merchandise, the Department may properly investigate both without an upstream analysis. Based on the information on the record of this investigation, we disagree with respondents that the Department must conduct an upstream subsidy investigation of remanufactured products for the purpose of this final determination. The scope of this investigation covers certain softwood lumber, which includes both dimension lumber and certain remanufactured products. Both dimension lumber and the remanufactured products covered by the scope are of necessity the same class or kind of merchandise. Both dimension lumber and remanufactured products are produced by stumpage holders, i.e., by producers who are directly receiving and benefitting from countervailable subsidies. Therefore, an upstream subsidies investigation is not required under the statute. Respondents argue that there are remanfacturers which do not hold Provincial stumpage rights and which purchase lumber from stumpage holders at arm's-length prices. Thus, respondents argue that these remanufacturers are not benefitting from the Provincial stumpage programs. However, the Department, consistent with section 777A(e)(2)(B) of the Act, is conducting this investigation on an aggregate basis; no company-specific rates are being determined, except to the extent we have found it practicable to consider certain company-specific exclusion requests. For other producers, a review is the appropriate avenue to determine if there are specific companies that do not receive countervailable benefits. Numerator Issues In the Preliminary Determination, we calculated the Provincial benefit by multiplying the unit price differential by the volume of the Crown harvest that entered sawmills during the POI. See 66 FR 43200. Respondents claim that this approach vastly overstates the benefit. They claim that an accurate calculation of the subsidy amount attributable to the subject merchandise cannot be achieved through a simplistic grouping of all products, subject merchandise (i.e., lumber) and non-subject merchandise (i.e., by-products), into the denominator, because the various products do not have equal value. They claim that the only proper way to calculate the subsidy rate is to recognize that the alleged benefit is divided among products, and to allocate the benefit to these products by adjusting the numerator. They assert that adjusting the numerator in such a manner would be consistent with the approach taken in the preliminary determination of Lumber II. 51 FR 37455. They further argue that, although the Department reversed its position on this point in Lumber III on the ground that such an allocation approach "pertains to pass-through issues and is not relevant in this case because the producers that receive the benefit from the program are also the producers of certain softwood lumber products subject to the investigation," 57 FR 22570, 22576, the Department was wrong. They claim that, because the subsidized log is used to produce multiple products, the supposed subsidy must be "assigned" to multiple products because the input is used to make those multiple products. In addition, respondents claim that in Lumber III, the Department based its decision to reject the allocation methodology because there were no suitable data on the record to perform the calculation. Respondents claim that in this investigation, the Provinces have submitted necessary data to make such an allocation and, therefore, the Department should utilize their proposed allocation methodology. Petitioners argue that the Department properly included in the numerator the full volume of the softwood timber used to produce lumber, i.e., the total volume of softwood that entered sawmills. They claim that the level of softwood lumber shipments produced in Canada during the POI (i.e., the denominator figure) could not have been attainable without the full volume of the softwood timber that entered sawmills (i.e., the numerator figure). Petitioners further argue that the fact that the softwood lumber production process also resulted in non-subject merchandise by-products does not negate the fact that all of the subsidized timber harvested was required for, and is therefore attributable to, the production of softwood lumber and other by-products. Petitioners also contend that respondents' proposed allocation methodology was rejected in Lumber III on the grounds that the approach was deemed unnecessary and not, as respondents claim, on the grounds that the data merely were not available to perform such a calculation. See 57 FR at 22576. Department's Position We agree with petitioners that our approach to calculating the benefit in the Preliminary Determination was correct. The Department made clear in Lumber III that the benefit is not tied to subject merchandise and, thus, cannot be limited solely to subject merchandise. See 57 FR at 22576. Specifically, the Department stated that the: . . . stumpage benefit is not tied solely to the production of softwood lumber. As a result, all products produced during the lumber production process receive the benefit. When stumpage holders purchase the softwood timber, they are not purchasing just that portion of the timber that can be used to produce lumber, nor are they purchasing the timber in its constituent parts. Moreover, it is the whole log that must be processed to produce lumber, not just certain parts of the log or a certain volume of the log. Id. We went on to state that: [b]ecause the stumpage benefit that we are calculating is that which is received by lumber producers which purchase the subsidized stumpage . . .the subsidy is properly attributed to the value of the lumber products produced from that preferentially provided input. Id. In Lumber III, the Department also addressed respondents' proposed methodology of apportioning the benefit by the volume of the log that ends up as lumber and the volume of the log that ends up as by-products. Again, the Department clearly rejected respondents' argument: . . .[r]espondents are not on point when they argue that the subsidy on the stumpage should be diluted by apportioning between the volume of the log that ends up as lumber and the volume that ends up as other products. That argument pertains to pass-through issues and is not relevant in this case because the producers that receive the benefit from the program are also the producers of the certain softwood lumber products subject to investigation. Id. We also disagree with respondents' contention that the only reason the Department rejected the notion of apportioning the benefit by the volume of logs that end up as subject merchandise and the volume of logs that end up as other products was because such data were not on the record. As petitioners correctly point out, in Lumber III, the Department found that such a calculation of lumber yield was "unnecessary because when we multiply the per cubic meter stumpage benefit by the total cubic meters of logs harvested under subsidized tenures that enter sawmills, we have calculated the total benefit received by all lumber producers in the aggregate." Id. Thus, in Lumber III, the Department rejected respondents' proposed apportioning of the benefit on methodological grounds. Given that the fact pattern, as it pertains to this issue, remains unchanged from the previous investigation, we find no basis to depart from the benefit calculation approach that we previously adopted in Lumber III. Accordingly, our methodology for calculating the Provincial benefit remains unchanged from the Preliminary Determination. Denominator Issues In the Preliminary Determination, the Department calculated the Provincial subsidy rate by dividing the benefit by the total shipments of softwood lumber and softwood by-products. Respondents argue that, if the Department fails to limit the numerator by only those benefits attributable to softwood lumber, then it must include in its denominator sales of both subject and non-subject merchandise produced from allegedly subsidized logs. Respondents argue that as the alleged subsidy is not tied to particular products, but rather allegedly is incurred on the logs, any alleged benefit should be allocated over total sales of all products produced from those same logs. Thus, respondents argue that the denominator used by the Department in the Preliminary Determination should be expanded to include not only softwood lumber shipments and softwood by- products but also residual non-scope softwood lumber products. Petitioners object to the inclusion of residual products in the denominator. Petitioners argue that in Lumber III and in the Preliminary Determination, the Department included in the numerator only those items that resulted from the lumber production process. Petitioners claim that record evidence establishes that the residual products include products that are not the result of the lumber production process. Petitioners argue that, as it is the Department's well-established practice to match the denominator to the numerator, it cannot include the value of residual products in the denominator. Respondents rebut that the numerator should match the denominator. Respondents argue that the numerator used in the Preliminary Determination included all softwood logs harvested from Crown tenures that entered sawmills, as opposed to all softwood sawlogs processed by sawmills. Respondents argue that because the numerator includes all softwood sawlogs that entered sawmills, the denominator should include all products that resulted from the logs that entered the sawmills, including residual products, regardless of whether those logs were processed by sawmills. Petitioners further assert that the GOC failed to account for hardwood by- products when reporting its sales values. They argue that information collected at verification indicates that Statistics Canada (StatsCan) derived its softwood by-products figure operating on the assumption that the production of by-products was limited to softwood logs. They argue that there are at least some by-products of the hardwood lumber production process yet hardwood lumber by-products are not accounted for in the GOC's calculations. Petitioners argue that the Department should extract hardwood volumes from the reported value of by-products by subtracting the ratio of POI hardwood lumber shipments to softwood lumber shipments from the total figure for by-products reported by the GOC. Respondents rebut petitioners' contention concerning the by-products figure. They argue that Department verified that the reported by-products value does not include hardwood. Therefore, the Department should reject petitioners' request to adjust the by-products figure downward. Department's Position We agree with petitioners' assertions that we should not include the value of residual products in the denominator. During verification, we examined the types of items that were included in the residual category. Our review indicated that this category included several items that are not the result of the production process for lumber. For example, the residual category included such items as logs, pulpwood harvested by sawmills and sold to other manufacturers, and particle and wafer board. See Exhibit 13 of the February 15, 2002, Statistics Canada Verification Report. As stated in the "Numerator Issues" section of this final determination, we have affirmed our decision from Lumber III in which we found that all products produced during the softwood lumber production process receive the benefit. In addition, as petitioners rightly point out, it is the Department's practice to match the numerator and the denominator when calculating the subsidy rate. Thus, in light of the Department's practice and based on the fact that we have limited our numerator to items that are the result of the softwood lumber production process, we are not including residual products in our sales denominator. With respect to respondents' rebuttal comments on this matter, we note that our decision to exclude residual products from the denominator is consistent with our approach to match the numerator with the denominator. As explained above, information collected at verification indicates that many of the items that comprise the residual category are products that are never processed by sawmills (e.g., particle board and spruce logs), as opposed to the products we are including in the denominator which are solely the result of the lumber production process (i.e., softwood lumber and softwood by-products). See Exhibit 13 of the February 15, 2002 Statistics Canada Verification Report. Thus, to include residual products in the numerator would run afoul of the principle, which is advocated by both petitioners and respondents, that the numerator should match the denominator. We further note that respondents did not provide a breakout of the residual products figure they provided. Id. at Exhibit 7. Thus, even if there were products that fell under the residual products category that resulted from the lumber production process, we would have no way of separating such products out from the aggregate amount reported for residual products. We also agree with petitioners that the by-products figure should be adjusted downward. The GOC's June 28, 2001 submission indicates that all products included in the softwood by-products figure came from Standard Classification of Goods (SCG) code 4401. During verification, we collected the list of SCG codes that StatsCan used when deriving Canada's by- products sales figures. See Exhibit 5 of the February 15, 2002 Statistics Canada Verification Report. This exhibit provides descriptions of all of the codes that are classified under SCG 4401. We noted that the Wood Waste Category (SCG codes 4401.30.20 through 4401.30.90) does discriminate between coniferous and non-coniferous products. Thus, despite the statements included in the narrative of our verification report stating that SCG code 4401 includes only softwood lumber by-products, information on the record of the investigation as well as information collected during verification suggests otherwise. Accordingly, we have adjusted the by- products figure reported by the GOC downward to remove any hardwood by- products that may be included in the by-products figure originally provided by the GOC. Specifically, we calculated the ratio of hardwood lumber products to total lumber products (i.e., softwood lumber products + hardwood lumber products + by-products). We then reduced the by-products figure that the GOC originally provided for each Province using this ratio. For more information, see the final calculation memorandum. Inclusion of Remanufactured Products in Denominator of the Subsidy Calculation For the Preliminary Determination, we relied on the total value of softwood lumber shipments reported by respondents. Subsequently, respondents informed the Department that the total value of softwood lumber shipments they had provided was incomplete; they stated that it included only softwood lumber produced at sawmills, so-called "first-mill" data, and it did not include the value of softwood lumber produced by non- sawmills, so called "remanufactured" products. (4) Based on these representations, we solicited data from the GOC on the value of remanufactured shipments (exclusive of softwood lumber inputs) in a series of questionnaires. See the Department's September 17, 2001 and November 26, 2001 questionnaires to the Government of Canada. In their October 9, 2001 questionnaire response, respondents claimed that StatsCan data do not allow for a reasonable estimate of remanufactured shipments. Respondents explained that StatsCan collects shipment data in three surveys: the Monthly Survey of Sawmills and Planing Mills (MSS), the Monthly Survey of Manufacturing (MSM), and the Annual Survey of Manufacturing (ASM). All three surveys report shipment data in accordance with the North American Industry Classification System (NAICS) (formerly the Standard Industry Classification, or SIC), which codes industries at various levels of detail. Under NAICS, 6-digit codes denote different types of establishments (i.e., producing units, such as mills or factories), whereas 9-digit NAICS codes represent different products (respondents refer to these 9-digit NAICS codes as "SCG codes"). Respondents further explain that the MSS and MSM provide shipment data for the POI based on 6-digit NAICS codes. The ASM, in contrast, contains shipment data by 8- or 9-digit SCG code; however, at the time of the questionnaire response, the most recent ASM results available were for 1997. Respondents stated the MSM and MSS provide accurate information on shipments from sawmill establishments (i.e., first mills), but not for remanufacturing establishments. Respondents further claim that remanufactured products are represented within a wide range of establishment categories that contain both in-scope and out-of-scope production. Taking note of these representations about these difficulties, we continued to request that respondents report the total value of softwood lumber shipments; however, we indicated that we would consider their best estimate of this figure. In addition, we asked respondents to break these figures down, on a Province-specific basis, into two categories: softwood lumber shipments from sawmill establishments, i.e., establishments in NAICS category 321111, and softwood lumber shipments from non-sawmill establishments, i.e., establishments other than those in NAICS category 321111. In a December 17, 2001 questionnaire response, respondents argued that ASM data was inappropriate for the current investigation for a number of reasons, including confidentiality restrictions, the format of the ASM database, and the time period of the data itself. Respondents further explained the steps that StatsCan would need to undertake to retrieve the data we requested: 1. Using the ASM survey for non-sawmill wood industries, Statistics Canada would have to generate a printout for each SIC category. These printouts. . .would detail the aggregate value of inputs and outputs for the non-sawmill industries by SCG code within each Province. 2. Statistics Canada would then need to add, by hand, the totals for each SCG category that it believes is within the scope of the investigation. As explained above, however, certain SCG categories contain both in-scope and out-of-scope products. Therefore, this calculation would be inaccurate to a certain degree. Respondents' December 17, 2001 questionnaire response at 18. Respondents continued that, "nevertheless, Statistics Canada has undertaken this task, and the results are reported (where possible in accordance with the confidentiality rules) at Exhibit GOC-GEN-36." Id. Respondents also stated in their December 17, 2001 questionnaire response that StatsCan, would only be able to disclose aggregate values for British Columbia and Alberta because of confidentiality restrictions. Respondents further stated that, as a result of data limitations, the GOC would not be able to adjust the figures in Exhibit 36 for any double counting of lumber inputs. Respondents also explained that, because no specific price indices existed for the products included in Exhibit 36, the GOC would not be able to project the figures from the ASM survey for non-sawmill wood industries into POI dollars. Petitioners argue that the Department's decision to apply preliminary duties on a final mill basis was proper as a matter of law and based on the facts of the record. They further argue that in Lumber III, the Department stated that its "clear preference is to use final mill values in calculating benefits." See 57 FR at 22575. In addition, petitioners assert that collecting duties on a first mill basis would be unworkable. Namely, they claim that collecting duties on a first mill basis would create easily exploitable loopholes that firms could use to circumvent the discipline of the countervailing duty rate. Department's Position Regarding Exhibit 36, which is attached to respondent's December 17, 2001 questionnaire response, we examined this issue in detail at verification. The verification report makes clear that the data in Exhibit 36 are based on the same data sources, and applied the same basic methodology, as the rest of the volume and value data reported by StatsCan. Despite the data limitations alleged by respondents, the information in Exhibit 36 is clearly a reasonable measure of the total value of in-scope remanufactured lumber shipments. As stated by respondents, Exhibit 36 indicates the value of in-scope merchandise that is within industry group 25 but outside of SIC 2512, which is precisely the category of products that the Department has repeatedly sought from respondents during the course of this investigation. Furthermore, we note that the principal data limitation cited by respondents (i.e., the lack of data for every Province in Exhibit 36) is the direct result of StatsCan's refusal to provide the data on a Province-specific basis. In addition, we do not find compelling respondents' claims that the data in Exhibit 36 is unusable because it has not been adjusted for any double counting of lumber inputs. To the extent that Exhibit 36 includes any double counting of lumber inputs, this merely makes our approach to deriving the values for remanufactured products more conservative. Finally, because remanufacured products are more similar to other softwood lumber products, i.e., those within NAICS 2512, than they are to the wide- basket of other wood category, i.e., those within NAICS 25, the same inflator values can reasonably be applied. Based on this information, we determined the percentage relationship between the total value of remanufactured products and the total value of first-mill shipments for the 1997 ASM and applied this percentage to the reported total value of softwood lumber shipments. In this process, we were able to reasonably estimate the total value of in-scope remanufactured products shipped. The Use of the Pacific Forestry Center's Study of Remanufactured Products from British Columbia On January 1, 2002, respondents submitted a study by the Pacific Forestry Center (PFC) which purported to estimate the total value of remanufactured lumber shipments in British Columbia. Based on this report, respondents extrapolated that the total value of remanufactured lumber shipments for all of Canada was C$ 2,009,913,593. This figure represents 17 percent of the total value of softwood lumber shipments originally reported by Canada, in comparison with the three percent figure we collected at StatsCan (inclusive of lumber inputs). For a discussion of the number we collected at StatsCan, see the "Inclusion of Remanufactured Products in Denominator of the Subsidy Calculation" section of this memorandum. Thus, respondents argue that if the Department decides to include remanufactured products in the denominator, it should use the figure from the PFC study. Petitioners argue that the Department should not use the figures from the PFC study to estimate the total value of remanufactured lumber shipments in Canada. They argue that the Department's February 15, 2002 PFC Verification Report makes clear a number of substantive flaws with respondent's use of the data from the study. They contend that, based on the significant shortcomings of the study, it cannot be relied on by the Department to provide a reasonable and verifiable estimate of the value of in-scope remanufactured products from non-sawmills. Department's Position During the PFC verification, we found that the study was flawed in several important respects. Most importantly, the study significantly overstated the value of remanufactured lumber shipments by including sales of out-of-scope products and kiln drying fees in the remanufactured products figure. See pages 5 - 7 of February 15, 2002 PFC Verification Report. Other methodological flaws are fully explained in the PFC Verification Report. See, e.g., page 7 of the PFC Verification Report regarding the reliability of figures from a 1999 study used in the PFC's derivation of the remanufactured products figure. Thus, we do not find the data from this study to be reliable and continue to derive the value of in- scope remanufactured products using the data submitted by the GOC in Exhibit 36 of its December 17, 2001 supplemental questionnaire response. ANALYSIS OF PROGRAMS: I. Provincial Stumpage Programs Determined To Confer Subsidies Petitioners have alleged that the stumpage programs administered by the Provinces of British Columbia, Quebec, Ontario, Alberta, Manitoba, and Saskatchewan provide Canadian softwood lumber producers with countervailable benefits. (5) Specifically, petitioners allege that, through the Provincially-administered stumpage systems, the Provinces provide softwood lumber producers with wood fiber for less than adequate remuneration through the selling of rights to harvest timber on government- owned (or Crown) forest lands. Petitioners have also made the same allegation with respect to the Yukon Territory, Northwest Territories, and timber sold on federal land. However, we have not examined these stumpage programs in this determination because the amount of exports to the United States from the two Territories and from federal land is insignificant. Thus, these programs would have no measurable effect on any subsidy rate calculated for this investigation. In accordance with section 771(5) of the Act, to find a countervailable subsidy, the Department must determine that a government made a financial contribution and that a benefit was thereby conferred, and that the benefit is specific within the meaning of section 771(5A) of the Act. We address each of these requirements below. Financial Contribution In the Preliminary Determination, in accordance with section 771(5)(D)(iii) of the Act, we determined that "stumpage" constitutes a financial contribution in the form of the government provision of goods or services. Petitioners agree with our Preliminary Determination. Respondents contend, however, that the Department's Preliminary Determination was based upon "fundamental misconceptions about the nature and economics of Canadian stumpage programs" and, as such, was incorrect. See Respondents' February 22, 2002 Joint Case Brief: Stumpage, Volume 2 at 1. Petitioners contend that the Provinces, through their administered stumpage programs, are providing a "good" to Canadian softwood lumber producers. According to petitioners, the timber harvested pursuant to government licenses and used by Canadian softwood lumber companies to produce softwood lumber products passes from the government to the tenure holders. See Petitioners' February 14, 2002 Memorandum Concerning Subsidy Methodology and Countervailability of the Provincial Stumpage Programs at 12. This transfer of the wood fiber from the Provincial governments to the lumber companies constitutes the government provision of a good. Id. at 12. To support their argument, petitioners rely upon published definitions of the terms "goods" and "provide." As noted by petitioners, Black's Law Dictionary 701-02 (7th ed. 1999) defines "goods" as "tangible or movable personal property other than money." The definition continues to explain that the "term includes ...growing crops, and other identified things to be severed from real property." Id. at 12, n.7. Wood fiber, whether in the form of timber or logs is included within the definition of "goods." "Provide" means "to make something available to." Id. n. 8 citing Frederick C. Mish, ed., Webster's Ninth New Collegiate Dictionary 948 (1986). According to petitioners, a textual interpretation of the statute, leads to the conclusion that when Provincial governments permit tenure holders to take wood fiber, either in the form of timber or logs, from Crown lands, the Provincial governments are "providing" the Canadian mills with a "good." Id. at 12. Petitioners also submit that the Department's Preliminary Determination that stumpage constitutes a financial contribution is consistent with past agency practice, Congressional intent and international trade norms. As noted by petitioners, the Department in its three prior countervailing duty investigations covering certain softwood lumber products from Canada determined that stumpage programs involve the provision of a good. Id. at 13 referring to Lumber III at 22584; Certain Softwood Products from Canada, 51 FR 37453 (Oct. 22, 1986)(Lumber II); Certain Softwood Lumber Products from Canada, 48 FR 24159, 24167 (May 31, 1983)(Lumber I). Petitioners submit that additional support for determining that stumpage is a financial contribution is found in (i) the Department's final rules on countervailing duties, Countervailing Duties; Final Rule, 63 FR 65348, 65378 (Nov. 25, 1998) in which the Department states that "goods or services" can include "electricity, land leases, or water," and (ii) Live Cattle from Canada, 64 FR 57040, 57043-46 (Oct. 22, 1999) in which the Department determined that certain Canadian Provincial and federal programs which provided low-cost leases for grazing privileges were countervailable as a good or service. Id. at 13-14. Petitioners note that in Live Cattle, the Department found that the provision of the grazing privileges constituted a "service." Id. at 13. With respect to Congressional intent, petitioners claim that in enacting the URAA Congress intended that items such as stumpage that had previously been determined by the Department to be countervailable would still be countervailable. As noted in the SAA, "the Administration intends that the definition of 'subsidy' will have the same meaning that administrative practice and courts have ascribed to the term 'bounty or grant' and 'subsidy' under prior versions of the statute, unless that practice or interpretation is inconsistent with the definition contained in the bill." Id. at 14 quoting SAA at 925. Finally, with respect to international trade norms, petitioners submit that Canada's contention that stumpage cannot be countervailable because it is not a good was rejected by a GATT panel in 1992. Id. at 14 referring to United States -Measures Affecting Imports of Softwood Lumber from Canada, BISD 40S/358, para. 346 (Feb. 19, 1993; adopted Oct. 27, 1993). Respondents contend that stumpage is not a countervailable subsidy because it does not fall within the statutory definition of financial contribution. See Respondents' February 22, 2002 Joint Case Brief: Stumpage, Volume 2 at B 4-5. Respondents submit that stumpage does not constitute the provision of a good. Id. at 5. Rather, stumpage, whether granted through forest tenures or licenses, is the "conferral of a right of access to exploit an in situ natural resource," akin to licensing of quotas to harvest fish, or leasing of the right to extract oil or minerals from public lands. Id. at B 7. The tenure agreements or licenses through which stumpage is granted are "complex bundles of rights and obligations" all of which grant the right of access to Crown lands to harvest standing timber. Id. at B 6. Although the right to access, once exercised, may lead to logs, stumpage itself, i.e., the right to harvest, is not a "good." Respondents argue that the definition of "goods" in Black's Law Dictionary does not include harvesting rights. Id. According to respondents, the Canadian governments have "stewardship" over the public or "Crown" land in Canada. Id. at B 5. These Crown lands constitute "multiple-use resources" containing "market assets," such as timber and fuelwood, and "public assets," such as "recreation, water quantity and quality, wildlife habitat, wilderness and aesthetics, and erosion control." Id. at B 6. The Provincial governments as stewards of these multiple-use resources have developed forest management regimes "frequently based on tenure agreements, through which the government transfers timber-harvesting rights to private concerns while retaining ownership of the other forest assets." Id. Tenure holders are obligated to undertake a broad range of forest management responsibilities many of which entail significant in-kind costs including road-building and maintenance, silviculture and reforestation, and insect and fire protection. Id. According to respondents, the Provincial governments collect stumpage fees or charges on the volume of timber harvested as the stumpage holder exercises its harvesting rights. Id. at B 6. In some Provinces, the stumpage fees constitute a form of revenue collection which in economic terms means that "stumpage in [those] Provinces is a rent market, and stumpage charges are a means of dividing the economic rent between government and private exploiters of a resource." Id. at B 7. Discussion Section 771(5)(B) of the Act provides that a subsidy exists if an authority "provides a financial contribution" to a person and a benefit is thereby conferred. See section771(5)(B). "Financial contribution" is defined as: (i) the direct transfer of funds, such as grants, loans, and equity infusions, or the potential direct transfer of funds or liabilities, such as loan guarantees, (ii) foregoing or not collecting revenue that is otherwise due, such as granting tax credits or deductions from taxable income, (iii) providing goods or services, other than general infrastructure, or (iv) purchasing goods. Section 771(5)(D)(i)-(iv) of the Act. At issue in this case is subsection (iii). Thus, we must first determine whether Canada is providing a good or service to lumber producers. The debate over this issue has centered around the nature of "stumpage," i.e., is it a good or a right? To begin, some clarification of the term "stumpage" is necessary. The term "stumpage" can mean standing timber; the value of standing timber; a license to cut timber; or the fee paid for the right to cut timber. Black's Law Dictionary 1437 (7th ed. 1999). Given the multiple meanings of the term stumpage, we realize that its use could confuse the current analysis. Therefore, we will use the precise meanings of the term, as appropriate, to avoid any confusion over which meaning is intended. The ordinary meaning of "goods" is broad, encompassing all "property or possessions" and "saleable commodities." The New Shorter Oxford English Dictionary, L. Brown, ed., at 1116. Nothing in the definition of the term "goods" indicates that things that occur naturally on land, such as timber, do not constitute "goods." To the contrary, as petitioners point out, the term specifically includes "...growing crops, and other identified things to be severed from real property." Black's Law Dictionary 701-02 (7th ed. 1999). Therefore, we determine that stumpage, i.e., timber, is a "good" within the meaning of section 771(5)(B)(iii) of the Act. Respondents concede that timber is a "market asset" and that through forest tenures and licenses the Provincial governments relinquish ownership of those assets while retaining ownership of other forest assets. See Respondents' February 22, 2002 Joint Case Brief: Stumpage, Volume 2 at B6. Nevertheless, respondents argue that Provincial governments are not providing timber (a good), but rather are merely granting a right of access and a right to harvest timber. We find this argument unpersuasive. An examination of the Provincial tenure systems set forth in this memorandum demonstrates that the sole purpose of tenures is to provide lumber producers with timber. To "provide" means to "supply or furnish for use; make available." The New Shorter Oxford English Dictionary at 2393. Thus, regardless of whether the Provinces are supplying timber or making it available through a right of access, they are providing timber within the meaning of Section 771(5)(B)(iii). This conclusion is supported by an examination of Provincial tenures. As noted in respondents' case brief, the Provinces collect stumpage fees based "on the volume of timber harvested." See Respondents' February 22, 2002 Joint Case Brief: Stumpage, Volume 2 at B6. Softwood lumber producers are charged a set price per cubic meter of timber ($C/m3). Moreover, the per cubic meter fees are charged only for harvested timber. Tenure holders do not pay for timber that they do not harvest. Thus, regardless of the form of the transaction between the Provincial governments and those who harvest the timber, in substance it is a sale of timber. We decline to elevate form over substance. The fact that tenure holders are required to meet certain obligations with respect to the forests from which they harvest the timber does not alter this conclusion. In the course of selling one asset, the Provinces are merely taking steps to protect other assets. Furthermore, the Provinces factor in these obligations when calculating per cubic meter fees charged for the harvested timber. In effect, these obligations become part of the price paid for the timber. Finally, we note that, even assuming arguendo that the Provinces are providing stumpage in the form of a license or right to cut timber, Section 771(5)(B)(iii) would still apply. As noted above, the term "goods" encompasses all "property." The term "property" includes "the right to possess, use, and enjoy a determinate thing (either a tract of land or a chattel). . . [and] [a]ny external thing over which the rights of possession, use, and enjoyment are exercised. . . . In its widest sense, property includes all a person's legal rights of whatever description." Black's Law Dictionary at 1232. Therefore, the sale of a license or right to harvest timber also constitutes the provision of a good within the meaning of Section 771(5)(B)(iii) of the Act. Finally, assuming arguendo that we were to accept respondents' argument that tenure holders are merely acquiring a right to the use of the land, including cutting the trees, a financial contribution may still exist in the form of the provision of a service. (6) In sum, we determine that the Provincial governments provide a good (timber) to lumber producers within the meaning of Section 771(5)(B)(iii) of the Act. Benefit In the Preliminary Determination, we set forth our rationale for the methodology used to determine that Provincial stumpage programs confer a benefit on Canadian softwood lumber producers. We described the legal framework, examined the Provincial stumpage programs in the context of that framework, explained the basis for the market benchmarks that we chose for comparison with Provincial stumpage rates, and finally described in detail the calculations and adjustments made for each Province. We received numerous comments from the parties to the proceeding on various aspects of our analysis. After considering the comments received, and further analyzing the issues involved, we have refined some aspects of our preliminary analysis and calculations. Our final analysis, which also addresses the major comments received, is set forth below. Legal Framework The Statute Benchmark Standard: "In-Country" v. "Market-Based" Under section 771(5)(E)(iv) of the Act, a benefit is conferred by a government when the government provides a good or service for less than adequate remuneration. Section 771(5)(E) further states that the adequacy of remuneration shall be determined in relation to prevailing market conditions for the good or service being provided . . . in the country which is subject to the investigation or review. Prevailing market conditions include price, quality, availability, marketability, transportation, and other conditions of . . . sale. In the Preliminary Determination, we included a lengthy analysis of the meaning of the term "adequate remuneration." In summary, the statute, like the WTO Subsidies Agreement, consistently defines "benefit" as something better than the recipient could otherwise obtain in the market. For example, a government equity infusion confers a benefit "if the investment decision is inconsistent with the usual investment practice of private investors . . . in the country in which the equity infusion is made." See section 771(5)(E)(I). Similarly, a government loan provides a benefit "if there is a difference between the amount the recipient pays" on the government loan "and the amount the recipient would pay on a comparable commercial loan that the recipient could actually obtain on the market." Id. at 771(5)(E)(ii). Accordingly, we have interpreted "less than adequate remuneration" to mean a government price for goods or services that is better than the purchaser could otherwise obtain in the marketplace. This interpretation of the statute is entirely consistent with the WTO Subsidies Agreement. The statutory provision on adequate remuneration is virtually identical to the corresponding provision in the Subsidies Agreement. Moreover, the concept of benefit in the SCM Agreement has been interpreted by panels in precisely the manner that we have interpreted it in this case. A recent WTO dispute settlement panel stated that: benefit clearly encompasses "some form of advantage"; [the authority must] "...determine whether the financial contribution places the recipient in a more advantageous position than would have been the case but for the financial contribution...the only logical basis for determining the position the recipient would have been in absent the financial contribution is the market." Canada - Measures affecting the Export of Civilian Aircraft, (WT/DS70/R, para 9.112) The WTO Appellate Body stated: ...the marketplace provides an appropriate basis for comparison in determining whether a "benefit" has been "conferred" because the trade- distorting potential of a "financial contribution" can be identified by determining whether the recipient has received a "financial contribution" on terms more favorable than those available to the recipient in the market. Id. (WT/DS70/AB/R, para 157) (emphasis added) Parties generally did not take issue with the principle that the marketplace provides the appropriate basis for determining the adequacy of remuneration. Rather, their comments were focused on which market the Department must look to for purposes of comparison. Respondents argued that the statute does not permit the Department to consider any market other than Canada in analyzing adequacy of remuneration, i.e., that the Department must look to prices charged by other (non-government) sellers in Canada. Respondents argue that, as a matter of law, "prices in the United States are not a valid benchmark against which to measure the adequacy of remuneration." See Respondents' February 22, 2002 Joint Case Brief, Volume 2, at C 1. They contend that, in using U.S. stumpage prices as benchmarks, the Department violated the statutory mandate that the adequacy of remuneration "shall be determined in relation to prevailing market conditions for the good or service being provided or the goods being purchased in the country which is subject to the investigation or review." Id. quoting section 771(5)(E) of the Act (emphasis added). According to respondents, this language indicates that an in-country comparison is required by the statute. See Respondents' February 22, 2002 Joint Case Brief, Volume 2, at C 16. Petitioners, on the other hand, argued that the statute not only permits the Department to consider markets outside Canada, but in fact requires consideration of markets outside Canada when there are no bonafide market prices within Canada. We have concluded that the restrictive interpretation proffered by respondents is not supported by the language of the statute and would, in fact, undermine the very purpose of section 771(5)(E)(iv) of the Act. On its face, section 771(5)(E)(iv) does not state that adequacy of remuneration shall be determined "in the country of provision or purchase." Rather, the statute directs the Department to measure the adequacy of remuneration ". . . in relation to prevailing market conditions for the good or service being provided . . . in the country which is subject to the investigation or review." (emphasis added). Canada focuses solely on the latter half of this sentence. However, we must give meaning to the entire provision. In our view, read as a whole, the statutory language does not restrict the market benchmark to the country of export, but rather is intended to require that the adequacy of remuneration be determined by reference to comparable market-based transactions. An appropriate interpretation of "in relation to" is "with reference to" or "taking account of." Thus, the statute should be read as requiring that a determination concerning the adequacy of remuneration must take into account prevailing market conditions in the country of provision or purchase. Market prices within the country necessarily reflect prevailing market conditions in the country of provision. Thus, if only market prices in the country of provision or purchase could be used as the basis for comparison, the reference to prevailing market conditions would be rendered meaningless. The very existence of that phrase indicates that Congress' intent was to ensure comparability, not to unnecessarily restrict the universe of potential benchmarks for determining adequate remuneration. The intent of the statute is further illuminated by an illustrative list of prevailing market conditions. Section 771(5)(E) states the "prevailing market conditions include price, quality, availability, marketability, transportation, and other conditions of purchase or sale." This focus on the conditions of purchase or sale is consistent with our interpretation, i.e., that what the statute directs us to use is a market-based benchmark price for transactions that, while not necessarily from sources within the country of export, are (or could be adjusted to be) comparable to such transactions. This interpretation is also consistent with the purpose of the statute because it defines an acceptable universe of benchmarks that could be used to address the particular circumstances of any given case. In contrast, the extremely restrictive reading of the statute suggested by respondents would place beyond the reach of the countervailing duty law any government supplier that dominates the market for a particular input and then provides that input to producers at beneficial prices. Under such a reading, subsidy disciplines would only be available to remedy situations where the government provides only an incidental portion of demand for a particular input. In addition, if the government were the sole provider of the input, it would be impossible to determine the adequacy of remuneration, even in cases where the input is a commodity sold on world markets. This would be contrary to both logic and law. We may not interpret the statute in a manner that would frustrate its very purpose. See Goodman Manufacturing v. United States, 69 F.3d 505 (Fed. Cir.1995) ("Statutory interpretation is a holistic endeavor. A provision that may seem ambiguous in isolation is often clarified by the remainder of the statutory scheme" - because ". . . only one of the permissible meanings produces a substantive effect that is compatible with the rest of the law." (citation omitted)). In fact, respondents have conceded that it is both permissible and appropriate, in certain circumstances, to use prices from sources outside the country of export to measure the adequacy of remuneration. See Respondents' Joint Case Brief: Stumpage, Vol. 2 at C.6, February 22, 2002. Respondents concede that prices of some homogeneous commodity products with negligible transportation and transaction costs may properly be compared to world market prices or to prices in other countries because such a comparison would require only minor cost adjustments. These products obey the so-called "law of one price," which holds that market prices for these goods can be expected to be the same in different geographic areas. Thus, Canada implicitly recognizes that the real issue is not whether the benchmark is an "in-country" price, but rather whether it is an appropriate, comparable market-based benchmark price. The Department's methodology ensures that we obtain a comparable market-based benchmark, and the regulations spell out the method for selecting such a benchmark. The Department's Regulations As discussed above, the statute calls for a comparison of two prices: the market benchmark price chosen as the measure of adequate remuneration, and the price the government charges for the good in question. The benchmark price must be made comparable to the price with which it is being compared. Section 771(5)(E)(iv) ensures that, whatever comparison price is used to assess the adequacy of the remuneration required by the government, that comparison price will be reasonable and will reflect the market factors in the country under investigation that could affect a market price. For example, the commercial benchmark must be derived from comparable sales, i.e., sales where the prevailing terms and conditions are comparable to the sales by the government, or sales that can reasonably be adjusted to achieve comparability. In light of the objective, we agree that a market benchmark price chosen from the exporting country is preferable to a price chosen from outside the country because it is more likely that such a benchmark will more closely reflect, or be more easily adjusted for, prevailing market conditions in the country of provision in terms of overall price, quality, availability, marketability, transportation, and other conditions of sale. However, if there is no market benchmark price available in the country of provision, it is obviously impossible to determine adequacy of remuneration except by reference to sources outside the country. The above principles are reflected in the Department's regulations governing the selection of a benchmark for adequate remuneration. The parties have raised a number of issues concerning the regulations and how they were applied in this case. We will deal with each of these issues under several subheadings for ease of comprehension. The Regulatory Hierarchy The Hierarchy Is Designed to Search for the Most Appropriate Market-Based Benchmark Section 351.511(a)(2) of the Regulations sets forth three categories of comparison benchmarks for determining whether a government good or service is provided for less than adequate remuneration. These potential benchmarks are listed in hierarchical order by preference: (1) market prices from actual transactions within the country under investigation; (2) world market prices that would be available to purchasers in the country under investigation; or (3) an assessment of whether the government price is consistent with market principles. This hierarchy reflects a logical preference for achieving the objectives of the statute. The most direct means of determining whether the government required adequate remuneration is by comparison with private transactions for a comparable good or service in the country. Thus, the preferred benchmark in the hierarchy is an observed market price for the good, in the country under investigation, from a private supplier (or, in some cases, from a competitive government auction) located either within the country, or outside the country (the latter transaction would be in the form of an import). This is because such prices generally would be expected to reflect most closely the commercial environment of the purchaser under investigation. The second tier benchmark relies on world market prices that would be available to the producer under investigation, though not necessarily arising from actual transactions involving that particular producer. In selecting a world market price under this second approach, the Department will examine the facts on the case record regarding the nature and scope of the market for that good to determine if an in-country purchaser has access to such internationally traded goods at that price. As discussed in the Preamble to the regulations, the Department will consider whether the market conditions in the country are such that it is reasonable to conclude that a purchaser in the country could obtain the good or service on the world market. For example, a European price for electricity normally would not be an acceptable comparison price for electricity provided by a Latin American government, because electricity from Europe in all likelihood would not be available to consumers in Latin America. However, as another example, the world market price for commodity products, such as certain metals and ores, or for certain industrial and electronic goods commonly traded across borders, could be an acceptable comparison price for a government-provided good, provided that it is reasonable to conclude from record evidence that the purchaser would have access to such internationally traded goods. See "Explanation of the Final Rules" of Countervailing Duties, Final Rule, 63 FR 65348, 65377 (November 25, 1998) (Preamble). Finally, if there is no world market price available to purchasers in the country under investigation, the Department will measure the adequacy of remuneration by assessing whether the government price is consistent with market principles. This approach is set forth in section 351.511(a)(2)(iii) of the Regulations, which is explained further in the Preamble: Where the government is the sole provider of a good or service, and there are no world market prices available or accessible to the purchaser, we will assess whether the government price was set in accordance with market principles through an analysis of such factors as the government's price-setting philosophy, costs (including rates of return sufficient to ensure future operations), or possible price discrimination. . . In our experience, these types of analyses may be necessary for such goods or services as electricity, land leases or water. 63 FR at 65378. The Hierarchy Is Based on the Level of Confidence that the Benchmark Reflects Market Conditions Comparable to Those in the Country of Export Section 351.511 establishes that the hierarchy for market benchmarks is based on empirical evidence of sales, not on the origin or source of those sales. There is sometimes a misconception that the hierarchy is driven by source, such that the first tier is often thought of as in-country sales, the second tier world market sales, and the third tier cost, or some other market principle. This is not the case. In fact, the hierarchy moves from empirical evidence of sales in country, to potential sales to in-country purchasers, to an analysis that is based on factors other than empirical evidence of sales (such as whether the government-administered price is consistent with industry cost and price-setting philosophy). The benchmarks in all three tiers measure price in relation to market conditions in the exporting country, and, except for the third tier, all sources for the benchmark are actual sales. World market prices are just as much a part of the first tier as they are of the second; the only difference, according to the regulation, is that, to meet the requirements of the first alternative, there must be evidence of actual, observable import transactions. World market prices fall into the second category only when we derive those prices not from observed import transactions, but from public information recording those prices. The hierarchy reflects progressive degrees of commercial availability and commercial reality within a given relevant market. The further removed a transaction or a price is from the immediate physical, legal and commercial environment of the in-country purchaser, the less precise a benchmark that transaction price may be on its own, thus requiring more adjustments to achieve comparability. A constructed or derived price under tier three is inherently inferior to a potential import price under tier two because the potential import price is based on actual observed prices adjusted to fit the commercial environment of the in-country purchaser. Respondents contend that the Department failed to follow its own regulations. In respondents' view, the regulations require the use of prices from private sources or government auctions in Canada, as in Lumber III. If the Department bypassed the first tier of benchmarks defined in the Regulations, it would also have had to bypass the second tier because an in situ natural resource in the United States such as trees cannot by definition be "imported" into Canada and, therefore, cannot be available to Canadian producers. This would have led the Department to the third category in the regulatory hierarchy (third tier) (19 CFR 351.511(a)(2)(iii)), which requires a determination of whether the Canadian Provinces followed market principles in determining stumpage prices. We disagree with respondents's analysis for the reasons set forth below. Analysis There Are No First Tier Benchmarks Available There are no market-based internal Canadian benchmarks Under the hierarchy set out above, we must first determine whether there are actual market prices from transactions involving Canadian buyers and sellers that can be used to measure whether the Provincial stumpage programs provide a good or service for less than adequate remuneration. Alberta, Ontario and Quebec have provided private stumpage prices for their respective Provinces. British Columbia provided stumpage prices set by government auction. Neither Manitoba nor Saskatchewan reported prices on private stumpage sales within those Provinces. As discussed in detail below, and consistent with the Preliminary Determination, we find that there are no useable market-determined prices between Canadian buyers and sellers within the meaning of section 351.511(a)(2)(i) of the Regulations. Guidance on the use of market-determined prices stemming from actual transactions within the country is provided in the Preamble to the Regulations. See Preamble at 65377. According to the Preamble, prices from a government auction would be appropriate where the government sells a significant portion of the good or service through competitive bid procedures that are open to everyone, that protect confidentiality, and that are based solely on price. The Preamble also states that the Department normally will not adjust such competitively-bid prices to account for government distortion of the market because such distortion will normally be minimal as long as the government involvement in the market is not substantial. Id. However, the Preamble also states that, if the government provider "constitutes a majority or, in certain circumstances, a substantial portion of the market," then such prices in the country will no longer be considered an appropriate basis of comparison because there would be no basis for finding the distortion resulting from the government's involvement to be minimal. Id. Where the market for a particular good or service is so dominated by the presence of the government, the remaining private prices in the country in question cannot be considered to be independent of the government price. It is impossible to test the government price using another price that is entirely, or almost entirely, dependent upon it. The analysis would become circular because the benchmark price would reflect the very market distortion which the comparison is designed to detect. Under such circumstances, the statute envisions that a world market price is the most reliable benchmark, as long as such price is market-based and is commercially available to purchasers in the country of exportation. A large government presence in the market will tend to make much smaller private suppliers price-takers. While it is not unusual for small suppliers to be price-takers even in a market with no government involvement, the government-dominated market will distort the market as a whole if the government itself does not sell at market-determined prices. In such a situation, true market prices may not exist in the country, or it may be difficult to a find a market price that is independent of the distortions caused by the government's action. See, e.g., Dr. Robert Stoner and Dr. Matthew Mercurio, "Economic Analysis of Price Distortions in a Dominant-Firm/Fringe Market" (January 4, 2002), Exhibit 4 of Letter from Dewey Ballantine to Department of Commerce (February 14, 2002). We find that such circumstances are present in this investigation. First, there is substantial evidence that Provincial government stumpage fees are not set to reflect market prices. Rather, these fees are often set with a view towards traditional government economic policy goals, such as job creation, rather than with a view toward obtaining a fair market price. Further, the minimum cut requirements on public lands also distort timber supplies and depress prices. More fundamentally, however, as discussed above, a valid benchmark must be independent of the government price being tested; otherwise the benchmark may reflect the very market distortion the comparison is intended to detect. In each of the Provinces, the stumpage market is clearly driven by the government's control of the total softwood timber harvest. During the POI, total softwood timber harvested from Crown lands accounted for between approximately 83 and 99 percent of all softwood timber harvested in each of the Provinces. Specifically, the Provincial, federal, and private share of softwood timber harvests, by Province are: British - 90 percent Provincial, less than 1 percent federal, Colombia and almost 10 percent private; Quebec - 83 percent Provincial and 17 percent private; Ontario - 92 percent Provincial, 1 percent federal, and 7 percent private; Alberta - 98 percent Provincial, 1 percent federal, and 1 percent private; Manitoba - 94 percent Provincial, 1 percent federal, and 5 percent private; and Saskatchewan - 90 percent Provincial, 1 percent federal, and 9 percent private. Because the softwood harvest from Crown lands accounts for approximately 83 to 99 percent of the total softwood harvest within each of the Provinces, clearly, the government is by far the dominant player in each of the Provinces. Further, the record contains substantial evidence supporting the conclusion that stumpage fees on public lands are the price driver for the stumpage market in those Provinces and, therefore, stumpage fees on private lands are largely derivative of the public land prices. For example, as noted in the Preliminary Determination, Quebec provided a private price that was obtained via a survey of 81 companies that had purchased private stumpage during the POI. However, as even acknowledged by the Quebec Ministry of Natural Resources, private stumpage prices in Quebec are affected by the administratively-set price for public stumpage. See Petition at page 119. As another example, during verification in Quebec, Department officials spoke with representatives of the private forest who indicated that they lobby the government to keep public stumpage prices high so that the private stumpage prices might remain high. In the Government of Quebec's (GOQ's) rebuttal brief (March 2002), the GOQ questions the accuracy of our verification report with respect to the lobbying activities of the private marketing boards. However, our verification report accurately reflects the statements made to the Department's representatives during verification. See Verification Report of the Government of Quebec, at 28-29. In British Columbia, a report prepared by an environmental group concluded that "since loggers bidding on Small Business sales have no choice but to dispose of their timber in an environment where timber prices are artificially low, even the bonus bids in the Small Business Program will tend to underestimate timber value." Tom L. Green and Lisa Matthaus, "Cutting Subsidies or Subsidized Cutting?" at 9, appended to Letter from Dewey Ballantine to Department of Commerce (July 17, 2001). In Ontario, according to various participants in the forestry industry, Crown stumpage rates in Ontario depress stumpage values on private lands. David Cox et al., "Examining the Market Value of Public Softwood Sawtimber in Canada," 107 (July 27, 2001), appended to Letter from Dewey Ballantine to Department of Commerce (January 7, 2002). These are just a few examples of record evidence indicating that private prices and government auctions in Canada are not market-based. For further details, see the Province- specific sections below. A specific understanding of the administrative pricing systems in each Province is also instructive in understanding why private prices and competitive government auction prices in Canada are not appropriate benchmarks. See the Province-specific discussions below. Maritime Provinces as Source of Potential Benchmarks Respondents contend that the Department should have considered the use of Maritime Province prices as benchmarks. Id. at C 3. In advancing this argument, respondents argue that cross-Provincial comparisons are subject to the same infirmities that they assert exist with respect to cross- border comparisons. However, respondents request an explanation as to why prices from the Maritime Provinces were not considered. Id. at C 3. Although we requested pricing data from the Maritime Provinces, they were unable to provide such information. See Department's May 1, 2001 Questionnaire, Section IX at II.A & B. Three of the Maritime Provinces provided general descriptions of types of transactions but noted that there are no existing reports or data that describe this process. Each sale has different terms and conditions, dependent upon the woodlot situation and preferences of owners. See June 28, 2001 Questionnaire Response of the Province of Prince Edward Island, PE Volume 1-General Questions at 6-7; June 28, 2001 Questionnaire Response of the Province of Nova Scotia, NS Volume 1-General Questions at 7-8; June 28, 2001 Questionnaire Response of the Province of New Brunswick, NB Volume 1- General Questions at 7-8. The Province of Newfoundland provided various forms of transactions but noted that "[p]rivately owned timber is sold privately, often without any sort of public notice." See June 28, 2001 Questionnaire Response of the Province of Newfoundland, NF Volume 1- General Questions at 8. With respect to our request for pricing data, the Provinces of Prince Edward and Newfoundland responded that information was not available because those Provinces, respectively, do not collect such data or keep such records. See June 28, 2001 Questionnaire Response of the Province of Newfoundland, NF Volume 1-General Questions at 9; June 28, 2001 Questionnaire Response of the Province of Prince Edward Island, PE Volume 1-General Questions at 7. Nova Scotia provided certain volume information, but stated that "[i]nformation is not available for the value, price, region, zone, species or grade because the Province does not collect such data." See June 28, 2001 Questionnaire Response of the Province of Nova Scotia, NS Volume 1-General Questions at 8. Similarly, New Brunswick provided certain volume information but did not provide value information, noting that the information was not available because the Province does not collect such information. See June 28, 2001 Questionnaire Response of the Province of New Brunswick, NB Volume 1- General Questions at 8. Similarly, the Department was unable to find any public sources of private pricing data in the Maritime Provinces. Thus, there is no record information that would allow us to consider prices from the Maritime Provinces as appropriate benchmarks. Imports Into Canada Petitioners contend that the Department must give meaning to the record evidence that demonstrates that Canadian producers purchased both U.S. stumpage and U.S. logs during the POI. Specifically, petitioners allege that prices that the Canadian mills pay for timber in the U.S. market provide a benchmark representing "actual transactions between private parties." See Petitioners' February 14, 2002 Memorandum Concerning Subsidy Methodology and Countervailability Of the Provincial Stumpage Programs, at 34. The record of this case is replete with evidence of actual Canadian purchases of U.S. timber resources, which takes many different forms. One form is Canadian importation of U.S. logs, of which there is a significant amount - StatsCan data show that approximately 2.5 million cubic meters of softwood logs were imported into Canada during the POI, and each of the investigated Provinces imported U.S. logs during the POI. In addition, Canadian firms purchased stumpage from state and private lands. See, e.g., letter from Douglas Heym, Timber Sale Specialist, Michigan Department of Natural Resources, to Dewey Ballantine dated July 16, 2001. See also the verification reports conducted in connection with company exclusion requests for more evidence of Canadian imports of U.S. logs and purchases of U.S. stumpage. In another example, a Forest Industry Specialist with the University of New Hampshire Cooperative Extension indicated that as much as 30 percent of the sawlog harvest in certain New England states is sold to Quebec for processing. Id., referring to a letter from Sarah Smith to Navin Joneja dated July 16, 2001. Finally, Canadian firms purchase and actively harvest U.S. timberlands. For example, Canfor Corporation, a large Canadian producer, has extensive holdings of U.S. forest land. This extensive record evidence that Canadian lumber producers had actual imports of U.S. logs and purchased U.S. stumpage during the POI would support basing our benchmark on tier one of the regulatory hierarchy. However, we do not have sufficiently detailed import prices on the record to use as the benchmark for all Provincial stumpage programs. Therefore, we are using stumpage prices in the United States under tier two of the regulatory hierarchy as the basis of our benchmark. Second Tier: Why U.S. Stumpage Prices Are a Reasonable Benchmark U.S. Stumpage is Available to Canadian Producers In the analysis above, we explained why U.S. stumpage prices constitute legally permissible benchmark prices for measuring the benefit from subsidized Canadian stumpage. Here, we will explain why, notwithstanding respondents' arguments, U.S. prices are also a commercially reasonable benchmark. Respondents contest the use of U.S. stumpage prices to measure the benefit by arguing that timber harvesting rights are inherently local and non-transportable and, therefore, are not comparable across political boundaries. As such, they claim, cross-border price comparisons are effectively impossible because of fundamental differences in (1) timber characteristics and operating conditions; (2) rights and obligations associated with tenures; and (3) governmental policies and economic conditions. Respondents claim that the scope and size of the required adjustments for any credible cross-border comparison would be so large in relation to the claimed differences in unadjusted stumpage prices as to make any cross-border comparison meaningless. According to respondents, prices in the United States are not in any way "available" in Canada. In respondents' view, the Department's flaw was to equate the availability of U.S. logs and their prices in Canada with the availability of U.S. stumpage in Canada. This ignores the difference between timber harvesting rights (available only in either Canada or the United States) and the sale of logs (available in both Canada and the United States). As respondents state, The purchase of stumpage rights is not equivalent to the purchase of logs because of all the time and work that is necessary to turn standing timber into logs. A purchaser of stumpage rights has to gain access to the timber, plan the harvest, cut down the trees, and haul them out of the forest. To treat logs as the equivalent of timber harvesting rights ignores the steps that transform standing timber into commercial logs." Joint Case Brief, Stumpage, Volume 2, Tab C, Page 6 (Feb. 22, 2002). As noted above, respondents concede that prices of some homogeneous commodity products with negligible transportation and transaction costs may properly be compared to world market prices or to prices in other countries because such a comparison would require only minor cost adjustments. These products obey the so-called "law of one price," which holds that market prices for these goods can be expected to be the same in different geographic areas. While this principle can properly be applied to commodity products such as a metal or even possibly logs, it cannot, in respondents' view, extend to the right to extract a natural resource from which the commodity is produced, including timber harvesting rights. Extraction rights are only "available" in the country where the natural resource is located. As such, the Department erred by implicitly treating stumpage as a commodity product in the Preliminary Determination and by incorrectly assuming that U.S. stumpage prices are "available" in Canada. The fundamental issue here is whether the adequate remuneration standard applied by the Department in the Preliminary Determination is reasonable and reflects market factors in the country under investigation. To do so, the commercial benchmark must be derived from sales that are comparable to the allegedly subsidized transactions. This can include sales made under the same prevailing market conditions as the sales by the government, or sales that reasonably can be adjusted to achieve comparability, thereby accounting for different prevailing market conditions. Because we have determined that there is no appropriate Canadian market-based benchmark price available, we turned to the next most commercially reasonable sales, those in the United States. We adjusted these sales prices for factors to account for comparability, i.e., to account for different prevailing market conditions. While we acknowledge that it may be difficult to achieve perfect comparability, we disagree with respondents that the size and scope of the adjustments make comparability impossible. In our legal analysis above, we noted that our benchmark hierarchy for measuring the adequacy of remuneration implicitly reflects progressive degrees of commercial availability and commercial reality. The further removed a transaction or a price is from the immediate physical, legal and commercial environment of the in-country purchaser, the less precise a benchmark that transaction price may be on its own, thus requiring more adjustments to achieve comparability. U.S. stumpage prices, while further removed from Canadian purchasers, are not outside the spectrum of commercial reality and availability. Because they represent potential prices available to purchasers in Canada, and are based on actual observed transactions within a competitive market largely unfettered by government interference, and because they have been adjusted to fit the commercial environment of the in-country purchaser, they represent viable and commercially reasonable benchmark prices. As we explain more fully in the Province-specific sections below, we have refined the adjustments we made in the Preliminary Determination to take into account our findings at verification and additional information placed on the record of the proceeding. These additional adjustments, in our view, further facilitate the comparison of U.S. and Canadian prices. Respondents' view that the U.S. stumpage prices cannot under any circumstances be properly adjusted to account for market differences is an extreme view that is fundamentally not grounded in commercial reality. Nor is it supported by record evidence. As noted above, respondents' viewpoint is easily belied by the simple fact that Canadian companies own private land in the United States, routinely bid on U.S. stumpage, and import thousands of U.S. logs on a daily basis for use in Canadian sawmills. Comparability of U.S. timber stands We address many of the issues concerning product comparability in the Province-specific sections below. However, it is worth pointing out that respondents' argument concerning measurements of timber across political boundaries fails on its face, because timber that is separated only by a geopolitical boundary is just as comparable as timber that is located on only one side of a border. In fact, timber across the border often is more comparable depending on a number of geographical, climatological and ecological conditions. The border, as such, is therefore meaningless for the inherent comparison of timber sales. A review of a North American forestry map clearly proves this point. The North American West Coast Forest extends from the coast of British Columbia down to the coast of northern California. The North American Western Forest extends from interior British Columbia and Alberta west of the Rockies to interior areas in northern and western United States that are west of the Rockies. The vast North American Boreal (or Northern) Forest extends from Alberta east of the Rockies, across the Prairie Provinces and northern mid-western United States, all the way to eastern Canada and the northeastern part of the United States. Not one of these vast forest regions stops or changes at the geopolitical boundary between the United States and Canada. As noted below, except for small portions of their southern-most shores, not even the Great Lakes interrupt the vase expanse of the North American Boreal Forest region. In fact, the only North American forest regions that do not straddle the border between the United States and Canada are the Central Hardwood Forest and the Southern Forest. These regions are located in the central and southern parts of the United States. We have not chosen any prices from these regions in our benchmark comparisons. The states used in our benchmark comparisons that contain more than one North American forest region are Washington, Minnesota, and Michigan. To ensure proper comparisons, we only compared western Washington with coastal British Columbia, and eastern Washington with interior British Columbia. The southern portions of Minnesota and Michigan are part of the Central Hardwood Forest. While we relied on state-wide pricing data from both those states, by making species-specific comparisons, we ensured that our comparison prices came overwhelmingly from the same North American forest region. Parties on both sides of this issue have written volumes to guide the Department as to the best methodology to achieve comparability. Respondents argue that cross-border comparisons are distortive due to the differences in U.S. and Canadian forests ; however, respondents are misguided in their belief that differences in the type, mix, quality and location of forest resources make any comparison a practical impossibility. As we noted in the Preliminary Determination, the fact that individual stands may be to some extent unique does not mean that all stands are so dissimilar as to render any stumpage price comparisons meaningless and commercially unreasonable. Rather, information on the record indicates that, despite minor differences, many softwood lumber stands in Canada and the United States are in fact sufficiently similar so as to make it commercially reasonable to compare them for benchmark purposes. The same logic and economic reasoning support the proposition that stumpage prices in southern Quebec are more comparable to those in Maine than they are to those in British Columbia, which has a different composition of timber species. It is, thus, more commercially reasonable to compare stumpage in Canada and the United States that reflects similar terrain, climate conditions, and mix of species because of geographical proximity than to compare stumpage located in a different regions of Canada where these conditions are not the same. Turning to the other factors cited by respondents in support of their argument that cross-border price comparisons are not viable, once again, there is nothing about these factors that nullifies the fundamental commercial reasonableness of U.S. benchmark prices. Concerning differences in rights and obligations associated with timber, respondents claim that the Department has failed to adjust for "long-term obligations" in Canada and "short-term cutting rights" in the United States. As an initial matter, there is nothing inherently different about the transfer of timber to private purchasers in the United States and Canada. Moreover, the long- term obligations that respondents associate with Canadian tenures, including silviculture, road-building and infrastructure development responsibilities, are in fact all accounted for in the Province-specific calculations. The remaining difference is that bids in Canada are not competitive, while they are in the United States. It is the potential market-distorting effect of that difference that is at the heart of this inquiry. Respondents also argue that cross-border comparisons are complicated by differences in political and economic conditions. If these arguments were true, all potential transactions that are not strictly "in-country" would be impermissible as benchmarks, including import prices into the country and all world market prices, regardless of the product investigated. Yet even respondents readily admit that world market prices are permissible under certain circumstances. See Respondents' Joint Case Brief: Stumpage, Vol. 2, at C 6. Moreover, any country's countervailing duty laws would become inoperable if adjustments had to be made for all government policies, not only those associated with subsidy programs. Such an extreme position defies common sense and economic reality. While there may be factors that preclude perfect substitutability, as noted above, the principal segmenting factor in the North American lumber and stumpage markets is the fact that Canada's Provincial Governments administer stumpage rights, while in the United States stumpage prices are determined by the market. We also find that respondents' claim that U.S. stumpage prices are not "available" in Canada is illogical and factually incorrect. As a simple matter of geography, there is nothing that makes the price of an in situ good that is mined, harvested, or extracted not "available" outside the geographical borders of a country. Alternatively, spacial distance, whether geographical or political, does not make the prices of iron ore, gemstones, or, for that matter, stumpage "unavailable" within the boundaries of a relevant market, within certain commercially reasonable parameters. In order to maintain this fallacy, respondents must claim that not only spacial distance but, in particular, distance marked by a political boundary is a determining factor in making U.S. stumpage prices "unavailable" to Canadian lumber mills. We recognize that obtaining an in situ natural resource located a great distance from the site of processing may be commercially unreasonable, although geography is not always a determining factor. In many instances, however, it may be commercially reasonable to access, i.e., bid on a natural resource, that is not located within the political boundaries of the country where the firm is located. For example, prices of iron ore from a deposit located in Germany near the Franco-German border may be equally "available" or "accessible" to steel companies located in each of these countries. Mining companies in both countries, or the steel companies themselves, may have equal access to these natural resource deposits and their prices. In fact, the iron ore may be more "available" to a French steel producer located near the deposit than to a German steel producer on the German/Polish border. The relevant market for the iron ore may be the steel companies that are located nearest to the deposit, i.e., on the French/German border. In respondents' view, this would not be the case. Rather, by elevating the importance of the geopolitical boundary over the relevant market, respondents would argue that the iron ore prices in Germany are not available to French steel companies and vice versa. We have illustrated above why this argument is, as a practical matter, illogical. In this case, it is also factually incorrect. There is nothing about the border between the United States and Canada that would affect the comparability of trees grown on either side. Except for the Great Lakes, there is no significant body of water or mountain range that defines the border between the two countries. A review of any North American forestry map shows that almost all U.S. and Canadian lands surrounding all five of the Great Lakes consists of boreal (northern) forest. So even this one natural boundary between the two countries does not affect the comparability of forests on both sides of the border. As noted above, the record in this case also makes clear that Canadian lumber producers have access to U.S. prices of stumpage. There are no restrictions on obtaining stumpage on private and most state lands in the United States. (7) Furthermore, timber harvested in the United States is imported into Canada, and imports from the United States account for almost 100 percent of all such Canadian imports. Such imports represent a decision made by Canadian mills to purchase U.S. stumpage instead of Canadian stumpage. Finally, we note that some of the largest softwood lumber producers in Canada have operations in both Canada and in the United States and obtain stumpage in both countries. There are a number of Canadian sawmills that have in fact bid on and purchased U.S. timber. U.S. timber sales are, in fact, open to all eligible bidders on both sides of the U.S. - Canadian border, and the record indicates that these transactions spanned all of the investigated Provinces. Respondents' arguments concerning access to, or availability of, U.S. stumpage in Canada are, therefore, unpersuasive. Consistent with our approach in the Preliminary Determination, to measure whether the Provincial stumpage programs provide a good or service to softwood lumber producers at less than adequate remuneration, as required under section 771(5)(E)(iv) of the Act and section 351.511(a)(2) of the CVD Regulations, we have compared the government-administered stumpage prices in each of the investigated Provinces with stumpage prices immediately across the border in the northern United States that would be available to Canadian lumber producers. For most Provinces, this comparison was made by comparing Canadian stumpage prices to those U.S. States bordering those Provinces. The actual comparisons are described in the Province-specific sections below. As noted above, we have adjusted our calculations from the Preliminary Determination to take into account our findings at verification and additional information placed on the record. Public land stumpage fees in the United States, such as those available on state lands, reflect market-based prices because they are determined by public auctions available to all bidders. These sales involve competitive bidding where most purchasers have the choice of buying public or private stumpage. Moreover, it is reasonable to conclude that stumpage fees from public lands are a suitable benchmark because the total volume of timber cut from public land constitutes a small minority of the amount of total timber sold in the United States, making private timber sales the primary driver of stumpage fees in the timber market overall. Thus, after considering the information on the record, we continue to determine that cross-border stumpage prices are the appropriate comparison prices to measure whether the Provincial governments have provided a good or service to softwood lumber producers at less than adequate remuneration. For each of the Provincial stumpage programs, we have compared the administratively-set stumpage price charged to softwood lumber producers with the cross-border stumpage benchmark prices, taking into account, where appropriate, adjustments to account for comparability. These are explained below in the narrative descriptions of the individual Provincial stumpage programs. Using this methodology, we determine that each of the Provincial stumpage programs provides a benefit to Canadian softwood lumber producers by providing stumpage for less than adequate remuneration. Prior Lumber Cases Respondents also contend that our use of U.S. stumpage prices as benchmarks by which to measure the adequacy of remuneration is contrary to our previous lumber cases. Respondents make the same argument with respect to the Lumber I, II and III cases that they made before the Preliminary Determination. See Respondents' February 22, 2002 Joint Case Brief, Volume 2, at C 22. Specifically, respondents argue that in our previous actions, we determined that comparisons of Canadian prices with U.S. prices would be arbitrary and capricious. Id. Respondents submit that our "reversal" is prohibited by law because the law prevents the Department from reversing itself without "reasoned explanation." Id. at C 23 referring to Motor Vehicles Mfrs. Ass'n v. State Farm Mut. Auto Ins. Co., 463 U.S. 29, 42 (1983). We provided a reasoned explanation in response to this argument in the Preliminary Determination. Contrary statements in the past by the Department with respect to cross-border prices were made in the context of a different legal framework. As we noted in the Preliminary Determination, our final determination in Lumber III was made in 1992, before the URAA amendments to the Act. At the time of Lumber III, the provision of a good or service was a benefit if it was provided at preferential rates. The methodology used by the Department to determine whether the good was provided at preferential rates was set forth in the "Preferentiality Appendix" and in section 355.44(f) of the then Proposed CVD Regulations. (8) According to this methodology, the Department would measure whether the government provided a good or service at a preferential rate based upon, in order of preference, the following benchmarks: (1) the price the government charges to other parties for the identical or similar good; (2) the price charged by other sellers within the same political jurisdiction (i.e, country under investigation); (3) the government's cost of providing the good or service; or (4) the price paid for that good outside the country under investigation. There are several important differences between the discarded preferentiality standard and the current adequate remuneration standard. Preferentiality is a measure of price discrimination, i.e., whether a government is favoring some buyers over others with lower prices. Indeed, the first choice under the preferentiality methodology was to use another government price as a benchmark to determine whether the investigated program provides a benefit. This was the benchmark used by the Department in Lumber III, and it provided a measure of price discrimination, or preferentiality. It cannot be said to measure adequate remuneration. As noted above, under the adequate remuneration methodology, if there is no market-determined price within the country under investigation, the Department seeks a price on the world market (if one is available). However, under the preferentiality methodology, the use of a price on the world market was the last alternative. The preferentiality methodology required the Department to measure the benefit from the government's provision of a good or service by comparing the government's price for that good to its cost of providing that good before using a world market price. Therefore, under the preferentiality methodology, the Department was effectively precluded from using a price from the world market in most cases. As recently noted by the Court of International Trade (CIT) in Ta Chen Stainless Steel Pipe, Ltd. v. United States, 2001 Ct. Intl. Trade LEXIS 150, 4 (Dec. 10, 2001), in addressing the Department's change in its related-party policy: Ta Chen misunderstands Commerce's duty of explanation of a policy change, as now admittedly occurred here. It is hornbook administrative law that an agency may change its policy, practice or legal interpretation, subject only to the constraint that it explain the reason for its change and that the new policy remains consistent with the governing statute. The reason for the change may simply be a reversal of the agency's position because it believes the new position to be more sound; no intervening event is required to justify the change. Cf. Greater Boston Television Corp. v. F.C.C., 143 U.S. App. D.C. 383, 444 F.2d 841, 852 (D.C. Cir. 1970) (Leventhal, J.) ("An agency's view of what is in the public interest may change, either with or without a change in circumstances."). To impose a requirement of changed circumstances, as Ta Chen would have the court do, would result in the ossification of the entire administrative state. The situation in this case is even more compelling. Here, we have an intervening event, viz., a change in the governing statute. To be consistent with the governing statute and the statutory modifications to the manner by which we are required to measure a benefit, the Department's analysis and methodology changed. Indeed, our practice subsequent to the adoption of the URAA has been to use, when appropriate, non-domestic prices. See Live Cattle from Canada, 64 FR at 57056-57( ". . . when confronted with an adequate remuneration issue, the Department will normally seek to measure the adequacy of remuneration by comparing the government price to market-determined prices within the country. However, in certain situations, market prices may not exist in the country or it may be difficult to find a 'market' price that is independent of market distortions caused by government actions."); see also Notice of Preliminary Affirmative Countervailing Duty Determination and Alignment with Final Antidumping Duty Determinations: Certain Hot-Rolled Carbon Steel Flat Products from Thailand, 66 FR 20251, 20259 (April 20, 2001)("Carbon Steel Flat Products From Thailand") ("However, in the preamble, we made clear that if the government provider constitutes a majority of the market, we would have to resort to other alternatives, including world market prices . . .") We note that in the February 22, 2002 Case Brief of the GOQ, Volume 11 at 12-14, the GOQ challenges our description in the Preliminary Determination that our analysis in Lumber III was based upon the "Provincial governments' practice of price discrimination under the 'preferentiality' standard." Id. at 13. According to the GOQ, the preferred preferentiality benchmark could not be used with respect to Quebec because there were no government sales of public stumpage to use for comparison purposes. Id. at 12-13 referring to Lumber III, 57 FR at 22597. As a consequence, the Department chose to use the second (9) standard in the hierarchy, the price charged for the same goods by private sellers within the same political jurisdiction. Id. The GOQ contends that given that, this methodology is now the preferred benchmark, the Department should not reject Quebec's private forest data. Id. The GOQ is partially correct. In Lumber III we used the second benchmark in the pre-URAA hierarchy to determine whether a benefit was provided with respect to Quebec. However, that fact does not change our current analysis. As set forth in detail above, our post-URAA statute and regulations, consistent with the Subsidies Agreement, require that in determining adequacy of remuneration the government price must be compared with a market-determined price. As noted above and in the Province- specific section of this memorandum addressing Quebec, we have determined that the private stumpage prices submitted by the GOQ are distorted by the government's overwhelming presence in the market; thus they cannot serve as an independent benchmark. Moreover, there is evidence suggesting that the private prices reflect the market-distorting effects of the administered prices. Indeed, by way of example, at verification a representative of one of the private marketing boards indicated that the board lobbies the GOQ to keep public stumpage prices high so that the private stumpage prices remain high. See Verification Report of the Government of Quebec, at 28-29. Consistent with our Preamble, if the government provider constitutes a majority, or a substantial portion of the market, then such prices in the country will no longer be considered market-based and will not be an appropriate basis of comparison for determining whether there is a benefit. 63 FR at 65377. Thus, we are not persuaded that our treatment of Quebec under the second preferentiality benchmark entitles it to a different post-URAA analysis than the other Provinces. Softwood Lumber Agreement As an argument against using U.S. stumpage prices as a benchmark, respondents contend that the Department, in measuring Canadian stumpage subsidies, did not consider whether the Softwood Lumber Agreement ("SLA") has distorted Canadian and U.S. timber prices. We have considered respondents' argument but find, for the reasons provided below, that no adjustment should be made to the U.S. benchmark. Turning first to the Canadian market, the timber industry in Canada is not driven by market considerations to begin with. As discussed at length elsewhere in this memorandum, Canadian stumpage prices are for the most part administratively set and, therefore, do not track timber market supply and demand conditions in the Provinces or in the United States. In other words, even if the SLA were not in effect, the administratively-set stumpage prices would not be allowed to adjust to a normal market equilibrium price. While we recognize that some of the Provincial administered pricing systems take lumber prices into account, there are so many other administered variables involved in setting the fees that any connection between market stumpage prices in the United States and the administered stumpage fees in Canada is tenuous at best. With regard to any distortion of U.S. stumpage prices, we note that most bids for the right to harvest timber on public lands in the United States generally are made about one year in advance of the time the resulting lumber is expected to reach the market. As a result, bid prices are based on the expected value for lumber about one year in the future. Therefore, during the POI, bid prices for stumpage on U.S. public lands, i.e., the prices that are used in the benchmark, were based in part on expectations about a future market in which it was known that the SLA would no longer be in force. Moreover, as noted in our preliminary critical circumstances finding, (10) throughout the duration of the SLA, Canadian lumber exports to the United States consistently exceeded the specified volume thresholds that triggered the export fees, and Canadian market share generally continued to rise throughout the period of the SLA. There is no record evidence that the SLA actually constrained the quantity of lumber exported to the United States. Nor is there any record evidence that the SLA caused any change in stumpage prices in the United States during the POI. Finally, even if a measure such as the SLA did not exist to regulate the flow of lumber at the border, the mere existence of the Canadian administered pricing system, with the resulting impact of subsidized stumpage on Canadian lumber production, would continue to distort the U.S. market. In other words, U.S. stumpage prices arguably will always be distorted so long as Canadian stumpage is heavily subsidized and exported to the U.S. market. Of course, the whole point of this investigation is to quantify and remedy the impact of those subsidies on the U.S. market. Effects of the Subsidy Respondents have requested that the Department exercise its discretion to consider whether Canadian Provincial stumpage charges have trade- or market-distorting effects. See Respondents' February 22, 2002 Joint Case Brief: Stumpage, Volume 2 at D-3-D-8. Respondents contend that section 771(5)(C) of the Act does not preclude the Department from examining the effects of the subsidy programs. Specifically, respondents argue that section 771(5)(C) does not prohibit the Department from considering whether a subsidy has market-distorting effects. Id. at D-3 (emphasis in original). Petitioners disagree. Petitioners submit that the law precludes the Department from considering the effects of any alleged subsidy. See Petitioners' March 1, 2002 Rebuttal Brief at 31-34. Section 771(5)(C) of the Act provides, in relevant part, that "[t]he administering authority is not required to consider the effect of the subsidy in determining whether a subsidy exists under this paragraph." In accordance with section 771(5)(C), the Department's "practice is to countervail the value of the subsidies at the time that they are provided to the company without regard to their actual use by that same company or their effect on its subsequent performance." Industrial Phosphoric Acid from Israel; Preliminary Results of Countervailing Duty Review, 66 FR 45965, 45967 (Aug. 31, 2001). This practice is consistent with the purpose of the countervailing duty law, administrative intent, and case law. The SAA, in providing an authoritative expression of administrative intent, states: Section 771(50(C) provides that in determining whether a subsidy exists, Commerce is not required to consider the effect of the subsidy. In Certain Softwood Lumber Products from Canada, USA-92-1904-02, a three-member majority ruled that in order to find certain government practices to be subsidies, Commerce must determine that the practice has an effect on the price or output of the merchandise under investigation. In so ruling, the majority misinterpreted the holding in Georgetown Steel Corp. v. United States, 801 F.2d 1308 (Fed. Cir. 1986), which was limited to the reasonable proposition that the CVD law cannot be applied to imports from nonmarket economy countries. Although this panel decision would not be binding precedent in future cases, the Administration wants to make clear its view that the new definition of subsidy does not require that Commerce consider or analyze the effect (including whether there is any effect at all) of a government action on the price or output of the class or kind of merchandise under investigation or review. SAA at 926. With respect to this issue, the CIT and the appellate court have upheld the Department's policy of not examining the effects of a subsidy. The CIT, quoting the appellate court, has stated: It is well settled law that Commerce is not required to examine the ultimate use of the subsidy. So long as a subsidy is provided with respect to the manufacture, production or sale of subject merchandise, Commerce may impose countervailing duties. The Court of Appeals for the Federal Circuit has upheld this policy: 'Congress has expressed the . . . view that an effects test for subsidies has never been mandated by the law and is inconsistent with effective enforcement of the countervailing duty law. It would be burdensome and unproductive for the Department of Commerce to attempt to trace the use and effect of a subsidy demonstrated to have been provided to producers of the subject merchandise.' Fabrique de Fer de Charleroi, SA v. United States, 166 F. Supp. 2d 593, 603 (CIT 2001) quoting Saarstahl A.G. v. United States, 78 F.3d 1539, 1543 (Fed. Cir. 1996)(decided under pre-URAA statute)(citations omitted). As noted by the courts both pre-and post-URAA, it is well settled law that the Department is not required to examine the effects of an alleged subsidy program. To the extent that there was any question about this issue prior to the passage of the URAA, that question was removed with the inclusion of section 771(5)(C) in the URAA and the discussion regarding the inclusion of that provision which was contained in the SAA and cited above. While we agree with respondents that the statute does not prohibit the Department from considering whether a subsidy has market-distorting effects, we are also mindful of the need to balance administrative burdens, the effective enforcement of the law, and the ability to complete our investigations within strict statutory time limits. In light of the complexity of respondents' proposal, the burden it would place on the Department, and the need to complete this investigation in a timely manner, we have determined that it would not be justified for the Department to depart from its well settled practice of not considering the effects of the subsidy in question. Specificity Subsidies contingent upon export performance or the use of domestic goods over imported goods are by definition deemed to be specific in accordance with sections 771(5A)(A) and (B) of the Act. For other subsidies, in accordance with section 771(5A)(D)(i) of the Act, if the law enacting the program expressly limits the subsidy program to an enterprise or industry, the program is de jure specific. However, when the law enacting the program does not expressly limit the subsidy program to an enterprise or industry, the Department applies the criteria listed under section 771(5A)(D)(iii) of the Act to determine whether the program is specific based upon the actual manner in which the program is used. The examination of specificity under section 771(5A)(D)(iii), referred to as a de facto specificity analysis, provides for the following: Where there are reasons to believe that a subsidy may be specific as a matter of fact, the subsidy is specific if one or more of the following factors exist: (I) The actual recipients of the subsidy, whether considered on an enterprise or industry basis, are limited in number. (II) An enterprise or industry is a predominant user of the subsidy. (III) An enterprise or industry receives a disproportionately large amount of the subsidy. (IV) The manner in which the authority providing the subsidy has exercised discretion in the decision to grant the subsidy indicates that an enterprise or industry is favored over others. The statute states that any reference under section 771(5A)(D) to an enterprise or industry includes a group of enterprises or industries. In accordance with section 351.502(a) of the CVD Regulations, the Department, in analyzing whether a subsidy is de facto specific, will examine the factors contained in section 771(5A)(D)(iii) of the Act sequentially. In addition, section 351.502(a) provides that, if a single factor warrants a finding of specificity, the Department will not undertake further analysis. Congress, in the SAA, explained how the Department's specificity analysis should be conducted. See Statement of Administrative Action (SAA) accompanying H.R. 5110, H.R. Doc. No. 316, Vol. 1, 103d Congr., 2d Sess. 911-955 (1994). The SAA states that the specificity test should be applied "in light of its original purpose, which is to function as an initial screening mechanism to winnow out only those subsidies which truly are broadly available and widely used throughout an economy." See SAA at 929. The SAA also provides that, because "the weight accorded to the individual de facto specificity factor is likely to differ from case to case, clause (iii)" of section 771(5A)(D) "makes clear that the Department will find de facto specificity if one or more of the factors exists." Id. at 931. With respect to the type of subsidy program at issue in this investigation, the SAA states that "where a government confers a subsidy through the provision of a good or service, the fact that the use of the subsidy may be limited due to the inherent characteristics of the good or service in question would be irrelevant for the purposes of a de facto specificity analysis." Id. at 932. A determination of specificity is based upon whether or not the subsidy program is limited, by law or by fact, to an enterprise or industry or group of enterprises or industries. Therefore, under section 771(5A)(D) of the Act, the Department is to determine specificity based upon whether the program is limited. The statute provides the Department with criteria to be used in such a determination. Specifically, the Department may analyze the number of recipients that actually use the program, determine whether one enterprise or industry receives a disproportionately large amount of the subsidy or is the predominant user of the program, or examine whether or not the criteria or conditions for receiving the subsidy are clearly defined. See section 771(5A)(D)(iii)(I) - (IV) of the Act. As can be readily discerned from the language of the statute, Congress has given the Department discretion in determining whether a program is specific. The Court of Appeals has recognized that the Department possesses broad discretion in this regard, stating that the decisions of the Department with respect to its interpretation of the specificity test must be upheld unless the Department's interpretation "is effectively precluded by the statute." The Court concluded that the Department's interpretation of the statute's specificity test must only be "a reasonable one." See PPG Indus. v. United States, 928 F.2d 1571 (Fed. Cir. 1991). In exercising the discretion provided to the Department by Congress and recognized by the Court, the Department conducts its specificity analysis on a case-by-case basis ensuring consistency in its interpretation of the statutory criteria by reviewing case precedent. However, in this analysis of specificity, the Department must, as instructed by the SAA, apply the specificity test "in light of its original purpose, which is to function as an initial screening mechanism to winnow out only those subsidies which truly are broadly available and widely used throughout an economy." To determine whether the Provincial stumpage programs are specific under the law, we examined the programs based upon the criteria set forth under section 771(5A)(D)(iii) of the Act. Based upon a review of the information on the record, we determine that, under section 771(5A)(D)(iii)(I) of the Act, the actual recipients of the Provincial stumpage program subsidies are limited to a group of industries. Benefits under these Provincial stumpage are limited to those companies and individuals specifically authorized to cut timber on Crown lands. These companies are pulp and paper mills and the saw mills and remanufacturers which are producing the subject merchandise. (11) This limited group of wood product industries is specific under section 771(5A)(D)(iii)(I) of the Act. Respondents disagree with the Department's preliminary determination that the Provincial stumpage programs are specific under the Act. They argue that the users of stumpage programs are not limited, either in law or in fact, to a specific class of enterprises, industries or groups thereof. They state that under the specificity test as defined by section 771(5A) of the Act, subsidies that are "broadly available and widely used throughout an economy" are considered non-specific and, therefore, non- countervailable. Respondents state that the entire purpose of the specificity test is to isolate and countervail only those subsidies for which the benefit is given to a discrete and limited (i.e. "specific") part of a particular economy. Respondents are incorrect that the Provincial stumpage subsidies are "broadly available and widely used throughout an economy." Applying the standard set forth in the statute and SAA, whether we classify the users of the stumpage programs as sawmills and pulp mills, the primary timber processing group, the wood products industry, the forest products industries, the wood fiber user industry, the "industries" suggested by respondents, or any combination thereof, the subsidies provided by these stumpage programs are not "broadly available and widely used." The vast majority of companies and industries in Canada does not receive benefits under these programs. These stumpage programs are limited to an industry or group of industries and are thus specific within the meaning of section 771(5A)(D) of the Act. Respondents also state that the Department concluded that the stumpage programs are de facto specific because of the limited number of users of these programs. However, they argue that the Department failed to make any determination on the remaining criteria for de facto specificity, and failed to analyze the programs using a de jure specificity analysis. Respondents' contention that the Department must address each of the elements for de facto specificity is simply at odds with the law. The SAA and the CVD Regulations clearly state that the Department will find de facto specificity if one or more of the factors listed in section 771(5A)(D)(iii) of the Act exists. Indeed, section 351.502(a) of the CVD Regulations states that if a single factor warrants a finding of specificity, the Department will not undertake further analysis. The stumpage programs are determined to be de facto specific because of the limited number of users. Therefore, the Department is not required to address the other factors listed in section 771(5A)(D)(iii) of the Act. Moreover, a program may be either de facto or de jure specific. Therefore, because we have determined that the programs are de facto specific, the requirements of the statute have been met. Respondents argue that the Department should analyze specificity based upon the end products sold by the industry or industries using the subsidy program. They argue that this product-based approach for defining an industry was used in both Lumber I and Lumber II. Thus, they contend that the Department should analyze specificity on the basis of the number of products which are produced from softwood lumber. Respondents argue that a great number of products is created from softwood logs. They contend that information on the record indicates that no fewer than 201 separate products are manufactured by companies holding Provincial harvest rights. Respondents assert that this type of analysis would demonstrate that the stumpage programs are not limited to a group of industries. We disagree. Section 771(5A) of the Act and the Regulations expressly provide that specificity is to be determined based on the universe of recipients, i.e., whether the enterprises and industries that receive the benefit is limited. The universe of products produced by those recipients is irrelevant. Respondents' reliance on the determinations in Lumber I and Lumber II is misplaced. The specificity determination for stumpage programs used in Lumber I was based upon the "inherent characteristics test," which was later rejected by the Department based upon the CIT's decision in Cabot Corp. v. United States, 620 F. Supp. 722 (CIT 1985). The de facto specificity analysis required by Cabot was implemented into law by Congress in the 1988 amendment to the Act. Moreover, the SAA states that "the fact that the use of the subsidy may be limited due to the inherent characteristics of the good or service in question would be irrelevant for the purposes of a de facto specificity analysis." Other programs investigated in Lumber I, such as grants and loans to companies producing products made from wood, were found to be specific to the "forest products industries." We note that, based upon the information cited on the record by respondents, the forest products industries are the same industries that use the stumpage programs in this current investigation. There was no final determination issued in Lumber II, only a preliminary determination was issued in that investigation. In addition, the determination of specificity in that determination was based upon "best information available." Therefore, Lumber II is not instructive with respect to the specificity issue. Respondents also cite to Certain Cut-to-Length Carbon-Quality Steel Plate from the Republic of Korea, 64 FR 73176 (December 29, 1999), and to Certain Pasta from Turkey, 61 FR 30366 (June 14, 1996). However, an examination of those cases demonstrates that the specificity determinations were based upon the number of industries using the programs, not the fact that those industries produced a wide variety of goods. The specificity determinations were based upon an industry analysis, not a product analysis as suggested by respondents. (12) Finally, respondents argue that the record evidence does not support a finding that industries using stumpage constitute a "group" of industries. However, section 351.502(b) of the CVD Regulations states that, in determining whether a subsidy is being provided to a "group" of industries within the meaning of section 771(5A)(D) of the Act, the Department is not required to determine whether there are shared characteristics among the industries that are eligible for, or actually receive, a subsidy. Respondents state that the language of section 351.502(b) of the CVD Regulations is inconsistent with the SAA, which states that the specificity requirement exists to ensure that only subsidies "provided to or used by discrete segments of an economy" are countervailable. The language of section 351.502(b) is entirely consistent with the statute and the SAA. According to the SAA at 930, the specificity test is "intended to function as a rule of reason and to avoid the imposition of countervailing duties in situations where, because of the widespread availability and use of a subsidy, the benefit is spread throughout an economy. Conversely, the specificity test was not intended to function as a loophole through which narrowly focused subsidies provided to or used by discrete segments of an economy could escape the purview of the CVD law." (Emphasis in original.) We note that the Provincial stumpage programs are certainly narrowly focused subsidies without widespread availability, and that they are provided to and used by discrete segments of an economy. However, the SAA does not require that a subsidy be provided to a single discrete segment of an economy to be specific. The language in the SAA merely states that the Department, in applying the specificity test, should not countervail those subsidies which are broadly available and used widely throughout an economy, nor should the Department apply the specificity test in such a narrow manner as to allow subsidies which are not widely used throughout the economy to escape the remedies provided by the CVD law. The language in section 351.502(b) is consistent with that purpose. Description of Provincial Stumpage Programs Below, we describe the stumpage programs for each of the investigated Provinces and provide the calculated ad valorem subsidy rate for these programs. 1. Province of Quebec The Government of Quebec (GOQ) makes standing timber on Crown land available to those parties that have purchased harvesting rights. These rights, often referred to as stumpage rights, apply to a particular area of Crown land and entitle the purchaser to harvest standing timber at a price that is set by the GOQ's Ministere des Ressources Naturelles (MRN), the agency responsible for administering the sale of standing timber on Crown lands. The price that the MRN charges for stumpage rights varies depending on where the timber stand is located. In previous years, the MRN divided the Crown lands into 28 zones and charged different prices for each zone. According to the GOQ, these zones, or tariffing zones, delineated areas that were similar in terms of climate, tree size, topography, and species mix. Until 1999, the tariffing zones contained both Crown and private lands. However, in 1999 the GOQ amended the Forestry Act, the legislation that governs the sale of standing timber on Crown land. Pursuant to this amendment, the GOQ expanded the number of tariffing zones in April of 2000 to 161 in order to ensure maximum homogeneity in each zone. Further, as a result of the amendment, privately- owned forests were no longer located within any of the tariffing zones. In Quebec, there are four ways through which the MRN sells stumpage rights: Timber Supply and Forest Management Agreements (TSFMAs), Forest Management Contracts (FMCs), Annual Forest Management Permits (AFMPs), and public auctions. First, TSFMA licences account for virtually all standing timber harvested on Crown lands. During the POI, TSFMAs accounted for 95 percent of the softwood Crown timber harvested. (13) A TSFMA allows the holder to obtain an annual management permit to supply a wood processing plant or mill. A TSFMA also authorizes the volume at which particular species can be harvested. To obtain a TSFMA, the applicant must own a wood processing mill. In return for the stumpage rights, the holder of the TSFMA must carry out certain types of silviculture treatments, as specified in the agreement with the MRN, required to achieve a pre-established annual yield. The GOQ credits a portion of these silviculture costs towards the payment of the stumpage fees owned under the TSFMA. In addition, the MRN mandates the holder of the TSFMA to build and maintain the roads leading to and through the logging sites, and submit five-year and annual forest plans for required silviculture activities. TSFMA holders are also required to contribute to the forest fire protection agency Société de protection des forêts contre le feu (SOPFEU), the insect and disease protection agency Société de protection des forêts contre le insectes et les maladies (SOPFIM), and the Forestry Fund. The overall term of the TSFMA is 25 years. However, every five years from the effective date of the agreement, the term of a TSFMA can be renewed for an additional 25 years, provided that the holder of the TSFMA has fulfilled its obligations under the agreement. Second, FMCs are similar to TSFMAs in that they are also subject to the stumpage prices charged by the MRN. In addition, holders of FMCs are responsible for the same types of silviculture activities as those covered by TSFMAs. The MRN usually enters into FMCs with non-profit organizations or municipalities. FMCs normally cover relatively small forest areas. During the POI, FMCs accounted for less than one percent of the softwood Crown timber harvest. Third, standing timber on Crown lands is also available through AFMPs. Pursuant to sections 79, 93, 94, 95, and 208 of the Forest Act, AFMPs permit the harvest of less desirable forms of timber, often referred to as slash and cull, for use in energy production and for metallurgical purposes. The MRN issues AFMPs provided that it deems the production of the applicant sufficient and that the slash and cull harvest promotes the growth of stands in a particular forest area. Less than one percent of the standing timber in Quebec is harvested under AFMPs. The fourth method involves the sale of standing timber on public reserves through public auctions. Public reserves are forest areas in which no timber supply and forest management agreement is in force. However, while these public auctions are permissible under GOQ law, the MRN has yet to sell any publicly-owned timber under this method. Aside from managing the sale of standing timber on Crown lands, the MRN collects information on the price of standing timber in private forests. Private market prices for standing timber are obtained through a survey of companies that purchase standing timber from private forests. The Quebec Institute of Statistics (the Institute), under the aegis of the MRN, conducts a census of all purchases of privately-held timber every 3 years. Between each census, the MRN conducts a survey of private purchasers using randomly selected respondents. These surveys are based on actual transactions of private purchasers and mainly cover the purchase of trees in the spruce, pine, and fir species group. The private price survey used in the derivation of Quebec's administered prices during the POI took place in 1999. Of the 190 major companies trading standing timber, 81 responded to the survey. All companies included in the survey have traded at least 4,000 cubic meters of standing timber in the last four years. The GOQ states that the survey covered the private forest in its entirety as well as all 15 territories managed by private wood producers' syndicates and marketing boards. (14) Once the survey is complete, the Institute compiles a value for each private forest territory covered by a syndicate or wood producer's marketing board. The Institute then weights these values by the volume of timber purchased by each respondent. The GOQ explains that the purpose of this step is to improve the statistical accuracy in the calculation of the average market value of standing timber in private forests. The Institute then obtains a single, Province-wide average of the survey respondents, referred to as the Market Value of Standing Timber (MVST), by attributing a weight corresponding to the total trading volume for each wood producers' association territory. The MRN, as required by the Forestry Act, uses a system called the parity technique to determine the stumpage value the MRN charges to TSFMA and FMC licences. Under the parity technique, the MRN employs a complex formula which adjusts the private MVST in order to account for relative differences that exist between the private MVST and the tariffing zone to be appraised. (15) The MRN then calculates an individual stumpage rate that will be charged in each tariffing zone. The MRN employs the parity technique by gauging the operating costs for each of the 161 tariffing zones, the private forest (where costs are lowest), and at the northernmost limit of demand (where costs are highest). These operating costs include harvest costs, road construction and maintenance costs, transportation costs to mill and market, logging camp costs, and specific tenure costs. The GOQ states that the operating costs are derived from cost indices that quantify the average biophysical characteristics of each zone (i.e., average tree volume, topographical and soil conditions, and average transportation distances). The MRN then calculates the difference between the costs at the northernmost limit of demand and each tariffing zone's operating costs, as well as the difference between costs at the northernmost limit of demand and costs in the private forest. The ratio of the former to the latter represents the operating cost adjustment for each tariffing zone. The MRN then calculates a base MOST for the northernmost limit of demand. With this data, the MRN determines the MOST (i.e., the stump age price) for each tariffing zone by multiplying the operating cost adjustment by the difference between the private and northern limit MVSTs and adding that product to the MVST at the northernmost limit of demand. The resulting stumpage prices cannot exceed the average market value of standing timber in private forests, nor can they fall below a minimum stumpage rate (discussed below). In addition to making an adjustment for relative operating costs, the characteristics of wood from each tariffing zone are compared with those of wood from the private forest to determine their impact on processing costs and the value of the products they are able to produce. According to the GOQ, this quality adjustment, introduced in 1999, takes into account the impact of average diameter, species distribution, rot percentages, and log taper on log processing costs and sawn product value. The GOQ states that consideration of these characteristics, which are quantified into a public quality and private quality index, allows the value of wood in each tariffing zone to be adjusted according to the differences between the quality of standing timber in both types of forests. The GOQ states that quality adjustments can alter the MVST as much as plus or minus C$5 per cubic meter. Upon establishing the operating and quality adjustments, the MRN calculates a minimum stumpage rate. The GOQ states that for the spruce, fir, jack pine, and larch species group, the minimum stumpage rate is comprised of the average cost of silviculture treatments in the common areas forming the northernmost demand limit. A basic rate of C$1 per cubic meter ($1996), indexed annually pro-rata to changes in the market value of private forest standing timber, is included in the minimum stumpage rate. The GOQ states that during the POI, the minimum stumpage unit rate was C$3.53 per cubic meter. Lastly, the MRN indexes the MVSTs that are charged in each of the tariffing zones on the first of each quarter in order to account for any price changes in the private forest market price that may have occurred since the most recently completed census or survey of private market prices. As explained above, the MRN calculates an administered stumpage price for each tariffing zone. According to the MRN, there is no distinction between sawlogs and pulplogs when setting the stumpage price. Thus, to arrive at the administered stumpage rates used in our stumpage calculations, we divided the total softwood stumpage fees paid by TSFMA permit holders during the POI for each species by the total softwood stumpage harvested under TSFMAs during the POI for each species. In this manner, we obtained a weighted-average stumpage price per species that was paid by TSFMA permit holders during the POI. According to information submitted by the GOQ, the softwood stumpage harvested under TSFMAs is equal to the total timber harvested for lumber processing plants (i.e., processing plants that produce the subject merchandise). Since no FMC permit holders own lumber processing plants, we have not incorporated the stumpage fees paid by FMC permit holders into the Province-wide administered stumpage rate. Benchmark Private Provincial Prices Respondents claim that the Department should use private Provincial prices to determine the adequacy of remuneration, instead of benchmark prices from Maine. Respondents claim that the Department has failed to demonstrate that private Provincial prices are distorted. See Respondents' Case Brief, February 22, 2002, Volume 11 at 14-22. Specifically, respondents argue that the GOQ's Crown lands and private forests are separate and distinct markets. By way of illustration, respondents state that the Province has an open and competitive private market because those non-tenure holders who constitute the private market are prevented from purchasing public timber. Consequently, the non-tenure holders compete for a limited supply of standing timber on private land, which respondents contend drives up the stumpage prices on private land. Respondents argue that, as a result of these separate and distinct stumpage markets, "the motivations for determining the public price are irrelevant because the insular public price has no influence on the private price." Id. at 20. Respondents also claim that they have furnished data that demonstrates that a single market exists for timber from Quebec, New Brunswick and Maine. See "Private Forests Standing Timber Market in Quebec," Exhibit 100 of the GOQ Questionnaire Response. After making certain adjustments, respondents argue that the price for private timber in Quebec is slightly higher than the price in Maine. Respondents state that because prices in Quebec are equal to or higher than those in Maine, the Department erred in its contention that the prices for private stumpage in Quebec are suppressed. Petitioners take issue with respondents' comments regarding private prices in Quebec. Petitioners contend that the "the sheer volume of the subsidized, administered supply relative to the private sector" acts to depress private prices. See "Economic Analysis of Price Distortions in a Dominant-Firm/Fringe Market," attached to petitioners' January 7, 2002 submission. In addition, petitioners disagree with respondents' contention that Quebec's private and public forests operate independently. They argue that their economic analysis of the private forests in Quebec indicates that the slope and position of the private forests' demand curve is highly dependent on the conditions of supply in the Province's public forests. Petitioners further argue that numerous independent parties in Quebec have acknowledged the tremendous influence that Crown lands have over the prices charged in the Province's private forests. See, e.g., an article from Le Soleil in which the Quebec Wood Producers Federation states it belief that public forests have a direct influence on private forest prices in Quebec. Exhibit IV I-2 of the April 2, 2001 Petition. Department's Position We disagree with respondents that the private market prices that they submitted can serve as an adequate benchmark. The Preamble to section 351.11 of the Regulations provides that, where a government has a dominant position in a market, the Department will avoid the use of private prices in determining the adequacy of remuneration. Where the market for a particular good or service is so dominated by the presence of the government, the remaining private prices in the country in question cannot be considered to be independent of the government price. Indeed, as noted in the Preamble, "where it is reasonable to conclude that actual transaction prices are significantly distorted as a result of the government's involvement in the market, we will resort to the next alternative in the hierarchy." 63 FR at 65377. With respect to Quebec, there is no question that the government is a dominant factor in the market. As respondents themselves acknowledge, 83 percent of the softwood timber harvest is controlled by the Province. While respondents acknowledge that the government is dominant, they claim that private prices are market-driven. We disagree. With respect to the studies submitted by respondents that claim that private market stumpage prices in Quebec are higher than those in Maine, we find them unpersuasive. We note that the authors rely on a 75 percent quality premium for Maine trees. Absent the quality premium adjustment, the study's data indicate that Maine stumpage prices are "consistently above" those of Quebec from 1989 through 1999. See GOQ's supplemental questionnaire response, Exhibit 100 at 136. The quality premium hinges on various assumptions. First, the premium is based on limited survey data. To derive the premium, the authors of the study admit they relied on "actual available data which are not fully representative of all the considerations necessary to a full comparison" (though the authors believe an adequate comparison can still be made). See GOQ's supplemental questionnaire response, Exhibit 100 at 103. We also note that the quality premium is based on a comparison between the Quebec private forest and the Maine forest. According to the results of the GOQ's quality adjustment (which is a part of its administered pricing system), Quebec public forests are of higher quality than Quebec private forests on average. See GOQ's supplemental questionnaire response, Exhibit 88 at 9. The authors of this study also discuss the effect of the "exchange rate factor" on the difference in price between Quebec and Maine. This factor is merely the conversion of Maine stumpage prices into Canadian dollars. In one of their charts, the study's authors' exclude the exchange rate conversion and create a misleading impression of stumpage price equality across Maine and Quebec (i.e., they plot stumpage prices in two currencies on the same chart). See GOQ's supplemental questionnaire response, Exhibit 100 at 142. Petitioners have placed on the record a study about the effects of the price distortions caused in the stumpage markets in Canada. See Economists, Inc., "Economic Analysis of Price Distortions in a Dominant- Firm/Fringe Market," Jan. 4, 2002, appended to Dewey Ballantine letter of July 27, 2001, vol. 6. This study comes to many of the same conclusions that we do, namely that administered stumpage prices have a distortive effect on private prices. The study also concludes that the "dominant firm/fringe firm" paradigm that many of the Provinces rely on does not support the conclusion that private prices are market-driven. On the contrary, the study concludes that fringe firms (i.e., the private actors) will be forced to depress their prices in response to the dominant administered pricing system in each of the Provinces. We support the conclusions reached in this study. Finally, we found anecdotal evidence from a representative of private forest wood lot owners confirming the provincial price's influence on private prices. During verification, Department officials spoke with a representative of private forest wood lot owners who indicated that his organization lobbies the government to keep public stumpage prices high so that the private stumpage prices remain high. See GOQ Verification Report at 28-29. (16) In addition, information on the record indicates that even the MRN has acknowledged that private stumpage prices in Quebec are affected by the administratively-set price for public stumpage. See the April 2, 2002 Petition at page 119 and Exhibit V-9. Based on all of this information, we reject private market prices in Quebec for use as a benchmark. Our decision not to use private prices is not only guided by the Preamble and our regulations, but also by a reasoned analysis of the facts on the record. Choice of Maine as Source of Benchmark As explained above, we continue to find that stumpage prices in the United States provide the most accurate benchmark. In the Preliminary Determination, we considered stumpage data from four states for use as the benchmark: New York, Vermont, New Hampshire and Maine. In the Preliminary Determination, we based our benchmark on stumpage data for Maine because 1) its survey population of 3,000 landowner reports was, by far, the most comprehensive, and 2) of the four states, Maine has the longest border with Quebec. See 66 FR at 43200. We stated that we would further examine our decision to use Maine data as the benchmark stumpage price as well as our decision not to use data from New York, Vermont, and New Hampshire prior to the issuance of the final determination. Since the Preliminary Determination, we have obtained additional data for Maine. Specifically, we have obtained Maine Forestry Service (MFS) volume data for each softwood species on a per-county basis, thereby enabling us to obtain a statewide weighted-average stumpage price for each species. In contrast, we have been unable to obtain volume data for Vermont, New Hampshire, and New York. In addition, the stumpage price reports for Vermont, New Hampshire, and New York do not report average stumpage prices. Thus, we continue to find that the Maine data provide the most comparable benchmark. Since the Preliminary Determination, our review of the source data for Maine (e.g., Maine Forest Service stumpage price reports for calendar year 2000) indicates that there are three categories of logs in the state: pulpwood, sawlog, and studwood. According to the MFS stumpage price reports, studwood logs are small sawlogs intended to be sawn into small dimensional lumber. Because the source data indicate that studwood is used to produce subject merchandise, we find that we must also include the stumpage prices for this type of log in the benchmark stumpage price. On December 20, 2001, the Maine Forest Products Council (MFPC) sent a letter to the Department regarding the composition of the log harvest in Maine during the POI. In particular, the letter from the MFPC claimed to contain information from the MFS regarding the studwood harvest as a percentage of logs going to sawmills in Maine during the POI. According to the information in this letter, approximately 81 percent of the logs going to sawmills were studwood logs. On February 19, 2002, we issued a letter to interested parties explaining that we had placed the letter from the MFPC on the record of the investigation. In addition, we explained that, although this factual information was beyond the deadline, section 351.301(2) of our Regulations gives the Department the discretion to request factual information at any time during the proceeding. See the February 19, 2001 letter from Melissa G. Skinner, Director, Office of AD/CVD Enforcement VI. We went on to state that: given that this information is important to some of the central issues in the proceeding, and it relates to an ongoing exchange of expert advice on a technical matter, we have determined that it is appropriate to exercise this discretion and "request" that this data be put on the record. In addition, in order to ensure a complete record, we are asking parties who wish to respond to this to file information that clarifies, corrects or rebuts this information . . . Id. On March 4, 2002, petitioners filed information that rebutted the MFPC's claim that studwood accounted for approximately 81 percent of the logs going to sawmills in Maine during the POI. They claimed that the information from the MFS was based on a limited survey area and, thus, yielded skewed results that overstated the distribution of studwood logs going to sawmills in Maine. In their submission, petitioners estimated the production capacity of the four studmills that they claimed were in operation during the POI. Petitioners then estimated the distribution of studwood going to sawmills by dividing their estimated studmill production by the total sawmill production of Maine during the POI. On this basis, petitioners estimate that studwood accounts for 25.62 percent of the logs going to sawmills in Maine during the POI. Department's Position As explained in our February 19, 2002 letter, the December 20, 2001 letter from respondents and the March 4, 2002 letter from petitioners contained information that was central to this proceeding. Thus, the Department made inquiries regarding the veracity of the information submitted by interested parties in their respective filings. We contacted officials from the MFS and asked them to provide the names and production levels of the four studmills in Maine that were in operation during calendar year 2000 and the POI. The MFS officials explained that their confidentiality regulations prohibited them from divulging the production volumes of the four firms. However, MFS officials were able to identify the names of the four softwood studmills in operation during the POI. See the March 21, 2002, Memorandum to the File from the Team. Using the names provided by the MFS, we traced the four softwood studmills to a sawmill production report for Maine that was previously placed on the record of this investigation. See the United States Department of Agriculture (USDA) publication, "Profile 2001: Softwood Sawmills in the United States and Canada" (USDA Report). We then divided the production of these four softwood studmills by the total production of all softwood sawmills in operation during calendar year 2000. (17) Under this approach, we derived a ratio of 25.36 percent. (18) In addition, we spoke with an MFS official regarding the data provided by the MFPC. The official confirmed that this data was based on a survey. Thus, because the information submitted by the MFPC is based on limited survey data rather than on the total production of studwood mills in Maine, we have opted not to rely on the MFPC data when deriving the percentage of studwood logs going to sawmills. Next, we weighted the species-specific studwood price differences by the ratio of studmill production to total sawlog production (i.e., 25.36 percent) discussed above. Assuming that the remaining logs were sawlogs, we weighted the species-specific sawlog price differences by 74.64 percent (i.e., one minus 25.36 percent). For further information, see the March 21, 2002 Final Calculation Memorandum. As stated above, we obtained species and volume data for each county in Maine. Using this data, we calculated a state-wide, weighted-average price in U.S. dollars per thousand board feet (MBF) for each species in Maine. We converted these U.S. prices into Canadian dollars using the average exchange rate for calendar year 2000 as reported by the Central Bank of Canada. Next, we converted these figures from MBF into cubic meters using the conversion factor of 4.81. For a discussion of our decision to use this conversion factor, see the "Conversion Factor" section of this memorandum. We then calculated the difference (unadjusted) between Provincial and Maine stumpage prices for each softwood species harvested in Provincial forests. To arrive at a weighted price difference, we weighted each species' price difference in proportion to its share of the TSFMA harvest for fiscal year 2000 - 2001. Next, we reduced this weight-average price difference by certain unit adjustments. To make an appropriate comparison between the administratively-set Quebec price and the market-price benchmark, certain adjustments are required to reflect the different costs borne by purchasers in both markets. We have received numerous comments from both respondents and petitioners on the types of adjustments which should be made to the Quebec price. We have taken all of these comments into account in this final determination. Below we have detailed the adjustments which we are making and the adjustments which we are denying. We have also explained the rationale used in determining whether or not to allow an adjustment. In general, we have made adjustments to the Quebec price to reflect additional costs placed upon tenure holders by the GOQ which would not be incurred in Maine. Road Construction and Maintenance Petitioners argue that the Department should adjust Quebec prices downward for the expense incurred by Maine harvesters on toll roads. Petitioners note that the GOQ tallies road tolls among their road cost expenses. Moreover, petitioners argue that the Department should not make an upward adjustment to Quebec prices for road construction and maintenance, because the GOQ does not require tenure holders to build and maintain such roads. Petitioners state that road construction and maintenance expenses should also be disallowed because the GOQ has offered insufficient justification for such an adjustment. Petitioners note that the GOQ has not provided Maine road costs; nor has the GOQ, in petitioners' view, provided a clear breakout of primary and secondary road expenses. If the Department nevertheless adjusts for road expenses, petitioners argue that the adjustment should be limited in several ways. Petitioners state the adjustment should be confined to primary and secondary roads because Maine harvesters bear similar costs to Quebec harvesters for tertiary and haulage roads. Moreover, petitioners argue that any adjustment for primary and secondary roads should be reduced by the costs for these types of roads in Maine. Petitioners further state that the Department should grant no adjustment for what the GOQ calls class "C" roads, because the GOQ's cost survey indicates those roads are "often seasonal" and therefore do not serve a primary or secondary road function. See GOQ's supplemental questionnaire response, Exhibit 73, at 20. In addition, petitioners contend that a road maintenance adjustment should not be given for those roads in Quebec that petitioners consider to be of "haulage" quality. Lastly, petitioners argue that the GOQ reports depreciation costs in addition to construction and maintenance. Because those roads become part of the public domain, they assert the Department should not grant an adjustment for depreciation. Respondents, in turn, argue that the Department should make an adjustment for all road construction and maintenance costs, including haulage roads. Although private harvesters also build haulage roads, respondents state that the costs for these types of roads are higher in Quebec public forests than elsewhere. Respondents note that cost data used in Quebec's pricing system, or parity technique, demonstrate that road costs are significantly higher for the Quebec public forest than for the Quebec private forest. Respondents suggest that the Department rely on actual cost data that will be used for the parity technique as the basis for the road cost adjustment. Petitioners reject respondents' basis for a road cost adjustment. If the Department chooses to make an adjustment at all, petitioners advise the Department to use costs incurred by Maine timber harvesters rather than Quebec's private forest harvesters to determine the proper adjustment. Petitioners further state that they have provided the Department with this data. Respondents rebut petitioners' various assertions. Respondents state that a toll road downward adjustment is not warranted because the estimated adjustment cost is based on unverifiable assertions of industry representatives rather than on verifiable survey data. Moreover, respondents rebut any suggestions by petitioners that a road maintenance and construction adjustment be disallowed. Respondents refer to a study (that was originally cited by petitioners) in which its authors explain that most Maine harvesters do not pay primary and secondary road costs. For tertiary road costs, respondents note that the study only indicates that some harvesters pay for tertiary road construction and maintenance in Maine. Respondents also state that depreciation costs are not reported in addition to road construction and maintenance; rather, one of the components of road construction costs reported by industry is depreciation. Respondents note that road builders report costs in this manner as part of the ordinary course of trade. Department's Position We are making an adjustment for primary and secondary road construction and maintenance costs. Although the GOQ does not require tenure holders to build and maintain primary and secondary roads, we have no quantifiable evidence to indicate that these are costs borne by harvesters of stumpage in Maine. For example, petitioners have not provided any estimate of primary and secondary road construction and maintenance costs in Maine. Rather, petitioners offer an estimate of private toll road costs in Maine which is based on discussions with industry representatives. See Petitioners' January 7, 2002 submission at 101-104. We consider the Maine road cost data insufficient and are therefore granting an adjustment for the full cost of primary and secondary road construction and maintenance in Quebec. Based on our findings at verification, we find that the GOQ's methodology for determining primary and secondary expenses is appropriate. We note that the GOQ classified 10 percent of C type roads as primary and secondary, and we agree with this classification. While the GOQ's cost survey states that these roads are often seasonal, we find that the GOQ's decision to classify 10 percent of C type roads as non-seasonal (e.g., primary and secondary) comports with the survey definition. Moreover, at verification we learned that the GOQ classifies roads by quality rather than function. See GOQ Verification Report at 7-9. However, we agree with petitioners that Maine harvesters bear significant tertiary and haulage road expenses; for this reason, we are not making an adjustment for those costs. During verification, we learned that tertiary and haulage roads are in use for only a short period of time. Once a timber area is harvested, the roads which service a timber area revert back to part of the forestland. See Quebec Verification Report 7-9. Therefore, we conclude that harvesters on both sides of the border regularly construct and maintain tertiary and haulage roads as part of their seasonal harvesting operations. We are not granting petitioners' request for a downward toll road adjustment or for depreciation of roads. We do not find the information on the record to be sufficient to make such adjustments. Fire Extinction and Protection Costs Petitioners agree that an adjustment for fire extinction and protection costs may be appropriate. If the Department decides to make an adjustment, petitioners argue that the Department should adjust in the same manner as it did in the Preliminary Determination. Petitioners note that the Department should use verified figures for any adjustment it decides to make. Respondents state that the Department correctly adjusted for fire extinction and protection expenses in its Preliminary Determination. Department's Position We agree that an adjustment for fire extinction and protection costs is warranted. The GOQ obligates TSFMA holders to pay membership fees to the Provincial fire extinction and protection organization, and there is no similar requirement in Maine. Therefore, we adjusted for this expense by dividing the sum of all membership fees paid by TSFMA permit holders during the POI by the total harvest under TSFMAs during the POI. We note that during verification we learned that the fire extinction and protection unit cost used in the Preliminary Determination was based on budgeted data from fiscal years 2000 and 2001. During verification, we collected finalized cost data for year 2000. We have used this finalized cost data in this final determination. As a result, the per unit costs for this adjustment differ slightly from those in the Preliminary Determination. For more information, see GOQ Verification Report at Attachment II and page 14. Insect and Disease Protection Costs As with the fire extinction and protection adjustment, petitioners state that an insect and disease protection adjustment, if granted, should be based on verified costs. Petitioners accept that such an adjustment may be warranted. Respondents agree with the manner in which the Department adjusted for insect and disease protection expenses in the Preliminary Determination. Department's Position We find that an adjustment for insect and disease protection costs is appropriate. As with fire extinction and protection, the GOQ requires TSFMA holders to pay dues to the Provincial insect and disease protection agency; there is no such requirement in Maine. To make this adjustment, we divided the TSFMA holders' total expenses for insect and disease protection by the total stumpage harvested by TSFMA holders during the POI. Transportation Distances Petitioners argue that no adjustment should be made in Quebec for transportation distances to the mill or to the market. From a theoretical standpoint, petitioners argue that sawmills in both Maine and Quebec pay for transport, and therefore any cost differences reflect the efficiency of the sawmill owner. According to petitioners, the Quebec parity technique also blunts any incentive for Quebec mills to minimize transportation costs because the system compensates high cost mills through low stumpage fees. Petitioners further critique the manner in which Quebec calculates transportation costs. Petitioners note that Quebec's parity technique relies on calibrated models to determine transportation costs, and that the pricing system disregards rail as a potential form of transport. Petitioners further contend that many Quebec mills lower their actual transportation costs by hauling lumber out to the market and then picking up logs for the mill on the return route. In addition, petitioners question the contention that Maine mills source their wood from a 25 mile radius; according to petitioners, the radius is more likely 50 to 75 miles. Petitioners furthermore dispute the MRN's calculation of mill to market expenses, on account of both the type of mills selected, and the choice of markets. Lastly, petitioners argue that if the Department adjusts for transportation costs, it should rely on Maine cost data provided by petitioners. Respondents state that an adjustment for transportation costs to the mill and to the market is necessary for a proper apples-to-apples comparison. Respondents point out that sources in Maine, New Hampshire, New York, and Vermont indicate that transportation distances impact stumpage value. To quantify the adjustment, respondents argue that the Department should rely on actual cost data that will be used by the MRN for its parity technique. For transportation costs to the mill, respondents note that Quebec's parity technique mimics a competitive market by allocating transport costs to the closest mill, regardless of whether the tenure holder actually ships logs to mills farther away. With respect to transportation costs to market, respondents argue that the parity technique incorporates the four major markets for Quebec sawmills- Boston, Columbus, Montreal, and Toronto- to determine the appropriate adjustment. Respondents note that they have relied on StatsCan data to weight the importance of each market for this adjustment. Petitioners reject respondents' basis for a transportation cost adjustment. Petitioners argue that the Department should not adjust for cost differences between the Quebec public forest and its benchmark because the same type of cost is borne by both parties. Furthermore, petitioners note that respondents have suggested that Quebec private forest transport costs serve as proxies for Maine transport costs. Petitioners state that if an adjustment is granted, the Department should rely on Maine data instead. Respondents rebut petitioners' concerns about the validity of parity technique data for a transportation cost adjustment. Respondents contend the Department should adjust for cost differences, even if the same type cost is incurred by both parties. Respondents cite various cases in which the Department has adjusted for cost differences when such a difference is quantifiable and corroborated by the information on the record. Respondents argue that the correct benchmark for Quebec public forests is the Quebec private forest, and therefore its data is an appropriate source for adjustments. Moreover, respondents note that the Department verified the data used in the parity technique; and while they grant that the data used to determine stumpage prices during the POI was based on calibrated models, respondents note that the Department also verified recently completed actual operating costs for the private forest during the POI. Department's Position We are not adjusting the Quebec stumpage price for differences in transportation costs. Based on the information on the record, firms in both Quebec and Maine transport logs to mill, and lumber to the market, as part of their ordinary harvesting operations. Although the GOQ's parity technique compares transportation cost differences between the Quebec public and private forest, the data is not relevant because Maine is the benchmark. Therefore, we find no basis to make an adjustment. Logging Camp Costs Petitioners assert that the Department should not adjust the expense of logging camps, i.e. the cost of maintaining employee work areas in remote locations. Petitioners claim that the Department should make adjustments only when there is a difference in the market conditions. Because, according to petitioners, logging camps exist in Maine, no adjustment is warranted. In addition, petitioners argue that mandated requirements in Quebec compel tenure holders to harvest wood, and, consequently, provide logging camps, when they would otherwise contract those activities out to other firms. Moreover, petitioners note that the Department did not allow for this adjustment in Lumber III because Quebec was unable to determine the amount of logging camp expenses on private lands. Respondents argue that the Department should adjust for logging camp expenses by using actual cost data from public and private forests in Quebec. Respondents contend that this data demonstrates that logging camp expenses are higher on public forests; therefore, respondents argue, the Department should adjust for the cost differential accordingly. As with many of the other adjustments, petitioners rebut respondents' arguments on the grounds that exhaustive survey data does not exist for these expenses in Maine. Petitioners state that the Department cannot adjust for logging camps based on Quebec private market costs. Department's Position We are granting an adjustment for logging camps. Although petitioners provide isolated examples of logging camps in Maine, they have not quantified these expenses statewide. In contrast, at verification we reviewed the systematic survey from which Quebec derived logging camp expenses. See GOQ's Verification Report at 10. Therefore, we have decided to adjust the Quebec benchmark price for logging camps expenses incurred by tenure holders. Harvesting Costs As with transportation costs, petitioners argue that no adjustment should be made for harvesting costs because the activity takes place in both Quebec and Maine. Any differences in costs, according to petitioners, result from the efficiency of the sawmill owner. However, petitioners admit that the Department allowed a harvesting cost adjustment in Lumber III. See 57 FR at 22598. If the Department decides to adjust again, then petitioners argue that the adjustment should decrease Quebec prices, because Maine harvesters bear higher costs than those in Quebec. To support this claim, petitioners allege that Quebec permits much of its timber to be harvested via clear cutting, whereas in Maine clear cutting is generally prohibited. Moreover, petitioners note that data from the Quebec parity technique indicates that harvesting costs are lower in private forests than in public forests. Department's Position We agree with petitioners that no harvesting cost adjustment should be made. Harvesting costs are not unique to Quebec nor are they costs that are imposed on TSFMA holders by the GOQ. In addition, the basis upon which we made the harvesting cost adjustment in Lumber III appears to have changed. In Lumber III, we agreed with respondents that a harvesting cost differential existed between private lands mostly in the southern zones and public land in the northern zones. See Lumber III, 57 FR at 22598. We lack evidence to make a similar determination for Quebec public forests and Maine forests in this proceeding. Seedling Transport Petitioners argue that the Department should reverse its decision from the Preliminary Determination and not adjust for seedling transport expenses. Petitioners claim that Quebec has not properly quantified the amount of this adjustment and is instead relying on data from a prior investigation, Lumber III. Petitioners argue that the Department should not grant an adjustment on this basis, because in so doing the Department would implicitly absolve Quebec of its responsibility to provide data for the current investigation. Respondents state that the Department should adjust for seedling transport costs as it did in the Preliminary Determination. Department's Position We agree with petitioners and have determined not to include a separate adjustment for seedling transportation. During verification, MRN officials stated that they typically treat seedling transport costs as non-credited silviculture costs. See GOQ Verification Report at 20. Thus, a seedling transport adjustment is not necessary because we are already adjusting the per unit stumpage price difference to account for non-credited silviculture expenses incurred by TSFMA holders. Forestry Fund Under the Forestry Fund, the GOQ and TSFMA holders make contributions to activities carried out by the MRN related to seedling production, forest survey data, forestry research, and forest management. Petitioners claim that TSFMA holders derive benefits from the Forestry Fund that go beyond the timber obtained and, thus, any contributions that may be paid by TSFMA holders should not be considered as cost adjustments to be added to the administered stumpage price in Quebec. Petitioners further argue that if the Department decides to grant such an adjustment, it should revise the Forestry Fund adjustment granted in the Preliminary Determination. Specifically, petitioners claim that the GOQ's own cost survey reports that the average per unit payment to the fund by TSFMA holders was less than the per unit cost calculated in the Preliminary Determination. Moreover, petitioners argue that the total amount of payments made by TSFMA holders, as reported by the GOQ in its supplemental questionnaire response, is less than the amount reported by the GOQ at verification. In addition, petitioners claim that the per cubic meter rate established by the GOQ for the contribution, C$0.3475 per cubic meter, is far less than the C$1.5184 per cubic meter calculated by the Department. Thus, petitioners argue that record evidence indicates that the Department should calculate a per unit Forestry Fund cost adjustment that is lower than the one it calculated in the Preliminary Determination. Respondents take issue with petitioners' contentions. They claim that petitioners' assertions stem from the misunderstanding of the facts. They point out that the C$0.3475 per cubic meter contribution rate is the quarterly charge for the Forestry Fund, as opposed to an annual charge. Department's Position We verified that since fiscal year 1997 - 1998, the GOQ has required TSFMA holders to make contributions to the Forestry Fund. Because this is a cost imposed on TSFMA holders by the government, we have determined to continue to grant this cost adjustment. In their comments, petitioners question the veracity of the GOQ's claims regarding the contributions that TSFMAs made to the Forestry Fund during the POI. During verification, we traced the total amount of contributions that TSFMA holders made during the POI to the Forestry Fund's audited financial report. Accordingly, we have used this amount when determining the per unit price cost adjustment. Adjustment for Rot and Quality Differences Petitioners explain that during the course of this investigation respondents have argued that any cross-border benchmark must be adjusted to account for the prevalence of rot that exists in Quebec forests. Petitioners state that such an adjustment is not necessary because record evidence indicates that Quebec's timber harvesters do not, in fact, pay for rot when their sawtimber is harvested, scaled and billed. Petitioners also assert that information from the Maine Forestry Service Second Annual Forest Inventory Report contradicts respondents' claim that Maine wood has no rot. Petitioners further argue that a quality adjustment in favor of Quebec is unnecessary. They assert that the quality index factor applied by the GOQ in setting stumpage dues, in which the GOQ purports to factor in rot, taper, and potential lumber yield in trees in each tariffing zone, establishes that, on average, trees in Quebec's public forests are of a slightly higher quality (C$0.34 per cubic meter) than trees in Quebec's private forests. Petitioners point out that the GOQ's consultants have stated that the private forests in Quebec and Maine exhibit similar biophysical characteristics. In addition, petitioners claim that record evidence indicates that, in Quebec and all across Canada, the majority of growth consists of old-growth forests that are of a higher quality than those in Maine. Thus, petitioners argue that, if the Department makes any quality adjustment, it should make an upward adjustment to the price differential calculated between Quebec and Maine stumpage prices, equal to C$0.34 per cubic meter, in order to account for the higher quality of trees that are harvested in Quebec. Respondents argue that, with respect to quality adjustments, none of petitioners' cited sources apply to Quebec. Respondents further argue that petitioners have confused slow-growth with old-growth. They maintain that the dominant species in Quebec, black spruce, is a slow growing species but that slow growth does not equate with old-growth. Respondents also take issue with petitioners' characterization regarding the GOQ's quality index. Respondents argue that record evidence indicates that the overriding difference between the public and private forests, from a quality standpoint, is species composition. They argue that Quebec's public forest as a whole has more spruce and less fir than the private forest. They argue that because spruce dries more quickly than fir, it is more valuable than fir and, thus, for the purposes of the GOQ's quality index, yields a higher index for Quebec's public forests. However, respondents assert that adjusting any calculated price difference upward on the grounds that the quality index favors Quebec public trees over private trees is a non-sequitur. Department's Position Timber by its very nature will vary in terms of imperfections (i.e., rot, taper, etc.) between tree stands. In addition, overall quality can change as species compositions vary across tree stands. The Department simply cannot adjust for every single one of these differences that may exist between tree stands in both Quebec and Maine. For this reason, the Department has sought to use a large pool of comparable timber, which for Quebec are Maine forests, as the benchmark in order to account for these inherent differences in timber that may exist between tree stands. To this end, we have made our cross-border comparisons on a species-specific basis. Moreover, to ensure that our species comparisons are reflective of the species mix in the Province in question, we have weighted each species- specific price difference by the share of the total harvest that each species accounts for in Quebec. Inclusion of Pulpwood and Studwood Prices in the Benchmark Petitioners contend that in the Preliminary Determination the Department correctly used as the benchmark for prices paid for timber by Quebec's sawmills the average price for comparable timber processed by sawmills in Maine. They argue that this comparison is the only appropriate method to determine the adequacy of remuneration because it yields a comparison of the good provided by the GOQ, which is timber harvested by sawmills and used in lumber production, with a market-based transaction of a similar good. In addition, petitioners assert that the inclusion of pulpwood, which they claim is an inherently different good of a lesser quality that is used to make products other than lumber, would distort such an "apples- to-apples" comparison. Petitioners argue that if the Department incorporates studwood (i.e., logs of a shorter length that are used to make dimensional lumber) into the benchmark, it must do so using species-specific studwood prices and that these prices should be weight-averaged by the studwood volume harvest of each county. Petitioners have submitted on the record their estimates of the percentage of studwood and sawlogs that went to sawmills during the POI. They contend that if the Department determines to include studwood in the benchmark price, it should use the estimates they provided to calculate the percent of studwood and sawlogs that went to sawmills in Maine during the POI. Respondents disagree with petitioners' assertion that any log that goes to a sawmill is a sawlog. Respondents contend that record evidence from the Maine Forest Products Council demonstrates that a sawlog in Maine is not anything that goes into a sawmill, rather respondents contend that the information from the Maine Forest Products Council indicates that the input that sawmills consume are logs with a butt-end diameter (inside bark) of at least 9 inches. Respondents claim that approximately 75 percent (by volume) of all spruce and fir timber harvested in Quebec are less than 9 inches in diameter at breast height (dbh). They claim that using Maine's definition of a sawlog, it follows that 75 percent of Quebec's softwood harvested on Crown lands would qualify as poletimber (i.e., pulpwood) and only 25 percent as sawlogs. Thus, respondents argue that the Department should include logs with diameters of less than 9 inches in dbh in any Maine benchmark used in cross border comparisons. They further contend that if the Department uses a Maine benchmark, it should weight the price of logs that are at least 9 inches in dbh in Maine by the percentage of trees that are at least 9 inches in dbh in Quebec and weight the price of logs that are less than 9 inches in dbh in Maine by the percentage of trees that are less than 9 inches in dbh in Quebec. Regarding the issue of whether to include studwood in a Maine benchmark, respondents contend that if the Department wrongly determines to weight the benchmark by the respective volumes of sawlogs and studwood harvested in Maine, it should do so using the sawlog and studwood harvest volume data submitted by the Maine Forest Products Council. Department's Position In deriving the benchmark, we have determined to use only those logs that are used to make subject merchandise. In the case of Maine, record evidence indicates that logs classified as studwood and sawlogs are cut into dimensional lumber. Therefore, we have based our benchmark price in Maine on these two types of logs. As explained above, we have combined these two log type prices by weighting them by their estimated respective share of the sawlog harvest going to mills in Maine. We reject respondents' arguments for a timber size comparison based on diameter distribution in Quebec. Our aim is to compare the price of standing timber in Quebec to the price of standing timber in Maine, and inherent in this comparison are the conditions in which stumpage prices are set in each market. Thus, to change the conditions in which these stumpage prices are established would undermine the basis upon which we are making our benchmark comparison. Timber Size Petitioners contend that there is little or no material difference between government timber used to make softwood lumber in Quebec and privately-purchased timber used to make softwood lumber in Maine. Petitioners further contend that even if there were any substantial size differences involving Quebec and Maine timber, the effect of size on the value of timber used to make lumber would be minimal. Although petitioners concede that there may be some price differences stemming from log size, they contend that the value of a larger log will not be greater, on a per cubic meter basis, to a Quebec sawmill that utilizes specialized equipment for the processing of smaller logs. Petitioners also contend that it is wrong to assume that once a log is capable of being processed into lumber that there is a linear relationship between its size and value. They contend that a number of other factors besides the size of the log determine the value of the timber (e.g., percentage of rot, taper, species distribution, etc.). They claim the GOQ's own data regarding Quebec's private and public forests bear this out. Petitioners claim that despite the fact that trees in public forests were, on average smaller, the GOQ assigned, via its quality index, a quality level that was higher than the trees in the private forest. Respondents argue that without exception, the various timber price reports collected by the Department, including the Maine Forestry Service's annual survey, feature tree size as a key variable in timber pricing. They further argue that Quebec has always taken diameter into consideration under the parity system and that neither the Department nor petitioners have ever questioned the appropriateness of doing so. Respondents assert that timber size impacts most directly the pool of lumber products that a given log will yield. They argue that the GOQ's use of the quality adjustment accounts for the changes in value that result from size differences. They further argue that at verification the Department observed how the movement of the quality index is directly proportional to the diameter of trees in a given timber stand. Thus, respondents contend that there is no credible basis to assert that timber size is irrelevant to value. Department's Position As stated above, we find that the forests in Maine and Quebec are suitable for comparison purposes because the trees in Maine and Quebec are similar. To the extent that there are differences in tree size between Maine and Quebec, we have made an adjustment to account for this through our inclusion of studwood in the Maine benchmark. Silviculture Credits for Non-Mandatory Activities Petitioners state that at verification, the Department discovered that the GOQ reimburses tenure holders not only for required silviculture expenses, but also for a number of other activities that are non- mandatory. Petitioners state that these non-mandatory costs include activities that fall under the category "financial support" as well as silviculture activities related to "increase of forest production," "other work," "experimental silviculture," and "wildlife and landscaping." Petitioners argue that since these activities are not required by tenure holders, they do not constitute an additional condition of purchase or sale. On this basis, petitioners argue that these non-mandatory silviculture activities should be added (on a per unit basis) to the unit price stumpage difference. Department's Position During verification, we learned that TSFMA holders are compensated for non-mandatory silviculture activities, and we agree with petitioners that certain per unit non-mandatory silviculture costs should be added to the per unit stumpage price difference. These activities include silviculture credits that fall under such categories as "financial assistance," "increase in forestry production," and "experimental silviculture." During verification, we examined these credited activities in detail. Regarding the silviculture projects classified under the financial assistance category, GOQ officials explained that they pertain to voluntary salvaging operations on forest areas whose trees have been damaged by natural disasters. Concerning the categories "increase in forest production" and "experimental silviculture" GOQ officials explained that these categories relate to silviculture activities undertaken on Crown land at the request of the tenure holders. We find that the GOQ's compensation for these silviculture activities should be added (on a per unit basis) to the stumpage price difference calculated between Maine and Quebec because they constitute silviculture activities that tenure holders undertake on a voluntary basis. Non-Credited Silvicultural Expenses Petitioners contend that the Department should depart from its approach in the Preliminary Determination and decide not to grant TSFMA holders a cost adjustment equal to the required silviculture activities that are not credited by the GOQ. Petitioners claim that these non-credit silviculture expenses stem from what respondents characterize as "new environmental standards." They argue that the GOQ was unable to systematically quantify these costs, other than to group them as non-credited silviculture costs and, thus, following the precedent established in Lumber III, the Department should deny these adjustments. In addition, they contend that this adjustment should be denied because environmental costs also exist in Maine, the benchmark region. Department's Position We disagree with petitioners. In Quebec, TSFMA holders are required to perform certain silviculture activities. The GOQ compensates tenure holders for performing these activities by applying the tenure holders' silviculture costs towards their stumpage dues. However, as respondents have claimed and the Department has verified, the GOQ does not offset stumpage dues in an amount equal to the cost of the mandatory silviculture activities undertaken by the tenure holders. Therefore, we have adjusted the administered stumpage price upward to account for the uncredited costs that the GOQ imposes on TSFMA holders. We note that we adopted a similar approach with respect to non-credited silviculture costs in Lumber III, 57 FR 22570 at 22600. Administration Costs Respondents claim that tenureholders incur various administrative expenses for planning, scaling, supervision of silviculture (see the "Non- Credited Silvicultural Expenses" section of this notice), etc. Because the GOQ mandates that tenureholders conduct extensive general, five-year, and annual management plans and submit to official timber scaling, respondents contend that the Department should adjust for these expenses. Respondents also argue that the Department should adjust for the difference in expenses between Quebec public and private harvesters for all administrative activities. Department's Position We are granting an adjustment for forest planning expenses, because these plans impose mandatory costs which are not imposed by the government in Maine. Moreover, at verification, we verified the survey from which these survey costs were derived. See GOQ Verification Report at 5-7. Furthermore, we note that Exhibit 73 of the GOQ's August 3, 2001 supplemental questionnaire response, indicates that these planning costs are separate from the non-credited silviculture expenses. However, we are not granting an adjustment for timber scaling, which, although required for Quebec tenureholders, is part of the ordinary course of business on both sides of the border. Similarly, we are denying an adjustment for other administrative expenses, because harvesters in both Maine and Quebec incur such costs. Benefit Calculation To calculate the benefit under Quebec's stumpage system, we first multiplied the adjusted price difference described above by the total softwood harvested by TSFMAs during the POI. Next, we calculated the Provincial benefit by dividing the product of the adjusted price difference and the total softwood harvested by TSFMAs during the POI by the total value of softwood lumber shipments plus the total value of softwood by-products for the POI. We note that we reduced the sales denominator used in the Provincial benefit calculation by the total sales values of the Quebec companies that were excluded from this investigation. For more information on the companies that were excluded from this investigation and our methodology for excluding these companies, see the "Company Exclusions" section of this memorandum. Next, as explained in the "Subsidy Rate Calculation" section of this memorandum, we weight-averaged the benefit from this Provincial subsidy program by the Province's relative share of total U.S. exports. The total countervailable subsidy for the Provincial stumpage programs can be found in the "Country-Wide Rate for Stumpage" section of this final determination. 2. Province of British Columbia Although there are 11 forms of agreements that authorize the granting of rights to harvest Crown timber in British Columbia (eight are in the form of licences and three provide harvesting rights in the form of permits), there are three main types: (1) Tree Farm Licenses, (2) Forest Licenses, and (3) Timber Sale Licenses. Tree Farm Licenses (TFLs) are area-based tenures. Licensees occupy and continuously manage forests in a specific area. Each TFL specifies a term of 25 years and describes the Crown and private lands included within the license. The licensees are responsible for costs associated with planning and inventories. These would include forest development plans, management plans, various resource inventories and assessments, as well as other costs including road building, harvesting, basic silviculture, stumpage and annual rent. Forest Licenses are volume-based tenures in that they confer the right to harvest a certain amount of timber each year within a given Timber Supply Area, without designating a specific area of land. A Forest License has a maximum duration of 20 years. Approval to harvest specific timber under a Forest License is accomplished though the issuance of Cutting Permits. The licensees are responsible for costs associated with planning, road building, harvesting, basic silviculture, and payment of stumpage and annual rent. Tree Farm Licenses (TFLs) and Forest Licenses (FLs) accounted for over 80 percent of Annual Allowable Cut (AAC) during the POI. There were 34 tree farm licenses and 232 forest licenses held during the POI. Timber Sale Licenses grant the right to harvest timber within a specific Timber Supply Area or TFL Area. Timber Sale Licences have a maximum term of 10 years. Sales under sections 20 and 23 of the Forest Act typically have a one-year term; section 21 sales have terms averaging 4 or 5 years. Section 20 and 21 are under the Small Business Forest Enterprise Program (SBFEP). Section 20 licenses are awarded to the bidder with the highest bonus bid, which is the amount the bidder is willing to pay on top of the upset rate (minimum rate). Section 21 bidders compete on the basis of a set of criteria which includes bonus bids, employment, new capital investment, existing plant, proximity of the plant to the timber supply, the value added through the manufacturing process, and similar criteria. Section 23 sales involve very small volumes harvested for salvage purposes. The timber pricing system for all tenures is generally determined by two appraisal systems, the Comparative Value Pricing (CVP) system and the Market Pricing System (MPS). The CVP system is used to set stumpage for all tenures except (1) competitive Timber Sale Licenses issued under sections 20 and 21 of the SBFEP, and (2) those qualifying under the "Coast Hemlock Strategy." Under these exceptions, the MPS is used. The CVP is a means of charging specific stumpage prices according to the relative value of each stand of timber being sold. Comparative value prices are established so that the average rate charged will equal a pre-set target rate per cubic meter. The relative value of each stand depends upon estimates of the selling price and the cost of producing the end products. Two base rates are established for the Province, one for the Coast average market value zone (the Coast), and the other for the remainder of the Province (the Interior). The MPS, established in January, 1999, uses results of the SBFEP section 20 auction sales to set the "upset" stumpage rate for upcoming "competitive" timber sales under sections 20 and 21. The MPS uses econometric models to estimate the site-specific value of standing timber directly from recent auction sales. The resulting estimate is then discounted to set the upset (minimum) price, and the winning bidder typically adds a bonus bid to determine the total stumpage charge. In addition, section 21 is not only awarded to the highest bidder; other factors such as employment, new capital investment, existing plant, proximity of the plant to the timber supply, and the value added through the manufacturing process are taken into account. Based on volume, sections 20 and 21 represented approximately 11 percent of the total softwood harvested during the POI. Further, all individuals and companies under the SBFEP combine to hold approximately 13 percent of B.C.'s Allowable Annual Cut (AAC). There is no estimate of the volume of softwood harvested under the "Coast Hemlock Strategy" during the POI. However, because it is a MPS "pilot" project that is currently being evaluated to determine whether it will be expanded, contracted or canceled, the volume should be a relatively small amount. Also, during the POI, the Province sold 6.4 percent of the total log harvest through section 20. Therefore, the CVP system appears to be the method used to determine the vast majority of administratively-set stumpage rates. Because the government provides stumpage at administratively-set prices that, even after accounting for differences in forest management and harvesting obligations (as described below), are lower than the benchmark stumpage prices, we determine that the B.C. Provincial government is providing stumpage for less than adequate remuneration. In our Preliminary Determination, we uses as a benchmark prices from the Washington Department of Natural Resources (WDNR) to determine the adequacy of remuneration. We have revised this benchmark somewhat for this final determination. Benchmark Private Provincial Prices The Government of British Columbia (GBC) claims that the Department should use internal B.C. prices as the market based-benchmark rather than the WDNR bid data that the Department relied upon in our Preliminary Determination. At the time of our Preliminary Determination, we did not have private pricing data for British Columbia. In a supplemental questionnaire response dated August 3, 2001, British Columbia stated that it did not have data or access to data related to sales of private standing timber. After the Preliminary Determination, respondents stated that volume and value data of sales from private lands was now available because it had been ascertained as part of a study. On behalf of British Columbia, Norcon Forestry Ltd. (Norcon) and Pricewaterhouse Coopers (PwC) prepared a study of primary sawmills in British Columbia to determine the proportion of softwood logs originating from Provincial lands that were purchased in arm's length transactions in calendar year 2000. Afterwards, respondents asked Norcon to review the survey data that it collected as part of the main survey and to assess which sales related to private standing timber. British Columbia submitted the resulting data by forest region. The GBC also provided prices from the auctions the government runs under the SBFEP. British Columbia acknowledges that section 20 sales are not technically "open to everyone;" however, it asserts that section 20 bidders analyze the overall market and consult with all prospective users before completing their bid. Therefore, respondents argue that, the sales under section 20 of the Forest Act are determined by the entire market. Respondents also state that although the section 20 sales represent only 6 percent of the total harvest, the volume is still "many times higher than the DNR benchmark for Eastern Washington..." Respondents' Rebuttal Brief at 14. Petitioners contend that there are no internal B.C. private prices that can serve as a market-based benchmark. Additionally, petitioners argue that the prices from the "competitively" bid timber sales under section 20 of the Forest Act (as part of the SBFEP) do not reflect market conditions because they make up only six percent of the total harvest, and participation in the bidding process is restricted to small businesses. Petitioners argue that SBFEP timber "is of much lower quality than that provided to major tenure holders." Petitioners' brief at 22. Petitioners also submit that the fact that SBFEP sales prices are above an administered rate does not comport with economic logic because SBFEP is such a small sector of the market. Respondents argue that it makes economic sense for SBFEP prices to be above the GBC-administered prices because demand exists from major mills which fulfill supply needs by purchasing logs from section 20 sales. Respondents also contend that a proper analysis shows that for the Interior, section 20 timber was worth more and was of higher quality than the major licensees' timber. Finally, with respect to petitioners' argument that the relatively smaller sizes of the tenures awarded under section 20 are more costly to harvest than the large tenures received by the major licensees due to efficiency differences, respondents argue that it is the size of the cut block, not the overall size of the cutting authority, which affects efficiency of operation. Respondents state that the average cut block size was nearly identical for major licensees and SBFEP licensees. Department's Position In accordance with section 351.511(a)(2)(i), we have examined the sales data from private lands to determine if the data could serve as an accurate benchmark for measuring adequate remuneration. We note that, of the six forest regions in British Columbia, volume and value data for standing timber on private lands was provided for only four of these regions. Respondents also state that, to the best of Norcon's knowledge, these private sales (which are not broken down by species or grade) were not made pursuant to a bid or tender process. Respondents did not provide any further breakdown of the data underlying these private prices. For example, respondents did not provide any information regarding the relevant mills involved in private transactions. In addition, with respect to the Norcon survey from which private prices were derived, only mills in which annual lumber production exceeded a certain amount were included for consideration. Further, not every mill that met this minimum production capacity was actually surveyed. As a result of these factors, there is insufficient evidence to conclude that the data provided is fully representative of timber prices on private lands or that the data even represent arm's-length transactions. Most significantly, there is nothing about the study to indicate that the prices are market-based or to indicate that the distortion resulting from the government's involvement in the market is minimal. In light of the reasons, and the reasons outlined in the Analysis of Programs section, above, we conclude that the private prices submitted by British Columbia cannot be used as benchmark prices under section 351.511(a)(2)(i) of the Regulations. Section 351.511(a)(2)(i) of the Regulations also states that the Department can use sales from a government-run auction in certain circumstances to determine whether a government-provided good or service is provided for less than adequate remuneration. Thus, we examined the SBFEP auctions. The Preamble to the Regulations states that "{t}he circumstances where such prices would be appropriate are where the government sells a significant portion of the goods or services through competitive bid procedures that are open to everyone, that protect confidentiality, and that are based solely on price." See 63 FR at 65377. Timber sales under section 20 are not open to all bidders. Even assuming, arguendo, that section 20 bidders may consult with potential users to determine prices, this process still does not constitute a competitive bid procedure that is open to everyone. As the name of the program indicates, the SBFEP auction is only open to small businesses that are registered as small business forest enterprises. Thus, the overwhelming majority of the purchasers of this government good or service is explicitly excluded from this auction. Moreover, only a small percentage of stumpage in British Columbia is sold via SBFEP auction. Therefore, the SBFEP auction prices submitted by British Columbia cannot be used as benchmark prices under section 351.511(a)(2)(i) of the Regulations. Cross-Border Benchmark As noted above, in the absence of market-determined private prices in British Columbia we are required to identify other sources to use as benchmarks. Respondents argue that the Department should not use Washington State as a benchmark, as it did in the Preliminary Determination, because Washington State imposes a ban on exports of logs harvested from the Washington Department of Natural Resources (WDNR). Therefore, respondents claim that WDNR stumpage prices are not available in Canada, and thus the Department is precluded from using these prices in its benchmark. Respondents argue that the WDNR data are taken from a very small survey and that there is a sample selection bias because WDNR does not use the same method to select timber for auction that tenure holders in B.C. use to select timber for harvest. Respondents also argue that if petitioners concede that a statistically valid cross-border comparison of stumpage volumes is impossible for purposes of deriving a conversion factor, then so too are cross-border comparisons of stumpage values. In respondents' view, substantial differences exist between Washington State and British Columbia. Respondents contend that the species profiles, topography, climate, etc, in Coastal and Interior B.C. are different than the profiles in Western and Eastern Washington. Further, respondents state that regional differences exist in timber prices both within and between Western and Eastern Washington. Thus, if such regional price differences prevail within a competitive market, respondents argue that such a difference may apply to comparisons between B.C. and Washington State. Petitioners, on the other hand, argue that WDNR timber sales accurately reflect Coastal B.C. in terms of geography, ecosystems and tree species, infrastructure and transportation, timber marketability and availability. Thus, petitioners agreed with the Department's use of Western Washington DNR sales as a benchmark for Coastal B.C. in the Preliminary Determination. With respect to Eastern Washington, petitioners argue that Eastern Washington DNR sales do not accurately represent the values of predominant species in Interior B.C. due to the prevalence of bug-infested lodgepole pine/spruce (see discussion below). Thus, petitioners suggest broadening the benchmark to include Northern Idaho and Western Montana. Respondents argue that the WDNR reports its species-specific prices by averaging the lump-sum amount it receives for a sale over all species included in the tract, regardless of the actual distribution. This approach, according to respondents, overstates the value of lower-valued species and understates the value of higher-valued species. Respondents note that the predominant species in B.C. are lower-value species. Respondents state that to reduce the distorting effects of these simple average prices, the Department should derive species-specific prices focusing on sales in which species constituted at least 75 percent (i.e., "dominant" species) of the total volume. Petitioners agree that WDNR sales involve lump-sum bids and thus, overstate the value of low-valued timber. However, petitioners argue that, there are similar factors that systematically understate the value of species that are more prevalent in B.C. Petitioners note that comparing a species that is a "minority" in the United States, but a "majority" in B.C., will underestimate the value of that species because it is in relatively higher demand in B.C. Also, petitioners argue that a "majority" species in B.C. suggests that such a species is "at home" and therefore, likely to be superior in health and quality. Thus, these factors which understate the value of lower-valued species would offset other factors (i.e., lump-sum bids) which work in the opposite direction. Nonetheless, petitioners acknowledge that the lump-sum bids would skew the data by overstating the value of lower-valued timber. However, petitioners disagree with respondents' proposed method of adjusting species prices. Petitioners assert that the Department could address the lump-sum pricing issue using one of the following methods: (1) Some variation of the "dominant" species method suggested by respondents. Petitioners caution that respondents' choice of a 75 percent threshold is arbitrary. If the Department uses the 75-percent threshold for hemlock/fir, petitioners argue that it should use at least an 85- percent threshold for Douglas fir. Petitioners note that respondents inexplicably did not consider western red cedar (WRC) a "dominant" species (i.e., sales in which WRC constitutes greater than 75 percent) despite the fact that there were sales which met the 75 percent threshold. Further, petitioners contend that the "reallocated" WRC price that respondents calculated was significantly undervalued. Petitioners assert that respondents did not adequately explain the methodology used to allocate prices for "minority" species (i.e., sales in which a species did not constitute greater than 75 percent of a sale). Respondents counter that the 75-percent methodology is reliable inasmuch as it is supported by the results of a regression analysis respondents performed, which yielded species-specific prices "statistically indistinguishable" from the 75-percent methodology. With respect to the price for WRC, respondents argue that WRC comprised only 2 percent of the Western Washington WRC volume. Therefore, it is unreasonable to use its 75- percent methodology for calculating a WRC price. (2) Standard statistical methods (i.e., regression analysis). Petitioners note that the Department could derive species-specific prices from the lump sum values using results from a regression analysis that petitioners performed. However, in the case of cedar and white pine in Eastern Washington, the regression analysis yields a statistically insignificant result. Thus, petitioners state that the Department could use the reported WDNR data. Respondents counter that the Department could use the regression analysis separately performed by respondents to derive species-specific prices. (3) Expansion of the pool of pricing data beyond WDNR. For comparison to Interior B.C., petitioners argue that the Department should average in timber prices from Montana and Northern Idaho, thereby creating a more representative reflection of timber values in Interior B.C. Further, petitioners note that including additional data lessens the effect of outlier sales such as the six sales of lodgepole pine/spruce in Eastern Washington from the WDNR. Petitioners note that these six sales had unusually low values and involved abnormally low-quality timber (e.g., bark beetle infestation, small timber size, substantial quantities of pulpwood) in relation to Washington and B.C. The percentage of severely beetle-damaged harvest in B.C., petitioners contend, was significantly less. Petitioners suggest that Eastern Washington, Idaho and Montana are comparable to Interior B.C. in terms of geography, ecosystems and tree species, infrastructure and transportation, and timber marketability and availability. Respondents disagree with petitioners' contention that the six sales of lodgepole pine/spruce should not have been considered in deriving a lodgepole pine/spruce price because they are small trees and are not representative of WDNR sales. Respondents claim that these six sales are indeed representative because they account for 20 percent of total volume of the WDNR harvest in Eastern Washington and over 80 percent of the lodgepole pine/spruce harvest from WDNR lands during the POI. Respondents object to petitioners' request that the Department include Montana and Idaho data along with Eastern Washington to compare to Interior B.C. because their harvests are unlike the Interior B.C. harvests and would "exacerbate the already unrepresentative comparison with Interior British Columbia." Respondents also contend that the Department compared the price of groups of species in Eastern Washington to dissimilar species groupings in Interior B.C. Because the Department erroneously compared lower-valued timber in B.C. with higher-valued timber in Washington State, the effect is to overstate significantly any price difference and the portion attributed to a subsidy. In the Preliminary Determination, the Department combined true fir ("balsam") and hemlock in Interior B.C. which we compared to true fir/hemlock for Eastern Washington. Respondents claim that the Department mistakenly combined the lower-valued hemlock with balsam fir and should not have compared these species to a more valuable true fir in Eastern Washington. Rather, respondents argue that the Department should compare Interior B.C. true fir/hemlock to lodgepole pine/spruce. Petitioners state that the Department undervalued the benchmarks that were compared to two species on the Coast: cypress and Sitka spruce. In the Preliminary Determination, the Department stated that cypress and Sitka spruce were not present in Western Washington and, thus, used Western Washington red cedar prices as a surrogate benchmark for B.C. cypress, and Eastern Washington prices for Engelmann spruce as a surrogate for B.C. Coastal Sitka spruce. Petitioners object to this comparison because both surrogate species are less valuable than the B.C. Coastal species to which they were compared. Next, respondents claim that the stumpage charges reported by B.C. are the amounts paid during the POI for timber cut during the POI. They argue that the Department, however, compared these charges to WDNR bid prices for the right to harvest WDNR timber at a later date. Respondents state that the Department should have compared prices paid in B.C. for timber cut during the POI with prices paid to WDNR for timber cut during the same period, not for timber cut months or year later. Respondents further argue that the Department should compare stumpage prices in B.C. with stumpage prices in Alaska because it is contiguous to B.C. and the timber and operating conditions in southeast Alaska are similar to Coastal B.C. Petitioners argue that timber from sales in the Tongass National Forest in Alaska cannot serve as a benchmark for comparison with B.C. prices because they do not represent market prices. The total number of Tongass sales are relatively small and the majority of sales during the POI were made under two federal government Small Business Administration (SBA) programs that restrict availability of competitive bidding. As such, sales under the SBA programs depressed prices of the few competitive sales. Further, petitioners argue that the Tongass prices are depressed due to the lingering effects of historical factors. For example, Tongass timber used to be sold through a tenure-like system and prices were set by a formula which understated timber values. However, if the Department were to use the Tongass timber sales for benchmark purposes, petitioners argue that any comparison would have to be limited to B.C. sales in the northernmost districts of the Coast zone. Respondents counter that prices for SBA sales were approximately the same as for non-SBA sales and that the administering authority (i.e., the United States Forest Service (USFS)) is prohibited by law from understating the value of timber. Respondents state that the cut prices during the POI involve twice as many sales as petitioners assert, and the volume cut in the Tongass National Forest during the POI is nearly twice as large in relation to the Coastal B.C. harvest as the volume used by the Department for comparison to Interior B.C. Department's Position We disagree with Respondents' contention that because the state of Washington maintains bans on the export of logs, WDNR prices are not available to B.C. producers. As we stated in the Preliminary Determination, we have used WDNR prices as an estimation of all market- based prices in Washington, from both public and private lands. Because WDNR prices are set at competitive auctions, they represent market prices. We have experienced the same difficulties as respondents in locating private price surveys. As a measure of how closely the WDNR prices reflect private prices in Washington, we compared the WDNR prices to data from the Washington Department of Revenue (WDOR) for the first half of calendar year 2000. We note that the WDOR collects taxes on private harvests and assesses the amount due in taxes based upon a stumpage value table. The WDOR constructs the stumpage value tables on the basis of data related to stumpage paid and volume harvested collected through its survey of private companies. The stumpage value tables estimate the total taxable value of timber harvested. The WDOR then applies a tax rate to the taxable value to derive the amount due in taxes. We examined the WDOR survey results and calculated an average unit value (i.e., the taxable values divided by volume harvested) for Eastern and Western Washington. We compared the WDOR average unit value to the WDNR simple average of species-specific stumpage prices that we used in our calculations for the final determination. For Eastern Washington, we found that the WDOR average-unit-value was approximately 13 percent higher than the WDNR prices. For Western Washington, we found that the WDOR average unit value was essentially the same as the WDNR prices. With respect to this comparison, it was not possible to control for every variable that affects stumpage prices (e.g. species type) due to lack of available data. The WDOR average-unit-values include multiple species within Eastern and Western Washington. However, given the breadth of such data, we believe the WDOR average-unit-values are a reasonable measure of private prices in Washington State. By the same token, we have included prices of multiple species from throughout Eastern and Western Washington in calculating average WDNR stumpage prices for the purpose of this comparison. Because the WDOR and WDNR data are both comprised of roughly the same basket of species, the comparison is an accurate and meaningful one. Due to the similarity between WDOR and WDNR prices, we conclude that the WDNR prices reflect private stumpage prices during the POI. Next, we continue to hold that, in general, Washington State is comparable to B.C. The border along the 49th parallel is merely a political boundary without any corresponding physical characteristics that separated the United States and Canada The Cascades or Coastal Mountains form a contiguous mountain range that stretches from Washington State through B.C. and demarcates B.C. and Washington into two distinct regions. Each region is similar in terms of topography, climate, and ecosystems. Coastal B.C./Western Washington can be characterized as a temperate, relatively warm climate, whereas Interior B.C./Eastern Washington has a drier, colder climate. The particular Eastern Washington DNR data that we used contained anomalous sales due to bug-infested lodgepole pine/spruce and that broadening the database provides a more accurate benchmark to be compared to Interior B.C. (see discussion below). We agree with both petitioners and respondents inasmuch as the WDNR bid data used in the Preliminary Determination was simply a lump sum evenly distributed across all species included in the tract. The prices did not consider the species distribution of a given sale and, therefore, gave the same weight to all species. However, we disagree with the parties concerning which method is used to derive a weighted-average species- specific price that is more representative of actual species prices. With respect to respondents' proposed methodology of deriving species-specific prices by examining sales in which a given species was 75 percent or greater, we note that the 75 percent threshold is arbitrarily drawn. Further, certain species (e.g. western red cedar, lodgepole pine) rarely constitute more than 75 percent of a given sale and, thus the weighted- average species price would only comprise a handful of WDNR sales. The "reallocation" of prices using either the 75 or 85 percent threshold that respondents and petitioners respectively suggest, limits the number of sales in certain instances to extremely small samples. We do not consider the regression analysis to be a reasonable alternative to derive species-specific prices. Respondents recognize that "the regression approach does not yield results that can be used with reasonable confidence." Petitioners' own regression analysis cannot be applied consistently because it produces negative values for certain species. Thus, to derive more accurate species-specific price comparisons we have broadened the database with which we compare Coastal and Interior B.C. stumpage prices to those in the U.S. We continue to use prices from the WDNR, as reported in the Stumpage Price Report (March 31, 2001), published by the Timber Data Company. In addition, we have included Western Washington U.S. Forest Service (USFS) data from the Stumpage Price Report to compare to Coastal B.C. We have included the following additional sources of data from the Stumpage Price Report to compare to Interior B.C.: Eastern Washington USFS; Northern Idaho USFS; Southwestern Idaho USFS; Idaho Department of Lands (DOL); Montana Department of Natural Resources and Conservation (MDNRC), and Montana USFS. Montana and Idaho are similar to Interior B.C., as there are similarities in topography, geography, and ecosystems between these areas that share a common border. Thus, it is appropriate to include Montana and Idaho in our benchmark for Interior B.C. The inclusion of this data provides a greater pool of sales to derive species-specific prices and attenuates the distorting effect of anomalous sales. As noted above, we recognize that the WDNR prices were derived from a lump-sum amount and did not consider the species distribution of a sale. The Idaho DOL and USFS data is different in that the prices are calculated by the respective administering body factoring in species-specific values, as opposed to simply labeling the same price to all species in a particular sale. We disagree with respondents that we should not combine Interior B.C. hemlock/true fir and that we should not compare these species to hemlock/true fir from Eastern Washington. The Stumpage Price Report lumped hemlock/true fir together in reporting prices from certain agencies, as it often combines species for reporting purposes based, in large part, on their similar values in a particular region or jurisdiction. Respondents' argument that it is inappropriate to combine Interior B.C. true fir/hemlock is undermined by their subsequent assertion that we should ultimately compare these two "different" species with the same exact species (i.e., lodgepole pine/spruce). Thus, it is reasonable to group hemlock/true fir for comparison purposes in Interior B.C., even if certain timber characteristics of these species differ. Although respondents argue that a true fir in Interior B.C. is substantially different from a true fir in Eastern Washington, there is no persuasive evidence on the record that such a comparison is unreasonable. We disagree with petitioners' comments concerning undervaluing the benchmarks that were compared to two species on the Coast. Petitioners have not provided compelling evidence suggesting that this is an inappropriate comparison As such, we have compared Coastal B.C. spruce prices to spruce prices in Eastern Washington and Montana (no spruce prices were listed in the Stumpage Price Report for Idaho). This is consistent with our Preliminary Determination, in which we compared Coastal B.C. spruce prices to the benchmark we used, which only included Eastern Washington DNR prices. We also compared Coastal B.C. cypress with Western Washington red cedar. In addition, with regard to our U.S. comparison data we used to compare to Interior B.C., the Stumpage Price Report lists Douglas fir/larch, Douglas fir/true fir and true fir/hemlock. Because of these species groupings in our U.S. comparison data, we cannot make certain direct species-to-species comparisons with the available data for the Interior as we can with the Coast. As a result, we have grouped these species together for comparing Interior B.C. stumpage prices to prices in Eastern Washington, Idaho and Montana. Therefore, we have compared Douglas fir, larch, true fir and hemlock as a group. Again, we note that the Stumpage Price Report will often group species categories for reporting purposes based, in large part, on their similar values in a particular region or jurisdiction. Therefore, we are confident that our grouping of Douglas fir, larch, true fir and hemlock for comparison purposes in Interior B.C./Eastern Washington, Idaho and Montana is appropriate, even if certain timber characteristics of these species differ. Further, because we have expanded our benchmark to include Idaho DOL and Idaho USFS prices to compare to Interior B.C. stumpage prices, we now have species-specific prices for red cedar in our U.S. comparison areas. This represents a change from our Preliminary Determination, in which we compared red cedar stumpage prices in Interior B.C. to red cedar prices on Western Washington DNR lands. We disagree with respondents that we should use WDNR "cut" prices. In the Preliminary Determination, we used WDNR "bid" prices. The additional benchmark data from Washington, Montana, and Idaho are also "bid" data. The B.C. prices are amounts paid during the POI for timber cut during the POI. However, it is not erroneous to use "bid" prices to compare to "cut" prices. The cut prices reflect prices from outside the POI because a buyer can typically wait up to several years before paying the bid price and cutting the timber. The bid prices reflect market prices during the POI and, thus, are appropriate comparisons to B.C. stumpage prices. Finally, we agree with petitioners that Alaska is not an appropriate comparison benchmark for B.C., because the Alaska market is not comparable to the B.C. market. Notably, of the 51 total Alaska sales, 31 (approximately 61 percent) had only one bidder. The lack of competition potentially distorts prices, thus rendering the Tongass prices inappropriate as a benchmark. Method and Application of Adjustments Although the price-determining factors are different between administratively-set stumpage sales in B.C. and market-driven stumpage sales in Washington, Idaho and Montana, an examination of stumpage prices alone is not sufficient to determine whether timber is provided for less than adequate remuneration. Tenure holders in B.C. are required to fulfill certain forest management and timber-harvesting obligations, including silviculture and other forest management activities. Therefore, it is necessary to factor in certain cost adjustments to reflect certain activities that are not factored into the administered price. As stated in the Preliminary Determination, with the exception of reported annual rents, we relied on cost data from surveys of major tenure holders conducted by the Ministry of Forests (MOF) for Coastal B.C., summarized and reviewed by PwC, and a survey developed and conducted directly by PwC for Interior B.C. For the Coastal survey, PwC summarized and reviewed survey responses conducted by the MOF. For the Interior, since a calendar year 2000 survey has not yet been finalized for reporting purposes by the MOF, an independent survey was developed and conducted by PwC. For further information on these surveys, see the Memorandum from Michael Grossman and Geoffrey Craig to Melissa G. Skinner, Countervailing Duty Investigation of Certain Softwood Lumber from Canada: Verification of the Questionnaire Responses Submitted by the Government of British Columbia dated February 15, 2002 (B.C. Verification Report), at 10-13. We have not granted an adjustment for total operating costs associated with logging in British Columbia, as respondents have suggested. Rather, we have examined individual cost categories, as we did in the Preliminary Determination, and made adjustments where appropriate, as explained below. Silviculture Petitioners state that B.C. has specific stringent seedling requirements, but argue that these requirements come about because the vast majority of B.C. harvest was done through clear cutting. They state that this method is relatively inexpensive compared to commercial thinning and selective cutting, which is more prevalent on WDNR land. With this method, many trees are left standing and the amount of subsequent regeneration necessary is reduced. However harvesting costs under this method are substantially higher due to the need to maneuver around trees (requiring specialized equipment). Therefore, petitioners argue that the high costs incurred by WDNR harvesters due to mandated partial cutting are of the same "type" as silviculture requirements in B.C., thereby obviating the need for adjustments to account for the silviculture requirements in B.C. Petitioners further state that the Department could quantify the "added cost of partial cut or commercial thinning requirements that exceed those relating to clear cutting on the WDNR" with available data. Petitioners estimate this cost differential to be C$3.06 per cubic meter and state the Department should adjust B.C. stumpage prices downward to reflect this. Respondents argue that partial cut costs are not of the same type as silviculture costs and cannot be used to negate the silviculture adjustment. The two activities use different equipment and personnel and occur at different stages. Additionally, petitioners' alternative claim for a partial cut cost adjustment runs counter to their claim that where costs of the same type are incurred in both jurisdictions, adjustments cannot be made, and some partial cutting is performed in B.C. Respondents also state that petitioners overlook the fact that clear cutting rules in B.C. are more onerous than in Washington; not all trees within a clear cut in B.C. are harvested, and wildlife tree reserves and deciduous trees are often left standing. These factors increase harvesting costs. Further, laying out and harvesting clear cut blocks in visually sensitive areas involves stringent requirements and high costs. Respondents also argue that petitioners' method of calculating the cost differential between B.C. and Washington cutting methods is greatly exaggerated and is based on incorrect data. As in the Preliminary Determination, we continue to grant an adjustment to B.C. administered stumpage prices for the mandatory silviculture requirements borne by tenure holders, which includes surveying, site preparation, planting, brushing, weeding, spacing and seedling. These basic silviculture activities are required under the Forest Practices Code of British Columbia Act and the costs are borne by major licensees, as opposed to harvesters on our U.S. comparison jurisdictions, which do not bear these same types of costs. We disagree with petitioners that any differences related to clear cutting in B.C. and commercial thinning, partial cutting and clear cutting in our U.S. comparison jurisdictions are the same types of costs as silviculture requirements in B.C. Further, as respondents have stated, clear cutting in B.C. does not mean removal of all trees, nor does partial cutting mean uniform removal of a portion of the trees. Additionally, record evidence is insufficient to conclude with any degree of certainty the difference in costs between the methods used in the jurisdictions we compare. Road Construction and Maintenance Primary roads, intended for regular traffic, require extensive engineering, excavation, construction and maintenance. Secondary roads are generally intended for a lower volume of traffic, and are built on a less permanent basis than primary roads. Cutblock, or on-block, roads enable harvesting to take place on a single cutblock, and are often only sufficient for the movement of crews and equipment. These are temporary roads that require little, if any, maintenance. Petitioners argue that private harvesters on WDNR lands construct and maintain all types of roads, including primary roads, at their own expense. They state that, to the extent road costs are higher in B.C. than Washington state, the result is due to differences in efficiency due to subsidization rather than differences in terrain. Therefore, petitioners argue that no adjustment should be made to B.C. stumpage prices with regard to construction and maintenance of any types of roads. Respondents argue that there is no evidence to support petitioners' contention and further state that major licensees in B.C. are responsible for constructing and maintaining primary and secondary roads, while private harvesters in the U.S. do not bear this responsibility. In the Preliminary Determination, we granted an adjustment to administered B.C. stumpage prices for Coastal and Interior primary road and bridge construction and maintenance expenses only. Tenure holders in B.C. are responsible for building and maintaining primary and secondary roads, and for deactivating roads when necessary. In B.C., primary and secondary road construction and maintenance is necessary to the harvesting operation, whereas harvesters in the U.S. comparison areas generally have a more extensive primary and secondary road network already in place. Therefore, we are granting an adjustment to B.C. administratively-set stumpage prices for primary and secondary road construction and maintenance costs. We are not granting any type of adjustment for reported on-block, or tertiary, road expenses, as these are typically borne by harvesters in our U.S. comparison jurisdictions, as well as in B.C. In their January 7, 2002 submission, petitioners provided information with respect to the existence of road construction and maintenance costs in our U.S. benchmark jurisdictions. However, we have not relied on petitioners' data to make road cost adjustments. Petitioners provided no evidence that the submitted road costs on Washington USFS, Idaho DOL and Western Montana DNRC lands relate specifically to primary and/or secondary roads. Petitioners solely provided data demonstrating that road costs are incurred by harvesters in select jurisdictions. Based on the data submitted, the Department is unable to determine whether, for example, the reported road costs relate to tertiary roads only. Sustainable Forest Management Petitioners argue that all harvesters, including those on WDNR lands, must devote time and resources to short- and long-term planning. Petitioners further state that the participation by B.C. licensees in public forest planning processes is a valuable right, not a burden, for licensees. Additionally, the dues that many U.S. harvesters pay for membership in logging associations are analogous to costs incurred by B.C. harvesters for forest resource management and planning. Petitioners also claim that post-logging treatment costs, as reported for Interior B.C., should not be included in adjustments made to B.C. administered stumpage prices. They state that harvesters on Eastern Washington and Idaho public lands must provide slash disposal treatments to improve reforestation conditions, which correspond to much "post logging treatment." Respondents counter that the Department learned of the full nature of the mandatory obligations, and resulting costs associated with those obligations, associated with forest resource management and planning at verification. Respondents further state that the record demonstrates the extensive, highly technical and complex nature of these activities. Respondents argue that petitioners do not dispute that the WDNR is responsible for all forest management planning on its lands. Respondents argue that the fact that B.C. licensees may participate to some extent in the separate public land planning process in no way undermines the fact that the requisite costs borne by B.C. licensees for forest resource management and planning are not borne by WDNR harvesters. With regard to post-logging treatment, respondents state that petitioners' argument is unsubstantiated, citing no official government documentation or bid packages for WDNR sales. Consistent with our Preliminary Determination, we have granted an upward adjustment to B.C.-administered stumpage prices for both the Coast and Interior for the required costs of sustainable forest management activities, which include preparation of forest development plans, management plans, silviculture prescriptions and cutting permits. Interior costs include post-logging treatments, including mistletoe eradication, as well as landing/roadside burning and rehabilitation. As respondents have pointed out, B.C. licensees incur extensive mandatory costs relating to these activities that private harvesters in our U.S. comparison areas do not incur. These activities are required under the Forest Practices Code of British Columbia Act. Additionally, we see no direct, measurable correlation between any advantage, if an advantage exists, from B.C. licensees' limited involvement in the public land planning process and U.S. harvesters participation in contract logging associations. Ground Rent In the Preliminary Determination, we granted an adjustment to B.C. stumpage prices for the charges incurred by B.C. licensees for reserving the use of the resource under license. Petitioners and respondents agree that these charges are imposed whether or not timber is harvested in B.C., therefore ground rent should be included as an upward adjustment to B.C. administered stumpage prices. We have granted an adjustment for the required ground rent for this final determination. Fire and Pest Management In the Preliminary Determination, we granted an adjustment to B.C. stumpage prices for forest protection activities on Crown lands, including fire prevention and suppression, and pest management activities. Petitioners and respondents agree that these obligatory activities are incurred by B.C. licensees under the Forest Practices Code of British Columbia Act, and are not incurred by harvesters in our U.S. comparison areas. We have granted an adjustment for required fire protection and pest management costs for this final determination. Logging Camp Expenses Respondents argue that an adjustment is warranted for Coastal B.C. relating to the operation of remote camps and crew transportation costs incurred in the "otherwise inaccessible" Coastal forests. Respondents state that the record shows that major licensees incur significant camp costs including general costs of running camps, such as operating cook houses, bunk houses and other buildings, operating and maintaining camp vehicles, general labor and supply costs of maintaining the camp, and costs of transporting crews from a central location to the logging site. Respondents further cite to record evidence showing that operators on WDNR lands do not use remote camp operations because logging sites are significantly more accessible by roads than sites in B.C. Petitioners argue that a camp, as defined by B.C., is very broad, and may consist only of a storage center and gathering place, which is no different from logging facilities possessed by virtually all Washington state logging companies. Petitioners further state that very remote sites might not even be sold or harvested in a commercial market, given the costs involved, while in B.C., the GBC will sell the timber at prices as low as $0.25 per cubic meter as long as the licensee is willing to harvest it. Petitioners' arguments are unpersuasive. Based on record evidence and our discussions with officials during verification, it is clear that harvesters in Coastal B.C. indeed build camps for logging at remote sites, and these camps are not merely storage facilities or gathering spots. Petitioners have not put forth any evidence of expenses relating to logging camps incurred by harvesters in our U.S. comparison jurisdictions. As a result, we have granted an adjustment to administratively set stumpage prices in Coastal B.C. for logging camp expenses. Timber Sale Costs Respondents argue that the costs for timber procurement, including cruising, engineering and layout, scaling, and residue and waste surveys, are required of B.C. major licensees, while WDNR bidders are not required to perform such activities since WDNR bid advertisement documents provide details such as volume, species, size and quality of timber. Petitioners counter that, as with section 20 bidders under the SBFEP who incur similar costs, WDNR harvesters cannot rely solely on WDNR bid advertisements, and bear related costs including examining timber and assessing volume and quality, evaluating costs involved in harvesting particular stands, and cruising many more sales than they actually harvest. Petitioners state that because WDNR bidders pay lump-sum amounts, if they overestimate the volume or value of the timber, they still must pay the entire bid price, unlike a licensee in B.C., who pays only for what is harvested. Respondents further argue that expert reports demonstrate that WDNR bidders do not incur engineering and sale area layout costs and are not required to undertake scaling expenses. While WDNR bid advertisement documents include a significant amount of data relating to the timber supply up for auction, it is necessary for Washington state harvesters to perform the same types of activities as respondents have reported (i.e., scaling, residue and waste measurement, and cruising, engineering and layout). As a result, and consistent with our Preliminary Determination, we have not added the costs associated with these activities to the administratively-set stumpage prices on the Coast and in the Interior of B.C. Helicopter Logging Respondents argue that a considerable amount of Coastal B.C. timber is on highly remote, often inaccessible terrain that can only be harvested through helicopter logging techniques. Respondents have estimated that approximately 19 percent of logging in Coastal B.C. is done by helicopter logging, as compared to one to two percent of WDNR timber in Western Washington state. Petitioners contend that helicopter logging costs reported in Coastal B.C. are derived from a small and self-selecting sample, and also reflect the subsidies received by B.C. harvesters, as companies have an incentive to exaggerate and inflate their costs to reduce stumpage rates. Further, petitioners state that the Department would have to examine and adjust for the prevalence of helicopter logging costs in other regions, including the U.S. Interior. Respondents counter that the Department fully verified helicopter logging costs and that the verification renders untrue petitioners' claim that the sample was self-selected or the costs were exaggerated. Respondents also take exception to petitioners' argument that helicopter logging in the U.S. Interior is quite common. Respondents point out that the sole exhibit on which petitioners rely relates to USFS lands in Northern Idaho, which respondents agree is more mountainous than Eastern Washington. They argue that nothing is mentioned concerning Eastern Washington. We have made no adjustment for helicopter logging. We have included in our benchmark comparison USFS lands in Northern Idaho, where helicopter logging is practiced, as petitioners have demonstrated on the record. See Petitioners' Jan. 7, 2002 submission at Exhibit 28. Therefore, these same types of costs are borne, to an extent, by harvesters in our U.S. comparison areas, and no adjustment is warranted. Old Growth and Quality Characteristics Petitioners contend that a large percentage of the major B.C. Coastal species is old growth (140 years of age or more), while little old growth remains available for harvest in the United States, especially on public lands. Old growth is typically of better quality and bigger size than second growth. Petitioners point to evidence of the value of old growth in the B.C. Coastal Appraisal Manual, which has charts showing prices in the Vancouver Log Market. Petitioners argue that B.C. does not substantiate its claim that old growth is less valuable because it has higher percentages of decay. Additionally, while respondents contend that second- growth timber is easier to harvest due to uniform-age stands, petitioners state that these stands are less common on public lands. Respondents state that petitioners propose to use MOF data to estimate values on the Coast of B.C. for second growth logs to adjust stumpage figures for standing timber in Washington, but, in fact, no direct correspondence exists between log prices and timber values. Respondents argue that the value of standing timber depends not only on the value of its end products, but on costs including harvesting and transport. They state that old growth standing timber does not have the premium compared to second growth standing timber that old growth logs may have compared to second growth logs. Respondents also state that the record demonstrates that older growth timber may have more rot and decay than second growth timber. Further, they state there is no data that would permit a calculation of the net effects of the many factors that tend to raise or lower stumpage values for old growth timber. Respondents also point out that there is no basis to presume that log price differentials on the B.C. Coast should be applied to Washington state, as the relative values of logs differ in different areas. Respondents further contend that the Department and petitioners ignore that the term "sawtimber" means different things in the two markets. Moreover, no adjustments were made to account for the difference. B.C. classifies as "sawtimber" lower-valued logs that can be used in both B.C. and U.S. sawmills to make lumber but the WDNR does not include the lower- valued logs in the projected volume of its "sawtimber"sales. Consequently, the price per thousand board feet of projected volume on WDNR sales overstates the unit volume price compared to reported stumpage charges in B.C. Petitioners state that respondents' argument that the Department and petitioners use inconsistent and biased definitions of saw timber, in fact, favors B.C. In the Preliminary Determination, the Department relied on B.C. volumes and values of statutory "sawlog" grades, which petitioners argue is under-inclusive because B.C. sawmills produce lumber from timber that is not included in B.C.'s "sawlog" grades, particularly grades 4 and 5 timber in the Interior. Respondents counter that petitioners' argument underscores the difficulty of comparing market conditions for "sawlogs" in the two jurisdictions and would create another major inconsistency in the comparison. Respondents also note that timber of certain grades included as sawtimber in B.C. is equivalent to certain timber that is often not included in the WDNR sawtimber benchmark. As is explained in the section for Quebec, above, timber varies within and between tree stands and geographical areas. For example, certain trees and stands have imperfections such as rot and decay. We agree with respondents that there are a myriad of factors that contribute to timber values. Specifically with regard to old growth/second growth, there are several factors that respondents have pointed to that call into question the clarity of any potential differences between trees in B.C. and trees in our U.S. comparison areas. The Department cannot adjust for every single one of these differences that may exist between B.C. and our U.S. comparison areas. Because of this, the Department has broadened its benchmark in order to account for the inherent differences in timber. To this end, we have made our cross-border comparisons on a species-specific basis. Moreover, to ensure that our species comparisons are reflective of the species mix in B.C., we have weighted each species-specific price difference by the share of the total harvest that each species accounts for in B.C. Further, we have sought to the best of our ability with the data on the record to ensure that we are using comparable definitions of sawlogs for B.C. and our U.S. comparison jurisdictions. While certain distinctions are made for what constitutes sawtimber in both jurisdictions, we have only included for B.C. what the record clearly demonstrates is sawtimber for comparison to the sawtimber listed in the Stumpage Price Report for Washington, Idaho and Montana. Time Value of Money Petitioners argue that when WDNR harvesters win a bid, they must pay up- front deposits equal to 10 percent of stumpage plus 10 percent of the Access Road Revolving Fund (ARRF) fee. WDNR harvesters may take up to three years before they harvest after winning an auction, during which time they do not have the value of their deposit. B.C. tenure holders, in contrast, do not pay stumpage until after the timber is scaled and billed. Petitioners argue that the lost value of the WDNR harvesters' money should be reflected as a downward adjustment to B.C. administered stumpage prices both on the Coast and in the Interior. Respondents counter that such an adjustment should be denied for two reasons. First, major licensees in B.C. incur far greater costs for activities prior to harvest, such as engineering, layout, road construction, silviculture prescriptions and forest management planning, than do WDNR harvesters. Respondents claim that due to the long-term nature of their tenures, it generally takes longer to recover these costs, and the time value of these investments is far more substantial than for the small deposits paid to the WDNR. Second, while stumpage prices in B.C. vary dramatically over time, WDNR harvesters are able to lock in a stumpage rate by paying the requisite deposits, resulting in a considerable advantage to the winning bidder. We have not adopted petitioners' proposed time value of money adjustment. As respondents have pointed out, harvesters in B.C. incur substantial variations in stumpage prices, as compared to the relative advantage to WDNR harvesters of having a locked-in price prior to harvest. WDNR bidders benefit by knowing the price that will be paid upon harvest in several ways; for example, they can allocate funds for future potential bids. Further, even assuming arguendo that we would adopt petitioners' argument, petitioners have commented only on the deposit requirements for WDNR harvesters. As we have expanded our U.S. comparison benchmark to include data from Idaho and Montana, as well as federal data from Washington, the extent of any time value of money loss to harvesters in our U.S. comparison areas as a whole cannot be calculated with record data. Taxes and Fees on U.S. Harvesters Petitioners argue that the Department must include in its benchmark certain payments made by U.S. purchasers. These include the set ARRF fee and timber excise tax on WDNR purchases, the unharvested timber tax and scaling fees on Northern Idaho Department of Lands, and a forest improvement fee on MDNRC lands. Respondents counter that the record demonstrates that WDNR officials and industry participants consider ARRF payments to be part of timber operating costs, not part of stumpage payments. With regard to taxes, respondents note that the Department did not adjust the benchmark to account for accounting differences in Lumber III, stating that it only considers taxes in a countervailing duty investigation "when the tax itself is the source of the subsidy." Lumber III, 57 FR at 22596. Further, harvesters in B.C. also pay a logging tax and, more broadly, operators in B.C., Washington, Idaho and Montana all pay a variety of taxes that differ in each jurisdiction. Respondents also note that the taxes petitioners reported for Idaho and Montana are extremely dubious. Consistent with our position in Lumber III, we have not adjusted our benchmark stumpage prices to account for differences in taxes. With regard to ARRF, we agree with respondents that these fees represent part of WDNR harvesters' operating costs and there is no basis to single out and adjust for this one type of the myriad of costs faced by harvesters. Calculation of the Subsidy To determine our benchmark prices to compare to stumpage prices in Coastal B.C. and Interior B.C., we first calculated weighted-average prices, by volume sold during the POI, for each of the major species in our U.S. comparison jurisdictions, separately for Western Washington to compare to Coastal B.C. and Eastern Washington, Idaho and Montana to compare to Interior B.C. For Western Washington, we looked at Douglas fir, true fir/hemlock and red cedar/cypress and for Eastern Washington, Idaho and Montana, we examined Douglas fir/larch/hemlock/true fir, ponderosa pine, lodgepole pine/spruce and red cedar. Also, as explained in the "Benchmark" section, above, because there is no Stumpage Price Report data on spruce in Western Washington to compare to Coastal B.C. spruce (which comprises approximately 2.8 percent of the Coastal sawlog harvest), we have compared Coastal B.C. spruce prices to spruce prices in Eastern Washington and Montana (no spruce prices were listed in the Stumpage Price Report for Idaho), consistent with our Preliminary Determination. Likewise, there is no data in the Stumpage Price Report to compare to Coastal cypress, which accounted for approximately 4.3 percent of the Coastal sawlog harvest. In the Preliminary Determination, we noted that a forestry official explained that, of the Western Washington species for which we have data, cypress is most similar in its uses and characteristics to red cedar (see "Calculation of Stumpage Subsidy in British Columbia" Memo to the File from Team, dated August 8, 2001). Therefore, we used the Western Washington red cedar price data to compare to Coastal B.C.'s price data for cypress. We continue to use red cedar price data from Western Washington to compare to Coastal B.C. administratively-set cypress prices. Additionally, because we have expanded our benchmark to include Idaho DOL and Idaho USFS prices to compare to Interior B.C. stumpage prices, we now have species-specific prices for red cedar in our U.S. comparison areas, whereas this information was not available using our Preliminary Determination benchmark. We compared B.C. and U.S. comparison data separately for the Coast and Interior. We compared the stumpage prices reported for the species in B.C. to the prices reported in the U.S. comparison jurisdictions, weight- averaged by volume sold during the POI. We then converted the prices for each species from U.S. dollars per thousand board feet to Canadian dollars per cubic meter using monthly exchange rates from the Bank of Canada for the POI and the conversion factor described in the "Conversion Factor" section of this memorandum. We compared the prices for each species or species group in both the Coast and the Interior to arrive at price differentials for those species or species groups. Next, we weight- averaged the price differences of all included species or species groups by the harvested sawlog volumes of individual species or species groups in British Columbia. On this basis, we arrived at per-unit price differences for Coastal and Interior B.C. We note that respondents argue that the Department's proposed adjustment for conversions between U.S. and Canadian dollars is problematic because local lumber wholesale prices are relatively insensitive to exchange rate fluctuations. As a result, when the U.S. dollar is strong, as it was during the POI, the exchange rate does not accurately reflect Canadian prices. Instead, respondents posit that the Department should use the purchasing power parity (PPP), which is the rate of currency conversion that eliminates the difference in price levels between the countries. Petitioners counter that the Department cannot use the PPP in this case because it is inconsistent with Department precedent, it is designed to account for the relative value of a wide range of goods and it is a particularly poor tool for handling value comparisons between sawtimber in the U.S. and Canada because Canada exports most of its lumber to the U.S. Thus, the value of Canadian timber depends primarily on the U.S. dollar price of lumber. We agree with petitioners. It is the Department's usual and consistent practice to use market currency exchange rates in determining the level of subsidy. Thus, we have used U.S./Canadian dollar exchange rates for conversion purposes in this final determination, as noted above. To determine the ad valorem subsidy rate for B.C. stumpage, we multiplied the total Provincial softwood sawlog harvest on Crown land (not including veneer, which was included in the Preliminary Determination harvest figure) by the reported percentage of logs going to sawmills (as a proxy for the percentage of sawlogs going to sawmills, which was not provided by the GBC) to arrive at a total sawlog sawmill harvest for the POI. Although petitioners advocate determining the benefit by multiplying the total Provincial harvest of all logs by the percentage of logs going to sawmills, this would exaggerate the benefit and does not comport with our comparison of softwood sawtimber prices between B.C. and our U.S. comparison jurisdictions. We next multiplied the resulting figure by the per-unit price differentials, factoring in adjustments as described in the "Method and Application of Adjustments" section, above, to arrive at the total benefits for the Coast and Interior. We then added the benefits together for the Coast and Interior and divided the Provincial benefit by the total value of softwood lumber shipments plus the total value of softwood by- products for the POI. Respondents allege that the Department in the Preliminary Determination tied the amount of subsidy to the volume of logs entering sawmills, but then allocated the subsidy over the value of sawmill output. Respondents contend that this methodology failed to determine the actual volume of allegedly subsidized logs and resulted in a significant overstatement of the alleged subsidy. They argue the Department should allocate the alleged subsidy to the log input into sawmills based upon the volume of logs that go into the production of lumber in B.C. Respondents point to questionnaire responses in which they state that 40.4 percent of logs on the Coast and 45.4 percent of logs in the Interior go to lumber. Alternatively, respondents argue that if the Department continues to use a value-based allocation, it should include in its denominator the total value of all shipments from sawmills, not just lumber and chips. This would include the value for residual products, such as ties, shakes and shingles, as well as the additional value of by-products such as sawdust, shavings, bark and hogfuel not included in StatsCan data. Additionally, respondents argue that the value of lumber shipments by Coastal producers should be increased by a certain percentage because StatsCan slightly underestimated the value of these shipments. This percentage is based on a review of lumber production from the Ministry of Forests Mill List, which respondents argue is more comprehensive than the StatsCan data and has been fully verified. Petitioners counter that by-products of the lumber production process do not include sawdust, shavings and hogfuel. They further state that B.C. does not provide any Canadian market values for these products. B.C. relies on U.S. values, then calculates the ratio between these products and chips. Petitioners argue this method is flawed because these products have much lower value than chips. Petitioners contend the Department should use the fully verified StatsCan lumber production data. They state that Mill List in B.C. is unreliable due, in large part, to its reliance on estimated data. We disagree with respondents' contention that the Department should allocate the benefit over the volume of logs that enter sawmills. Consistent with section 351.525(a) of the Regulations, we have appropriately allocated the benefit over British Columbia's shipments of lumber (inclusive of remanufactured products) and by-products. In addition, as stated in the "Subsidies Valuation Section" addressing denominator, StatsCan data is based on the 1997 Annual Survey of Manufacturers Sawmills, which contains detailed product-specific information. The survey is conducted in a uniform manner across all Provinces and, according to StatsCan, serves as the basis for all lumber and by-product shipments for all of Canada. The Department verified this data. As in the Preliminary Determination, we continue to use the StatsCan reported data for use in the denominator in calculating the ad valorem subsidy rate for British Columbia. Consistent with the data reported by StatsCan, we have not included the estimated value of sawdust, shavings and hogfuel reported by the GBC. We have also excluded the value of residual products, as explained in the "Subsidies Valuation Section" addressing denominator, above. Finally, as explained in the "Subsidy Rate Calculation" section of this memorandum, we weight-averaged the benefit from this Provincial subsidy program by B.C.'s relative share of total U.S. exports. The countervailable subsidy for the Provincial stumpage programs can be found in the "Country-Wide Rate for Stumpage" section, below. 3. Province of Ontario In Ontario, timber harvesting occurs on private forest lands and Crown forest land (i.e., Provincial forest lands). The Government of Ontario (GOO) manages Crown forests under the Crown Forest Sustainability Act (CFSA). The GOO permits timber harvesting on Crown lands located in the middle and southern regions of the Province. For forest management purposes, the GOO has divided this productive forest area known as the "Area of the Undertaking," into three regions - the Northwest Region (NWR), the Northeast Region (NER), and the South Central Region (SCR). Each region has a regional office and district offices, as the harvesting on Provincial lands is managed primarily on the district and regional levels. The "Area of the Undertaking" is further subdivided into what are known as forest management units. During the POI, there were over 60 of these forest management units. There are no management units in the northern regions of the Province as the GOO does not allow harvesting of timber in regions north of the "Area of the Undertaking." The GOO authorizes the harvesting of Provincial timber through the provision of Sustainable Forest Licenses (SFLs) under Section 26 of the CFSA and Forest Resource Licenses (FRLs) under Section 27 of the CFSA. The GOO reported that Section 26 licenses cover 90 percent of the Crown timber land designated as management units. The remaining 10 percent is managed by the Province. The GOO has not yet issued section 26 licenses for six management units but has issued Section 27 licenses for timber harvesting in those units. In general, a Section 26 License covers all the land in a forest management unit. For a given management unit, a Section 26 license is granted to a large company or a non-profit "cooperative" company organized by several shareholders. To obtain a Section 26 license, a potential licensee must also either own a wood-processing facility or have long-term "wood supply commitments" with lumber producers or other wood processors in place. Section 26 licenses are set for an initial 20-year term, which is extendable indefinitely, and are not transferable. Section 26 licensees are authorized to harvest all types of timber in the specified management unit and, pursuant to detailed five-year forest management plans, are responsible for much of the management of the forest area in the unit. The responsibilities include such things as information gathering, monitoring of cutting activities, conducting basic silviculture, and building roads. Because Section 26 license holders often are interested in harvesting only certain types or certain volumes of timber, they are also authorized to enter into shorter-term "overlapping" Section 27 licensing agreements with companies interested in harvesting specific stands, species, or volume from the Section 26 licensee's management unit. For further details regarding Section 26 licenses and Section 27 licenses, see the Department's verification report for the Government of Ontario, dated February 15, 2002. The GOO stated that it does not distinguish between sawlogs and pulplogs based on the log itself. Therefore, the GOO charges stumpage according to whether the logs are destined for saw mills or for pulp and paper mills. The GOO reported that the overall Provincial price for stumpage on Crown lands is comprised of four component charges: (1) the minimum charge, (2) the forest renewal charge, (3) the forestry futures charge, and (4) the residual value charge. The minimum charge is set administratively every year depending on the species and the destination of the harvested timber, i.e., whether it is destined for a saw mill or a pulp and paper mill. The GOO stated that the primary reason for this charge is to generate a secure source of revenue regardless of market conditions. During the POI, the minimum charge for 97 percent of Crown timber was set at C$3.28 per cubic meter, and the minimum charge for three percent of Crown timber was set at C$0.59 per cubic meter. The GOO reported that the forest renewal charge generates funds necessary to cover costs of renewing harvest areas. This charge covers silviculture costs, and, since 1997, has been determined annually for each management unit and each species within the unit. The monies collected from each management unit go into the Forest Renewal Trust Fund, and then are used for forest renewal costs within that specific management unit. The third component of the overall Provincial stumpage price is the forestry futures charge, which is the same for all management units and species within the Province and is set annually. Money collected from this charge is paid into the Forestry Futures Trust Fund (Fund) and is to be used for costs relating to pest control, fire, natural disaster, stand management, and the silviculture expenses of insolvent licensees. During the POI, the charge was C$0.48 per cubic meter. The GOO indicated that this charge has not changed since the Fund was established in 1995. The Fund is also used to pay for Independent Forest Audits of licensees. The fourth component of the stumpage charge is the residual value (RV) charge, which is assessed when the price of end-forest products produced with timber reaches a certain level determined by the Ontario Ministry of Natural Resources (OMNR). For softwood lumber, the RV charge is assessed when the estimated price a softwood mill receives for lumber exceeds C$351.97 per thousand board feet. This charge is determined on a monthly basis according to a formula. The RV charge is based, in part, on end product market prices. Benchmark Prices for Private Timber in Ontario Petitioners argue the stumpage rates for harvesting softwood timber from private lands in Ontario should not be used for benchmark purposes. They argue that, because the vast majority of softwood timber in Ontario is harvested at rates which are administered by the Province and because these prices are below market prices, private timber prices in Ontario are distorted and depressed. Respondents disagree with the Department's position in the Preliminary Determination that stumpage fees on public lands are the price driver for the stumpage market and that stumpage fees on private lands are largely derivative of the public land prices and are therefore distorted. Department's Position: We disagree with Respondents that the private market prices that they submitted serve as an adequate benchmark. The Province of Ontario has provided private stumpage prices charged within the Province. To determine whether the Provincial government has provided a countervailable benefit to Canadian softwood lumber producers, we must examine whether stumpage was provided to softwood lumber producers for less than adequate remuneration. The Preamble to section 351.11 of the Regulations provides that, where a government has a dominant position in a market, the Department will avoid the use of private prices in determining the adequacy of remuneration. Where the market for a particular good or service is so dominated by the presence of the government, the remaining private prices in the country in question cannot be considered to be independent of the government price. Indeed, as noted in the Preamble, "where it is reasonable to conclude that actual transaction prices are significantly distorted as a result of the government's involvement in the market, we will resort to the next alternative in the hierarchy." 63 FR at 65377. Thus, we must first determine whether there are market prices within Canada which can be used to measure whether the provincial stumpage programs provide a good for less than adequate remuneration. We determine that the private prices placed on the record are not suitable for purposes of determining whether Ontario sold its timber for less than adequate remuneration during the POI. Indeed, information on the record demonstrates that the private stumpage prices reported by Ontario do not constitute market-determined prices. In fact, the record shows that stumpage prices from public lands are the price driver in Ontario and that they depress private market prices. With respect to Ontario, there is no question that the government is the dominant factor in the market. The volume of timber harvested from Crown lands in Ontario far exceeds the supply of timber from private lands. As Respondents themselves acknowledge, approximately 92 percent of the softwood timber harvest that went to sawmills during the POI came from public lands; only 7 percent came from private lands. See GOO June 28, 2001 Questionnaire Response at Exhibit ON-STATS-1. Because of this huge disparity, the prices set by the Province affect the prices of timber from private lands. In addition, because on average tenure holders' actual harvest levels on Ontario public lands were about 80 percent of their planned levels during the POI, the market power of private suppliers is further diminished. See Ontario Verification Exhibit A.1.6. As explained above, timber from Ontario Crown lands is allocated to lumber producers through the provision of long-term tenures that are tied to specific productive forest areas known as management units. In order to obtain these tenures however, these producers either have to own their own mills or demonstrate that they have wood supply commitments in place with other companies' mills. According to the terms of the tenure licenses, if there is a shortfall in the amount of timber harvested in the area and wood supply commitments cannot be met, then the shortfall is apportioned between the parties in the wood supply commitment letters. See Ontario Verification Exhibit B at G-2588. Under market conditions, a mill would have to face the potential for supply chain uncertainties. Under Ontario's system, however, mills are largely shielded from such uncertainties. The tenures ensure access to the timber at administered prices, and the supply commitments ensure that all timber allocated for harvest by the Province will be consumed. This elimination of uncertainty necessarily has a distortive effect on the prices for private timber in Ontario. The majority of consumers in Ontario are large integrated companies that have large sunk costs in their own tenures in the form of management planning costs, road and silviculture costs, and mill capital costs. Indeed, at verification, we learned that eight large lumber produces are the main tenure holders in the province and account for over 84 percent of the annual softwood lumber production in the Province. See Ontario Verification Report at 17. Because the majority of timber consumers in the Province are mills that have large sunk costs in their own tenures, there will be a marked preference for mills to consume timber from their own tenures before going to the market, which would further distort prices. Furthermore, it is only logical that they also consume timber that has been committed to them from other tenures in long-term wood supply commitments with the Province and other tenure holders. While Respondents acknowledge that the government is dominant, they claim that the private prices are market-driven. We disagree for the reasons set forth below. Respondents placed studies by the Resource Information Systems, Inc. (RISI) and Charles River Associates (CRA) on the record in an effort to support their claim that Ontario's private timber prices are market-based. Respondents argue that the only conditions needed to show that a market is competitive are that the participants in the market are price takers; that buyers and sellers have alternatives; and that the cost of entering the market and leaving the market is low. Respondents also point out certain misstatements in the Preliminary Determination regarding the RISI study. First, respondents challenge the Department's assertion that sales were not contested or open to competition. They argue that the results of the RISI study indicate that 69 percent of private landowners reported more than one buyer approached them. See Ontario Case Brief at 18. They also point out that 63 percent of loggers had more than one buyer approach them for the timber purchased. Second, respondents challenge the Department's statement that none of the respondents to the survey relied on auctions or a forester consultant to assess the value of the timber. Respondents argue that, according to the RISI study, 11 respondents indicated that they had used a forester consultant to arrange, advertise, and/or implement the transaction reported. Id. at 16, 20. Additionally, the survey reported that six of the private sellers were forester consultants themselves. Third, respondents question the Department's interpretation of the survey results indicating that only 21 percent of the landowners state that the price for stumpage was market- determined. They respond that, because 36 percent of the survey respondents took the price that was set by the mill (buyer), this shows that private market actors in Ontario are really price takers, which they posit is one key element of a competitive market. See id. at 23-24. We acknowledge that our statements about the RISI study regarding the first two points were wrong. However, that still does not alter the ultimate conclusion that Ontario private market prices are distorted because of the effects of administered stumpage from public lands. In fact, the studies submitted by Respondents are unpersuasive. Respondents first argue that the results of the RISI study show that private stumpage sellers in Ontario are price takers. We recognize that having price takers in a given market could be one sign of a competitive market, as we explained in the Preliminary Determination. 66 FR at 43195. However, the question in this instance is, "Who are they taking the price from?" That is, the idea of a large number of price takers in a market carries with it the notion that no one player in the market is controlling the price. This would normally be the sign of a true competitive market with a true market price. However, where there is one overwhelmingly dominant market player, and that player happens to set prices without regard to market forces, it is impossible to conclude that the mere fact that the few remaining private suppliers in the market are price takers shows that a truly competitive market exists, or that the prices of those private suppliers are market-based. That is the situation in the Ontario stumpage market. There is one significant participant in the market for stumpage in Ontario that is a price setter -- namely, the Province of Ontario itself. In Ontario, the stumpage market is driven by the provincial government's ownership and control of forest land and the government's practice of setting stumpage charges administratively. The charges are often set with a view toward traditional government economic policy goals, such as job creation or revenue collection, rather than with a view toward obtaining a market price or adequate value for the timber sold. For example, at verification we learned that the minimum stumpage charge in Ontario is set to produce a steady revenue stream for the province, but it is not based on timber values. See Ontario Verification Report at 25. The GOO has argued that the Residual Value Charge mirrors market conditions because it is based on end product market prices. We disagree with the GOO. At verification, we learned that the decision to make the Crown share of the residual value calculated by formula only 29 percent was a political decision based on revenue goals. See Ontario Verification Report at 25. Furthermore, we learned at verification that large parcels of private land in the northern parts of Ontario, where the bulk of softwood timber is harvested, are owned by mills themselves or large integrated concerns that also hold SFLs and FRLs. See Ontario Verification Report at 10. Further, we learned that many of these private parcels have been managed for years by these concerns. Many of the other survey respondents had long- standing relationships with the mills they were selling to, and some even followed silvicultural practices in accordance with mill requests. Other private sellers had standing contracts with mills to provide timber. See Ontario Verification Exhibit at G-2095-2125. The RISI study reports that 36 percent of respondents stated that the mill set the price, and only 21 percent said that the private price was market-determined. As indicated above, mills get the vast majority of their timber from public lands at administered stumpage prices. They also gain a considerable portion of their private timber from their own private land holdings. It is not surprising then that the prices they would set would track administered stumpage prices. Even if marginally higher than public stumpage prices, because of the weight and availability of timber from public lands, clearly these private transactions would be affected by public prices. Other responses indicate that the price was simply set by looking at an average industry price. Again these industry prices clearly would be affected by prices for timber from public lands. Petitioners have placed on the record a study about the effects of the price distortions caused in the stumpage markets in Canada. See Economists, Inc., "Economic Analysis of Price Distortions in a Dominant- Firm/Fringe Market," Jan. 4, 2002, appended to Dewey Ballantine letter of July 27, 2001, vol. 6. This study comes to many of the same conclusions that we do, namely that administered-stumpage prices have a distortive effect on private prices. The study also concludes that the "dominant firm/fringe firm" paradigm that many of the Provinces rely on does not support the conclusion that private prices are market-driven. On the contrary, the study concludes that fringe firms (i.e., the private actors) will be forced to depress their prices in response to the dominant administered pricing system in each of the Provinces. We support the conclusions reached in this study. Finally, we have found anecdotal evidence from mill owners confirming the provincial price's influence on private prices. See, e.g., "Examining the Market Value of Public Softwood Sawtimber in Canada," at 106-107, appended to Dewey Ballantine letter of July 27, 2001. Based on all of this information, we reject private market prices in Ontario for use as a benchmark. Our decision not to use private prices is not only guided by the Preamble and our regulations, but also by a reasoned analysis of the facts on the record. Cross-Border Benchmark We determine that stumpage prices for timber in the United States, and more specifically, prices for timber in Michigan and Minnesota are the most suitable for purposes of comparison with the administratively-set prices reported by the Province of Ontario. For reasons of proximity and species mix, Michigan and Minnesota are the states most comparable to Ontario. In addition, the data we collected and other data submitted on the record are suitable because they represent actual transactions in Michigan and Minnesota. That is, these data were compiled from actual appraisals, sales, and volumes of timber sold in Michigan and Minnesota. Unlike sales of private timber in Ontario, these sales data are not distorted. The sales prices were not depressed as the result of the competitive influence of massive volumes of timber available at pre-set government prices. We determine that these sales are suitable for benchmark purposes because the markets for timber in Michigan and Minnesota are competitive and that the public prices used in the benchmark are sold through public auctions. In addition, the market for timber in Michigan and Minnesota is an open market and timber is available to harvesters on both sides of the border. Indeed, information was submitted by an Ontario company seeking exclusion from the investigation on the basis that it only purchases timber harvested from private lands in Ontario and Michigan. To calculate the comparison prices, we used the Minnesota 2000 Corrected Public Stumpage Price Review and Price Index (Minnesota Price Review) published by the Division of Forestry, Minnesota Department of Natural Resources. The Minnesota Price Review lists average prices and volumes for all timber sold on state and federal public lands within Minnesota as well as 10 counties in Minnesota, from July 1999 through December 2000. We used a report from the Michigan Department of Natural Resources, Forest Management Division (Michigan Stumpage Price Report) which lists average stumpage prices for all sales from state lands from April 1, 2000 to March 31, 2001. We also used United States Forest Service's Timber Cut and Sold report for Michigan. This report was submitted by the Province of Ontario in its March 4, 2002, submission. As it was downloaded from the USFS website, we reviewed the USFS website in order to check that the report was correctly downloaded. This report contains prices for timber sold by the USFS in Michigan during calendar year 2000. These publications contain species-specific average prices for softwood saw timber, softwood pulp logs, and softwood bolts. In the Minnesota price report, the average prices for softwood saw timber (which includes sale of saw bolts) are reported in U.S. dollars per thousand board feet. Prices for softwood pulp logs are reported in U.S. dollars per cords. In the Michigan DNR price report, the average prices for softwood saw timber are reported in U.S. dollars per thousand board feet. Prices for softwood bolt and softwood pulp logs are reported in U.S. dollars per cord. In the Michigan USFS price report, the average prices for both softwood sawlogs and softwood pulplogs are reported in U.S. dollars per thousand board feet. Using the species-specific average prices contained in these reports, we calculated a weighted-average price for softwood timber for each of the species categories reported by Ontario. Another source of data that we considered for use in the benchmark is Timber Mart North, which is published by George Banzhaf & Company. Timber Mart North is a private survey of timber buyers, sellers, and their agents conducted in the region, including Minnesota and Michigan; the prices it has reported our for the period, April 1, 2000 through March 31, 2001. Although we included Timber Mart North data in our calculation memoranda from the Preliminary Determination, we did not use any Timber Mart North data in our calculations because the copies on the record did not contain volume data. In order to corroborate the price data we use for the Minnesota benchmark, we compared the price data in the Minnesota Price Review to the only available source on the record that contained some Minnesota private price data, Timber Mart North. This comparison shows that the prices in the Minnesota Price Review were higher than the surveyed private prices for all species categories, except for the Red Pine/White Pine category; the Red and White Pine prices in Timber Mart North were only 2 percent and 5 percent higher for these species, respectively. Although the time periods covered by the two data sources do not exactly coincide, we are confident that this comparison shows that we are making a reasonable, accurate comparison of Minnesota price data to administered stumpage prices (and which is used in the comparisons for Alberta, Manitoba, and Saskatchewan). In memoranda and briefs submitted throughout the investigation, the parties debated the merits of including data for pulplog sales in the calculation of the benchmarks. In general, respondents argued that the softwood timber harvested in Ontario and destined to sawmills for the production of subject merchandise (i.e., softwood dimension lumber) is, on average, smaller in diameter than the softwood timber sold as saw timber in Michigan and Minnesota. They contend that the softwood pulp prices contained in the reports for Michigan and Minnesota are more reflective of the size of timber used in Ontario's sawmills. Petitioners argue that only saw timber data should be used to calculate the benchmark because pulpwood is a qualitatively different, inherently less valuable good than saw timber. In addition, they contend there are not any material differences in size or value between timber destined for sawmills in Ontario and timber sold at the higher "saw timber" prices in Michigan and Minnesota. Upon consideration of the arguments put forth by the parties and information and evidence on the record, we determine that a change in methodology is warranted so that our cross-border comparison reflects as accurately as possible the stumpage rates for logs used by Ontario saw mills with the prices for logs used in sawmills and Minnesota and Michigan. The information on the record clearly indicates that in Ontario, stumpage fees for softwood timber are applied on the basis of whether the logs are destined to be used in sawmills or in pulp and paper mills and not the size of the logs. At verification, OMNR officials explained in detail that stumpage fees are charged based on the species of the timber and its destination mill. Ontario Verification Report at page 25. In fact, the record is replete with information which demonstrates that Ontario distinguishes between saw logs and pulplogs based on whether logs are destined for sawmills or are destined for pulp and paper mills. Such corroborating information includes the stumpage rate schedules themselves, invoices, scaling tally sheets, worksheets from OMNR's TREES database, and Respondent's narrative explanations. The record is also replete with information demonstrating that softwood lumber producers in Ontario pay saw timber stumpage rates for logs of various diameters. See, for example, Respondents diameter distribution data. Ontario Verification Report at 15 and Verification Exhibit A.1.c.at G-0149-0150, 0554-561. We determine that, in addition to the data pertaining to saw timber sales, we should use in our calculations data pertaining to sales of "bolts" in Minnesota and data pertaining sales of "pulplogs" in Michigan. As explained in a memorandum to the file dated March 13, 2002, the Department confirmed with a Minnesota DNR official that two lumber producers in Minnesota purchase logs that are categorized as "bolts" rather than saw logs. The official also indicated that saw bolts are categorized in Minnesota as saw timber and that they can be used to produce lumber. In addition, a Michigan DNR official confirmed that a major softwood lumber producer in Michigan (Louisiana-Pacific Corp.) purchases large amounts of softwood logs categorized as pulplogs. The official also indicated that the company used these logs to produce subject merchandise, i.e., softwood dimension lumber. Consequently, we determine that the benchmark prices should reflect what lumber producers in the two states actually purchased to produce softwood lumber. Because there is information on the record indicating that mills in our cross border benchmarks actually use timber that is not categorized as saw timber to produce lumber, we have altered our benchmark accordingly. For several producers in Michigan, the record shows that the softwood timber used in the production of lumber includes logs that are classified as sawlogs, and also use some logs classified as pulplogs and bolts. The record also shows that in Minnesota the softwood timber used in the production of lumber by some producers includes sawlogs and bolts, but not pulplogs. Therefore, with respect to Minnesota, we only used the data listed for "saw timber" because it is inclusive of sales of saw bolts. With regard to Michigan, we included in pulplog and bolt prices in the calculations. Because only a portion of the timber categorized as pulplogs is purchased for the production of lumber, we reduced the species volumes for pulp logs according to the ratio of Louisiana Pacific Corp.'s lumber mill capacity to the total lumber mill capacity in Michigan. Respondents argue that the Department should use an MBF to cubic meter conversion factor of 6.25. As explained above, we converted the derived benchmark prices from MBF to m3 using a conversion factor of 4.81 cubic meters/MBF. In addition, we used exchange rates from the Bank of Canada for conversions from $US to C$. There have been questions raised in the investigation regarding the precise diameter distinctions between "sawlogs" and "pulplogs" for sales of the Minnesota Department of Natural Resources. Inasmuch as we have determined that prices used in our benchmark should be based on whether the logs are actually utilized in the production of softwood lumber, this question need not be addressed in order to perform our final calculations. Adjustments As explained above, the administered stumpage price for each management unit is based on a mixture of general charges and charges specific to a particular management unit, species, and destination mill. To arrive at a single Province-wide administered stumpage rate for use in our stumpage calculations, we divided the total softwood stumpage fees paid by both SFL and FRL tenure holders during the POI by the total softwood harvested during the POI. We then adjusted this administered stumpage rate (on a per cubic meter basis) for public stumpage obligations that would not be incurred, according to our analysis, by private harvesters in the United States. This methodology has not changed from the Preliminary Determination. See 66 FR at 43204. Petitioners generally argue that the record indicates that timber harvesters in Minnesota and Michigan incur similar types of costs as those borne by harvesters of Crown timber in Ontario. In addition, they argue that timber harvesters in Minnesota and Michigan incur additional costs which are not borne by harvesters in Ontario. They contend that, to make an apples-to-apples comparison, certain adjustments made in the Preliminary Determination should be removed from the calculation and a few additional adjustments should be added. These adjustments are discussed in more detail below. Procurement Costs In the Preliminary Determination, the Department did not adjust the benchmark to account for differences in procurement costs between harvesters in Ontario and harvesters in the United States. See, e.g., 66 FR at 43204. Petitioners argue that, as a result of the tenure system, harvesters in Ontario do not have to bear additional costs borne by harvesters in Michigan and Minnesota to locate and obtain timber. They argue that large softwood lumber mills without a secure supply of wood would need three or four more procurement foresters to find available timber than a mill with a secure supply, such as the tenure holders in Ontario have. Based on this information, they contend that such additional costs in Minnesota and Michigan warrant an adjustment of the benchmark of C$1.00 per cubic meter. Respondents argue that no adjustment for procurement costs should be granted because the costs cited by petitioners are not reliable. Respondents note that the proposed costs are based on a survey in which the number of survey participants is unknown, the range of adjustments is unclear, and other factors are not disclosed. Respondents also point out that even the proponents of a procurement cost adjustment admit that survey responses were "widely divergent." Department's Position We are not granting an adjustment for procurement costs. Information on the record does not sufficiently demonstrate that such an adjustment is warranted. Road Construction and Maintenance In the Preliminary Determination, we adjusted the benchmark to account for expenses incurred by Ontario tenure holders for road construction and maintenance according to the following formula: 100 percent for primary roads, 50 percent for secondary roads, and 0 percent for tertiary roads. 66 FR at 43204. The GOO categorizes primary roads as permanent roads, secondary roads as branches off primary roads, and tertiary roads as temporary access roads. Petitioners argue that, according to information on the record, loggers in Minnesota and Michigan incur costs for tertiary roads and have some secondary road expenses. They contend that a C$1.76 per cubic meter adjustment to the benchmark is warranted for construction and maintenance costs associated with primary roads and that no adjustment to the benchmark is warranted for any road construction or maintenance costs associated with secondary or tertiary roads. The GOO reported that primary and secondary roads are identified in 20- year management plans submitted with Section 26 SFL licenses. SFL holders construct and maintain primary, secondary, and tertiary roads for their logging operations. Since those roads are available for public use, they must meet government standards. In a study conducted by KPMG, the GOO provided data on the cost per cubic meter of road construction and maintenance. The study contained per-unit breakdowns for primary, secondary, and tertiary road construction costs, and an overall figure for road maintenance costs. See Ontario Verification Report at 17-18. In its original questionnaire response and at verification, the GOO identified the amount of road use that went to non-timber values, (i.e., recreation, hunting, fishing), according to the following formula: 100 percent of primary road construction, 50 percent of secondary road construction and none for tertiary road construction costs. See June 28, 2001 Questionnaire Response at 110; Ontario Verification Report at 19-20. They argued that primary road construction has considerable value for non-forestry uses and that tertiary roads were constructed solely for tenure holders' use to extract the harvested timber. In its case brief, for the first time, the GOO changed its position, arguing that the Department should instead make an adjustment of 100 percent of road construction and maintenance costs reported in the KPMG study. See Ontario Case Brief at 59-62. Department's Position We determine that an adjustment for primary and secondary road construction and maintenance cost is warranted and have adjusted the calculations according to the same formula that we used in the Preliminary Determination. We agree with petitioners that Michigan and Minnesota harvesters bear tertiary road expense. For this reason, we are not making an adjustment for tertiary road costs. Tertiary roads are in use for only a short period of time, so, once a timber area is harvested, such service roads revert to forest land. See Ontario Verification Report at 19. Because harvesters on both sides of the border regularly construct tertiary roads as part of their seasonal harvesting operations, no adjustment for tertiary road construction costs is necessary. We also determine that an adjustment for all primary road maintenance costs is warranted because no such costs are borne by harvesters in Minnesota and Michigan. Similarly, because information on the record indicates that harvesters in Michigan and Minnesota bear some secondary road construction and maintenance costs, we determine that an adjustment equal to one-half of these costs is warranted. Silviculture In the Preliminary Determination, to account for silviculture cost reimbursements reported by the GOO, we subtracted the total value of the forest renewal charges collected during the POI from the total value of stumpage charges collected. 66 FR at 43204. In addition, we made a further adjustment to the administered stumpage price to account for reimbursement of silviculture overhead costs. We made this adjustment for the reimbursement of silviculture overhead by deducting another 10 percent of the value of the forest renewal charges collected during the POI from the total value of stumpage charges collected. These adjustments had the effect of lowering the per unit administered stumpage prices for Ontario. Petitioners explain that silviculture costs are not incurred by harvesters in the United States and that the cost of silviculture is reimbursed by the GOO to harvesters in Ontario. Petitioners explain that no general silviculture adjustment is necessary to account for general reimbursements, but argue that because Ontario reimburses an additional 10 percent for administrative costs, a negative adjustment to administered stumpage price is warranted to account for this overhead reimbursement. The GOO reports that basic silviculture, not incremental silviculture, is required to be performed on all harvested Crown land to achieve a sustained yield. Basic silviculture may include, among other things, site preparation, direct seedling and planting, tree improvement, vegetation management, and thinning. At verification, we confirmed the GOO's claims that all harvesters of Crown timber are required to pay forest renewal charges and that Section 26 SFL holders must perform basic silviculture. Ontario Verification Report at 7-8. After performing silviculture activities, tenure holders submit their invoices to the GOO's Ministry of Natural Resources (MNR) and are reimbursed in full for their eligible silviculture costs. The types of basic silviculture expenditures that are eligible for reimbursement include: cone collection, seed extraction, tree improvement, stock purchase/delivery, tree planting, seedling, scarification, site preparation (including mechanical and chemical burn), tending, tree marking, modified harvest cutting, and silvicultural surveys. As indicated above, tenure holders also can claim reimbursement from the GOO for up to an additional 10 percent of the invoice amount to cover overhead for silviculture administrative costs. Respondents also argue that we should adjust for the difference between actual costs incurred for silviculture expenses and costs reimbursed from the GOO for either forestry renewal or from the Forestry Futures Trust Fund. See Ontario Case Brief at 76. This would result in an upward adjustment of C$0.06 per cubic meter. Respondents claim that this adjustment was made for Quebec in the Preliminary Determination and that it should be made for Ontario as well. Department's Position Based on our findings at verification and the comments submitted by the parties, we determine that a change to our treatment of the GOO's silviculture reimbursements as advocated by both petitioners and respondents is warranted. Tenure holders pay both forest renewal charges and make additional expenditures for silviculture, which are subsequently reimbursed upon documentation (i.e., actual invoices) to Ontario's MNR. Because the reimbursements by the Province are for actual silviculture outlays and not the per-cubic meter forest renewal stumpage charges, the methodology used in the Preliminary Determination was incorrect. It is not necessary to treat reimbursements made by the Province as refunds of stumpage payments. Forest Management and Planning In the Preliminary Determination, we made an upward adjustment to the administered stumpage price to account for forest management planning costs incurred by harvesters in Ontario. We calculated the cubic meter adjustment amount by dividing the total estimated value of forest management planning costs during the POI by the total softwood harvest. 66 FR at 43204-5. The GOO stated that the obligation to bear the costs of forest management planning is placed on the tenure holders in Ontario. The CFSA requires that detailed forest management plans be prepared at the expense of the tenure holder, according to the Forest Management Planning Manual (FMPM). The FMPM requires, among other things, that the tenure holders provide for MNR approval a plan containing an environmental, social, and economic descriptions of the management unit and full details regarding long-range sustainability planning for a 20-year period, designation of areas of operation, and descriptions of programs for monitoring forest management operations. Petitioners argue that no such adjustment is warranted. Petitioners argue that participation in the forest management planning processes is a valuable right to Ontario timber licenses, not a burden. They argue that by being able to control areas of harvest, tenure holders can contain their costs, optimize their log diet, and control harvest timing. They also argue that the costs that Ontario harvesters pay for these activities are analogous to costs of government relations that companies incur in corresponding with state forestry officials determining long-range forest plans and policy. They contend that the forest planning costs incurred by Ontario tenure harvesters do not arise due to any differences in market conditions between Ontario and the comparison markets. Department's Position We determine that an adjustment for forest management planning is not warranted, as we found at the Preliminary Determination. At verification, we found that tenure holders incurred considerable obligations relating to forest management and planning on an annual basis and for five-year plans. See Ontario Verification Report at 20-22. Based on the evidence on the record, these obligations appear to be greater than comparable costs incurred by harvesters in Minnesota and Michigan in corresponding with state forestry officials in determining long-range forest plans and policy. Therefore, we are adjusting administered stumpage prices C$0.16 upward to account for forest management and planning costs incurred by tenure holders in Ontario. Forest Protection (Fire) In the Preliminary Determination, we made an upward adjustment for fire protection costs by dividing the total estimated value of forest protection costs during the POI by the total softwood harvest volume during the POI. The Ontario MNR's requirements on tenure holders include assistance with fire suppression (i.e., assisting the OMNR in the prevention and initial fighting of forest fires). According to the GOO's June 28, 2000 questionnaire response, the amount of costs incurred for fire pertain to both SFL and FRL holders. Petitioners claim that these costs are analogous to slash disposal costs (which reduce the risk of fire) incurred by harvesters in the United States. As such, they argue, these costs are also incurred by harvesters and therefore we should not adjust for these costs. Respondents argue that forest protection costs incurred by tenure holders in Ontario are different than slash disposal costs in the United States. Respondents argue that fire prevention steps that tenure holders incur include staff education, preparation of fire plans, taking preventive steps, and purchasing some fire safety equipment. See Ontario Case Brief at 29. They allege that these costs are much higher than those incurred in the United States for slash disposal. Department's Position We agree that an upward adjustment should be made for forest protection costs incurred by tenure holders in Ontario. At verification, we learned that there are several costs related to fire protection that tenure holders must incur. See Ontario Verification Report at 23. On the other hand, there is little or no information on the record to quantify petitioners' arguments on slash disposal costs. Therefore, we find that an upward adjustment to the administered stumpage price for forest protection is warranted. First Nations In the Preliminary Determination, we made an upward adjustment for this cost by dividing the total estimated value of these costs during the POI by the total softwood harvest during the POI. The GOO reports that tenure holders provide training and education for First Nation individuals, and provide financial support for activities such as the maintenance of native heritage sites. According to the GOO's June 28, 2000 questionnaire response, the amount of costs incurred for First Nation relations includes both SFL and FRL holders. Respondents further argue that these costs are incurred by tenure holders in Ontario but are not incurred by harvesters in the comparison market states. See Ontario's Rebuttal Brief at 29. Petitioners argue that an adjustment should not be granted because these costs do not relate to price, quantity, or other condition of purchase or sale of timber, because they do not arise solely due to market conditions that differ from the United States and because when systematically quantified across all relevant regions, U.S. loggers incur similar costs. Department's Position Based upon the evidence on the record, we determine that the adjustment made in the Preliminary Determination for costs associated with First Nations relations is warranted. Ontario tenure holders incur several types of costs related to First Nations obligations, Ontario Verification Report at 24. With no information that comparable obligations exist in Minnesota and Michigan, we are adjusting the administered stumpage price upward by C$ 0.01 per cubic meter. Transportation Distances Petitioners argue that no adjustment should be made in Ontario for transportation distances from the mill to the market ("mill-to-market"). From a theoretical standpoint, petitioners argue that sawmills in both Ontario and the comparison markets pay for transport, and therefore any cost differences reflect the efficiency of the sawmill owner. According to petitioners, the Ontario stumpage system also blunts any incentive for Ontario mills to minimize transportation costs because the system compensates high costs for mills through low stumpage fees. See Petitioners' Case Brief at 34. Petitioners further critique the manner in which Ontario has calculated transportation costs. Petitioners note that Ontario's calculations disregard rail as a potential form of transport. In addition, petitioners dispute the MNR's calculation of mill-to-market expenses because of the choice of markets. Respondents state that an adjustment for transportation costs to the market is necessary for a proper apples-to-apples comparison. Respondents argue that because softwood mills in Ontario are on average farther from their markets than softwood mills in the comparison markets, Ontario lumber producers incur additional transportation costs when hauling lumber to the market. To quantify the adjustment, respondents argue that the Department should rely on analysis performed by the GOO on relative mill- to-market distances and relative transportation costs. With respect to transportation costs to market, respondents argue that their method incorporates the major markets for Ontario sawmills - Toronto, ON, Detroit, MI, Chicago, IL, Milwaukee, WI, and Minneapolis, MN - to determine the appropriate adjustment. Respondents note that they have calculated mill-to-market distances and costs to the most transport-cost- effective market. See Ontario Case Brief at 62-63. Petitioners reject respondents' basis for a transportation cost adjustment. Petitioners argue that the Department should not adjust for cost differences between the Ontario public forest and its benchmarks because the same type of cost is borne by both parties. Respondents contend the Department should adjust for cost differences, even if the same type of cost is incurred by both parties. Respondents argue that the U.S. market will adjust for these differences by valuing U.S. timber more highly, and that the Department must take this into account when comparing stumpage prices. Department's Position We are not adjusting the Ontario stumpage prices for differences in transportation costs from mill-to-market. It is clear that firms in both Ontario and the comparison markets transport lumber to the market as part of their ordinary course of business. However, even if quantifiable cost differences did exist, there is not enough evidence on the record to determine whether they reflect variations in the efficiency of firms or other considerations. Benefit Calculation We calculated the benefit conferred under Ontario's stumpage program by first taking the difference between the U.S. benchmark stumpage price and the adjusted administered stumpage price on a per cubic meter basis. We then multiplied the per unit benefit by Ontario's total softwood sawtimber harvest volume in cubic meters to derive the total benefit from Ontario's stumpage program. To calculate the program rate, we divided the total benefit by the total value of Ontario's softwood lumber production plus the total value of Ontario's softwood lumber by-products for the POI. Next, as explained in the "Subsidy Rate Calculation" section of this notice, we weight-averaged the benefit from this Provincial subsidy program by the Province's relative share of total U.S. exports. The countervailable subsidy for the Provincial stumpage programs can be found in the "Country-Wide Rate for Stumpage" section, below. 4. Province of Alberta The Province of Alberta provides stumpage under three main tenure arrangements: (1) Forest Management Agreements (FMAs), (2) Timber Quota Certificates or Coniferous Timber Licenses (CTLs), and (3) Commercial Timber Permits (CTPs). FMAs are mainly used by integrated and larger timber companies, quotas are used more by medium-sized companies, and CTPs primarily are used by smaller ones. An FMA is a long-term (20 years and renewable) agreement between the Government of Alberta (GOA) and a company. The terms and conditions are fully negotiated and approved by the Provincial Cabinet. FMA holders gain the right to harvest timber with the approval of an annual operating plan. An FMA includes the obligation to manage, on a sustained yield basis, the timber within the agreement area. FMAs are area-based tenures. In addition to paying stumpage fees, FMA holders are responsible for a number of in-kind services, including construction and maintenance of roads, reforestation of all areas harvested, and any other obligations required by the Department of Alberta Sustainable Resource Development (ASRD). Under the FMA tenure arrangement, recent negotiations have led to an agreement to use regulation rates (i.e., the rates set out in the Timber Management Regulation (the TMR)) on many FMAs. Since 1994, dues for coniferous timber harvested under the authority of a FMA and consumed in sawmills usually are paid at the general rates of timber dues as set out in the TMR. FMA holders generally have agreed to pay regulation rates for pulpwood as well. FMA holders accounted for approximately 64 percent of the softwood sawlog harvest on Provincial forest land in fiscal year 2000- 2001. A quota CTL is a long-term (up to 20 years and renewable) right to harvest a share of the annual allowable cut (AAC) as established by the ASRD. A timber license is required for a quota holder to harvest the timber. CTL holders are responsible for road construction and maintenance, reforestation of all areas harvested, and operational planning. CTLs are sold by public tender or at an auction to the highest bidder. The charge for competitively sold quotas includes the timber dues as set out in the TMR, holding and protection charges, and a bonus bid price. The CTL gives the holder license to harvest specific species and maintain utilization standards. For each year that a quota is granted, the holder must prepare and submit, for ASRD approval, an annual operating plan. There were no quotas sold during the POI; however, there were outstanding quotas. CTL's accounted for approximately 30 percent of the softwood sawlog harvest on Provincial forest lands in fiscal year 2000-2001. CTLs are volume-based tenures. CTPs are short-term (averaging 2-3 years) tenure arrangements used to allocate smaller volumes of timber. CTPs are sold either directly or at a public auction. Non-competitively-sold CTPs must pay the timber dues as set out in the TMR. There are two types of competitively-sold CTPs. The first type includes a bid price on top of the upset price, which is the lowest price a seller will accept, as well as other costs related to in- kind services. The second type of competitively-sold CTPs includes a bid price on top of the minimum auction price, timber dues, and other costs related to in-kind services. A CTP holder must also pay annual holding and protection charges. If the CTP holder does not also hold another major tenure (i.e., an FMA or a quota), the CTP holder must pay a reforestation levy. In addition, a CTP holder must provide an annual operating plan, which includes harvesting and road construction and maintenance. CTP holders accounted for approximately 6 percent of the softwood sawlog harvest on Provincial forest lands in fiscal year 2000-2001. CTPs are also volume-based tenures. Private Provincial and CTP and CTL Prices as Benchmarks The GOA claims that the Department should use internal prices from Alberta as the market based-benchmark rather than the Montana data that the Department relied upon in its Preliminary Determination. The GOA argues that private Alberta prices can be used as benchmarks, noting that the Department has not established that arm's-length sales are distorted by GOA involvement in the market. Moreover, respondents maintain that because Alberta follows a sustainable yield policy, and the allowable harvest on public land does not vary with the stumpage prices, it follows that government stumpage policies cannot distort the private timber market. Furthermore, respondents argue that private sales in Alberta represented approximately six percent of Alberta's commercial timber harvest in 2000. Respondents assert that the Preamble does not require the Department to conclude that prices of private sales are distorted whenever a government supplier constitutes a monopoly or near-monopoly in the market. They maintain that in the case relied upon by petitioners, Notice of Preliminary Affirmative Countervailing Duty Determination and Alignment with Final Antidumping Duty Determinations: Certain Hot-Rolled Carbon Steel Flat Products from Thailand, 66 FR 20251 (April 20, 2001) (Thai Steel), (19) the Department found that market prices are distorted when the government has established a price ceiling, which respondents argue is not the case in the instant investigation. Moreover, respondents argue that Timber Damage Assessment (TDA) prices are private prices on the record and can be used as private benchmark prices in Alberta because they have been collected in the ordinary course of business. Respondents maintain that these TDA data establish that the market for private wood sales in Alberta is a competitive one since they include arm's-length sales of wood between a number of parties. Respondents argue that individual transactions are not a necessary condition of market sales and claim that sawlog trades provide more evidence that there is an active private market. Respondents also argue that the Department should follow Lumber III and exclude CTLs and CTPs from the subsidy calculation for this final determination. In Lumber III the Department found that all CTLs bid in and after 1982 in open auctions represented bona fide competitive bids, and were, therefore, non-preferential. See 57 FR at 22603. Petitioners point out that the Crown Provincial harvest comprised 98.6 percent of the total softwood sawlog harvest in Alberta during the POI. In arguing that Alberta's private prices cannot serve as benchmark prices, petitioners refer to Thai Steel, claiming that in that case the Department determined that it could not use prices for goods within a jurisdiction unless competitive sales represent at least a majority of the market (see 66 FR 20251 at 20259). Petitioners also argue that there are no private prices for timber on the record in Alberta, and even if there were, they would be distorted due to the subsidization of Crown timber. Petitioners maintain that an independent study submitted with the Petition shows that private Alberta log prices, while higher than the subsidized Provincial timber prices, are much lower than prices of comparable timber in the United States. In addition, petitioners argue that the prices calculated to estimate a value for timber damaged through the activities of energy and mining companies on FMA land for the TDA reports both fall short of acceptable benchmark prices and confirm that Provincial prices are highly subsidized. The prices contained in the TDA reports, conducted by KPMG Consulting, are comprised of 1) bonus bids for competitive auctions of CTPs and 2) sales of delivered logs purchased by FMA and quota holders. Petitioners discount the use of TDA prices for several reasons. First, petitioners claim that the bids for competitive CTPs, which account for small allocation of Crown timber, are not actually competitive, as they comprise only one percent of the Crown softwood sawlog harvest, thereby falling short of the majority required to serve as an adequate benchmark by the Department's regulations. Moreover, petitioners claim that using harvested logs in the benchmark would be inappropriate, since deriving a stumpage price from delivered log prices would include costs that reflect the subsidies as well. Petitioners argue that logs purchased by Alberta tenure holders from energy and mining companies are not conducted in an open and organized market; instead, they are conducted as individual transactions without generating a public market price. Furthermore, petitioners maintain that many of these sales are not actually sales, but instead are trades of one type of log for another. Finally, petitioners assert that since FMA holders do not pay for their tenures, timber damage assessments do not represent transfers from the energy industry to the forest industry, but are in fact transfers from the GOA (in terms of energy royalties foregone) to the FMA holders. Department's Position We disagree with respondents that the private market prices that they submitted can serve as an adequate benchmark. In accordance with section 351.511(a)(2)(i), we examined Alberta's private price data and government competitive bid data. Based on the evidence on the record, Alberta's private timber market is distorted in such a way that using private transactions as benchmark prices would not be justified. The Preamble to section 351.11 of the Regulations provides that, where a government has a dominant position in a market, the Department will avoid the use of private prices in determining the adequacy of remuneration. Where the market for a particular good or service is so dominated by the presence of the government, the remaining private prices in the country in question cannot be considered to be independent of the government price. Indeed, as noted in the Preamble, "where it is reasonable to conclude that actual transaction prices are significantly distorted as a result of the government's involvement in the market, we will resort to the next alternative in the hierarchy." 63 FR at 65377. The GOA's overwhelming presence in the market mandates such a result; there is no question that the government is a dominant factor in the market. As respondents themselves acknowledge, 98 percent of the market is controlled by the Province, resulting in less than two percent of Alberta's softwood lumber sales being, in fact, private sales. As we noted in Thai Steel, consistent with the Preamble (63 FR 65348, 65377-65378), if the government provider constitutes a majority of the market, the Department will have to bypass the first benchmark in the hierarchy, actual transactions in the country in question, in favor of the second benchmark, a world market price available in the country in question. Respondents argue that Thai Steel merely states that we will find that market prices in a country are distorted when a government sets a price ceiling for a good or a service. However, respondents have misconstrued Thai Steel. Thai Steel states that when the government provider constitutes a majority of the market, the Department will have to resort to other alternative benchmarks including a comparison to world market prices. While respondents acknowledge that the government is dominant, they claim that the private prices are market driven. We disagree. With respect to TDA prices, we determine that logs purchased by Alberta tenure holders from energy and mining companies are not conducted in an open and organized market and do not generate a market price for timber in Alberta. Energy and mining companies are not in the business of harvesting trees and many of these trees are not made into lumber. See Alberta Verification Report at 18. Therefore, we find that TDA prices do not constitute adequate private benchmark prices. Our decision not to use the private prices is compelled by the regulations. In addition, CTP and CTL prices also cannot serve as benchmark prices. As we stated above, the Preamble to the Department's Regulations is clear; when a government provider controls the majority of a market, then we are unable to use prices within that market as a benchmark. Here, the CTP and CTL benchmark prices proposed by respondents are not even prices between private parties, but are prices for Crown timber. We verified that most CTPs are sold directly by the government to small operators or local loggers. Thus, there is no competition for the right to harvest timber. Although CTLs, which also confer the right to harvest, are sold by auction, the actual stumpage fee levied on the harvested timber is set by the TMR. Thus, neither CTPs or CTLs are market- based. Petitioners have placed on the record a study about the effects of the price distortions caused in the stumpage markets in Canada. See Economists, Inc., "Economic Analysis of Price Distortions in a Dominant- Firm/Fringe Market," Jan. 4, 2002, appended to Dewey Ballantine letter of July 27, 2001, vol. 6. This study comes to many of the same conclusions that we do, namely that administered-stumpage prices have a distortive effect on private prices. The study also concludes that the "dominant firm/fringe firm" paradigm that many of the Provinces rely on does not support the conclusion that private prices are market-driven. On the contrary, the study concludes that fringe firms (i.e., the private actors) will be forced to depress their prices in response to the dominant administered pricing system in each of the Provinces. We support the conclusions reached in this study. Based on all of this information, we reject private market prices in Alberta for use as a benchmark. Our decision not to use private prices is not only guided by the Preamble and our regulations, but also by a reasoned analysis of the facts on the record. We also disagree with respondents' suggestion that we should remove CTLs and CTPs from the benefit calculation. In the Preliminary Determination we discussed the differences between the standard used in Lumber III and the current adequate remuneration standard. See 66 FR at 43196. The argument provided by respondents is not persuasive to warrant a change from the Preliminary Determination. Thus, we continue to include all CTL and CTP holders' harvest volumes in the calculation for this final determination. Cross-Border Benchmark Petitioners state that the Department used prices in Montana in its Preliminary Determination as the source for the cross-border benchmark. They maintain that Montana still represents the best cross-border comparison state for Alberta, because, as they argue, there exists in Alberta and Montana similar quality and species mixes, similar geographic, topographic, and ecological features, and similar timber availability. Respondents, however, disagree, stating that Montana timber and timber pricing are not comparable to Alberta stumpage. They point out that Alberta's harvestable forests are east of the Rockies, whereas Montana's harvestable forests are west of the Rockies. Respondents argue that differences in topography, climate, and biological characteristics contribute to different price, quality, species, marketability, transportation, and other conditions in the timber in Alberta and Montana. Department's Position We agree with respondents that Montana does not represent the best cross- border comparison for Alberta. The record shows that not only does SPF account for 99.99 percent of Alberta's forests and only approximately 32 percent of the benchmark volume in Montana, the SPF mixes in Alberta and Montana are different. Respondents correctly point out that Montana's harvestable timber lies mainly west of the Rockies, making it part of the North America's Western forest region. Alberta's harvestable timber lies east of the Rockies, making it part of North America's vast boreal (or Northern) forest region. The closest boreal forest region in the United States to Alberta is Minnesota. Minnesota's forests are similar to those in Alberta, allowing for a closer species and tree size comparison. Therefore, for purposes of the final calculations, we relied on data from Minnesota to calculate our U.S. benchmark price. We obtained this data from the Minnesota 2000 Corrected Public Stumpage Price Review and Price Index (Minnesota Price Review) published by the Division of Forestry, Minnesota Department of Natural Resources. From the Minnesota Price Review weobtained the total weighted-average price for all species of timber in Minnesota for fiscal year 2000. (See "Ontario's section for further information.) We created two species mixes: a SPF category, which included balsam fir, white spruce, and jack pine; and a Tamarack category. We weight-averaged the prices of each species in the specific mixes by their volume to derive a benchmark stumpage price per species. We converted these figures from MBF to cubic meters using the conversion factor of 4.81 (for discussion of the conversion factor used, see "Conversion Factor" section of this memorandum). We also converted the data from U.S. dollars to Canadian dollars, using average exchange rates from the Bank of Canada, to derive the benchmark stumpage price in C$/m3 for each species. Veneer Logs Respondents claim that the Department erred in the Preliminary Determination by including the volume of veneer logs in the calculation, as they were excluded from the scope of the investigation. Respondents point out that veneer logs constitute a separate category from softwood lumber sawlogs and carry a distinct cash dues rate. They note that all billed volume of veneer logs, in fact, went only to make veneer products and should be excluded from the investigation and should not be included in calculating the final determination subsidy rate. Petitioners agree that, if the Department is satisfied that all logs billed as veneer logs were not used to make lumber, the Department should exclude veneer logs from its subsidy calculation. Department's Position We agree that veneer logs should not be included in the final calculation. Because the record contains no information to show that veneer logs are used in sawmills, we have not included veneer log information in the calculation. Administered Stumpage Price The administered price for FMAs and quota tenure holders is set by using the TMR timber dues and in-kind cost adjustments. Timber dues, as established in Schedule 3 of the TMR, describe the method of calculation of the rates of dues payable for coniferous timber used to make lumber products in a given month based on an average price for lumber in that month. This average is calculated by taking the weekly price for 1000 board feet of kiln-dried, 2x4, Standard and Better, Western Spruce-Pine- Fir for the last week ending in the month preceding the payment month and for the three immediately preceding weeks, as shown in the publication Random Lengths Lumber Report. These four weekly prices are converted to Canadian funds and then averaged. This amount is found in Schedule 3, Table Part A and Part B, Column 1. (20) Schedule 3 provides the general rate of timber dues for coniferous timber used to make lumber, pulp, or roundwood timber products. The figures provided in Schedule 3 are the same for pulpwood and sawlogs. (21) Column 1 provides a range of amounts in C$/1000 board feet; the averaged amount as noted in Column 1 has a corresponding cubic meter value in Column 2. Column 2 represents the timber dues that an FMA tenure holder pays for a billed volume of softwood timber. The timber dues are determined after the product has been produced. To derive Alberta's administratively-set stumpage rate that we used in our calculations, we divided the timber dues charged to FMA, quota, and CTP tenure holders during the POI for each species by the total softwood stumpage billed under each tenure during the POI for each species. In this manner, we obtained a weighted-average stumpage price per species that was paid by tenure holders during the POI. To this number, we added per unit adjustment costs. Although the price-determining factors are different between administratively-set stumpage sales in Alberta and market-driven stumpage sales in Minnesota (see "Benchmark" section), an examination of stumpage prices alone is not sufficient to determine whether timber is provided for less than adequate remuneration. Major tenure holders in Alberta are required to fulfill certain forest management and timber-harvesting obligations, including silviculture and forest management activities. Therefore, we determine that it is necessary to factor in certain cost adjustments to the administered prices in Alberta to reflect the costs of certain activities that are not factored into the stumpage price. Adjustments In the Preliminary Determination, we made the following adjustments to calculate the administered stumpage price: road construction and maintenance, basic reforestation, forest management planning, fire, insect and disease costs, environmental protection costs, and holding and protection charges. See 66 FR 43205-43207. For these adjustments, we relied on cost data (i.e., costs borne by tenure holders) submitted by respondents. Respondents provided cost data based on an independent consultant's report provided to the Province by tenure holders. Petitioners claim that the cost data as provided by the GOA is incomplete and flawed. They state that the data included in the GOA's cost surveys were incomplete, the survey participants were self-selected, non-lumber producing tenures were not included, tenure types were not properly weighted, CTPs were not surveyed, and in-kind cost data were not reconciled. Respondents refute petitioners' argument that the data were incomplete and flawed. They note that during verification the Department asked specific questions on how respondents surveyed were chosen and, in the Alberta Verification Report at 13-14, the Department explained how the data were collected. Respondents contend that the record does not support petitioners' claim that the KPMG in-kind cost survey is incomplete or flawed. Respondents further state that it was logical for KPMG not to collect data from non-tenure holders, and rather to focus on the costs incurred by producers of subject merchandise. Since the Preliminary Determination, respondents submitted amended cost information which was subsequently verified. We did not make adjustments for the following costs in the preliminary calculations: intensive reforestation, Geographic Information System (GIS) costs, forest care, overlapping tenure costs, scaling, inventory, and land use administration. Based on verification of the TMR obligations, we are now granting inventory costs in the final calculation. We continue to make adjustments in the final calculations for: road costs, basic reforestation, reforestation levies, forest management planning, fire, disease and insect costs, and environmental costs. Road Construction and Maintenance Respondents report that major tenure holders are responsible for all costs associated with building and maintaining roads. Respondents state that access for timber harvesting and extraction is completed at the expense of the stumpage holder and that the Province does not build or maintain any access for the harvesting of timber. Petitioners argue that both Alberta and U.S. harvesters must build and maintain roads at their own expense. Petitioners state that the Department should only make adjustments for permanent roads in classes 1 through 4, and should not make any adjustments for temporary roads regardless of the class category. Department's Position In the Preliminary Determination, we granted Alberta an adjustment for all road costs because the GOA did not have them broken out by class of road. However, we have collected and verified new information since the Preliminary Determination that has the road costs broken out by class. See Alberta Verification Report at 15. Tenure holders in Alberta are responsible for building and maintaining permanent roads. In Alberta, permanent road construction and maintenance is necessary to the harvesting operation, whereas harvesters in the United States comparison areas generally have a more extensive permanent road network already in place. Therefore, we are granting an adjustment to Alberta's administratively-set stumpage prices for classes 1-4 permanent road construction and maintenance costs. We are not granting any type of adjustment for reported temporary roads, as these are typically borne by harvesters in our United States comparison jurisdictions, as well as in Alberta. In their January 7, 2002 submission, petitioners provided information with respect to the existence of road construction and maintenance costs in our U.S. benchmark jurisdictions. However, we have not relied on petitioners' data to make road cost adjustments. Petitioners provided no evidence that the submitted road costs relate specifically to permanent or temporary roads. Petitioners solely provided data demonstrating that road costs are incurred by harvesters in select jurisdictions. Based on the data submitted, the Department is unable to determine whether, for example, the reported road costs relate to temporary roads only. Basic Reforestation Reforestation of the timber stands is another obligation for major tenure holders. These activities, referred to as silviculture, are broken down into two types-basic and intensive. As stated in the TMR at part 6, section 122.1, major tenure holders must perform basic silviculture, which includes regeneration or reforestation surveying, site preparation, planting, brushing, weeding, spacing and seedling trees, and stand cleaning. Although they state that the GOA has not adequately demonstrated that all of the costs reported as basic reforestation are required by tenure holders, petitioners do state that the Department should make an adjustment for basic silviculture since it is a condition of sale. Department's Position Since these reforestation activities are required under the TMR, we continue to make this adjustment in the final calculations. We also continue not to make any adjustments for costs related to incremental silviculture activities because major tenure holders are not required to perform these activities. Reforestation Levies As stated in the Preliminary Determination, reforestation levies are charged to CTP tenure holders if the tenure holder does not concurrently hold an FMA or a quota (66 FR 43206). If a CTP licensee also holds an FMA, then all reforestation activities are the responsibility of the FMA holder. If a CTP is held by a quota holder, then it depends on the type of quota whether or not the CTP holder will be responsible for paying reforestation levies or will be responsible for completing reforestation activities. If a CTP holder is obligated to pay a levy, the holder will pay this levy to Forest Resources Improvement Association of Alberta (FRIAA), which will carry out the reforestation work. Petitioners argue that the Department double counted-certain in-kind costs adjustments and triple counted reforestation levies in the preliminary calculation and should correct this error for the final. Respondents state that they inadvertently included reforestation levies in the in-kind costs survey as presented in the initial response, effectively double-counting these charges. However, they state that they corrected this mistake and placed on the record the corrected data, which was subsequently verified by the Department. Department's Position We agree with petitioners that there were errors in these claimed adjustments in the Preliminary Determination. We have corrected these errors in the final determination. Therefore, for the final calculations, we took the total value of the reforestation levies paid during the POI and added it to the other adjustments. Forest Management Planning We included in the final calculations adjustments for costs associated with forest management planning, because, as noted in the FMA Regulations at 10(1), the GOA mandates that a company must submit for the Minister's approval a preliminary forest management plan (FMP) within twelve months of applying for an FMA. This FMP includes a description of the managing method used for the timber harvesting. After 36 months, the company must submit a detailed FMP for one full rotation and it must identify a sustainable AAC. The FMP includes reforestation and management practices, a harvesting schedule, and road developments. Petitioners argue that forest management planning costs incurred by Alberta tenure holders do not arise from any different market conditions, and they show that similar costs are incurred by loggers in the United States. Therefore, petitioners argue, an adjustment for forest management planning is not appropriate. Respondents counter that the forest management planning expenses incurred by Alberta tenure holders are more than a cost of doing business. They maintain that these costs involve taking on the policy and planning role that a landowner normally would assume with regard to its land and the resources on it. Moreover, respondents reiterate that these FMPs are required by the GOA. Department's Position As stated above, we agree with respondents that forest management planning is a requirement in Alberta; therefore, we are making an adjustment for it in the final calculations. Fire Prevention, Insect and Disease Prevention Major tenure holders are required to perform forest protection activities on Crown lands, including fire prevention and suppression and pest management activities. Initial fire suppression, maintaining specified equipment levels, and fire readiness plans are obligations of licensees. Major licensees are also required to combat and extinguish all fires in their operating areas. As for insect and disease protection measures, such as spraying or surveys to measure the level and extent of infestation by a particular insect or disease, these are generally carried out by licensees. Petitioners claim that these costs are incurred on both sides of the border, and, therefore, an adjustment is inappropriate. Respondents maintain that the Department correctly adjusted for these costs in the Preliminary Determination, and that the fire, insect and disease costs incurred by Alberta tenure holders surpass those required in the United States. Department's Position We note that sections 2.2.7, 2.3.3, and 3.1 of the Alberta Timber Harvest Planning and Operating Ground Rules (Ground Rules) records the guidelines for tenure holders to deal with fires, insect and disease obligations. As a result, we have included adjustments for these additional costs for all tenure holders as well as adjustments for the allocation of general and administrative activities associated with these activities. Environmental Costs Petitioners claim that these costs are incurred on both sides of the border, and, therefore, an adjustment is inappropriate. Respondents maintain that the Department correctly adjusted for these costs in the Preliminary Determination. Department's Position We find that environmental costs include those expenses paid by the tenure holder to coordinate and comply with federal and Provincial environmental regulations. Because these costs are required by the GOA, we continue to include these costs in the final administered stumpage price. Holding and Protection Charges Petitioners argue, that in the Preliminary Determination, the Department double-counted holding and protection (H&P) charges because the GOA included them in its calculation of stumpage fees, and the Department also made a separate adjustment for H&P charges. Petitioners urge the Department to use H&P charges as an offset to an adjustment for tenure security, or, if the Department does not make an adjustment for tenure security, not include H&P charges in the dues paid, or make a separate adjustment for them. Respondents, in their rebuttal brief, assert that H&P charges are an additional form of cash payment paid by tenure holders. The charge is for holding the timber stumpage rights and for a portion of the costs of protecting the land base. Moreover, respondents point out that the rates for holding and protection charges for CTPs and quotas are prescribed by the TMR and that the Department uncovered no discrepancies when reviewing these charges at verification. See Alberta Verification Report at 13. Department's Position We recognized in the Preliminary Determination that "the charge is for holding the timber stumpage rights and for a portion of the costs of protecting the land bases, . . . and are prescribed by the TMR . . ." (See 66 FR 43207). While petitioners argue that these costs should not be included, the TMR mandates that these charges be paid; therefore, we continue to make this adjustment. We disagree with petitioners that these costs have been double-counted. Forest Inventory Petitioners argue that inventory costs are incurred by Alberta tenure holders in order to maximize the value of their tenures and not as an additional burden. They argue that U.S. harvesters must also examine their timber volume and quality. Respondents counter that record evidence demonstrates that forest inventory obligations in Alberta require that FMA holders monitor and report on the forest resources located in the area under their control and undertake many inventory initiatives. Respondents point out that these costs are mandated by the TMR. Department's Position We did not make an adjustment for costs related to inventory in the Preliminary Determination because we found that these costs were not mandatory and were not borne exclusively by tenure holders in Alberta. However, further analysis of the TMR demonstrates that, pursuant to sections 105 and 106, FMA holders are required to submit aerial photographs of the land areas that were cut over during the previous year with the annual operating plan. See Alberta Verification Report at 17. Therefore, because these costs are required by the GOA, we find that costs associated with forest inventory should be adjusted for in the final calculations. Adjustments Not Included We continue not to make adjustments for intensive reforestation, Forest Care, GIS costs, overlapping tenure costs, scaling, and land use administration. Intensive Reforestation Petitioners argue that no adjustment for silvicultural activities beyond the basic reforestation required of tenure holders is warranted. Department's Position Intensive reforestation activities, which are not required by the GOA, include pruning, fertilizing, pre-commercial thinning, spacing, weeding, and genetics. A licensee may perform intensive silviculture on a voluntary basis. No new information was provided to warrant a change to the Preliminary Determination; therefore, because tenure holders are not required by the GOA to perform these activities, we continue not to include this cost in the calculation. Forest Care Forest Care is a certification program developed by member companies of the Alberta Forest Products Association as part of their commitment to protect the environment and sustain the public forest. Petitioners argue that participation in this program is not required, and, therefore, no adjustment is appropriate for these costs. Department's Position We found in the Preliminary Determination that costs related to Forest Care are not mandatory and are not borne exclusively by tenure holders in Alberta. No new information has been provided to warrant a change from our Preliminary Determination. Therefore, because these costs are not mandated by the GOA, we continue not to adjust for them in the final calculations. Geographic Information System (GIS) Costs GIS is a computer system capable of assembling, storing, manipulating, and displaying geographically referenced information. Respondents stated that GIS is used in forestry to manage forests for timber and non-timber purposes. Petitioners argue that the GIS costs are not mandated under the tenure responsibilities; rather, they are activities that maximize the value of the tenures. Respondents, however, claim that the GIS is an essential tool employed by FMA and quota holders for developing, maintaining, and executing the forest management planning, and that GIS costs should be adjusted for because GIS costs are similar to the cost of computer software or other equipment. Respondents further point out that it was confirmed at verification that GIS-related activities, and the costs incurred in conducting them, are undertaken only because the Province mandates that Provincial harvesters meet specific regulatory requirements for which GIS is essential. Department's Position We determine that although GIS is a valuable tool that may help tenure holders manage their areas more efficiency, GIS is not a cost mandated by the GOA. We find that the costs associated with GIS are costs normally incurred in the ordinary course of business, and, therefore, should not be adjusted for. Overlapping Tenure As noted above, we did not make cost adjustments for overlapping tenure costs in the preliminary calculations. Respondents stated that in Alberta one tenure may overlap with another and that the costs of managing this overlap would normally be borne by the landowners. However, these costs are not incurred by the Province, but, rather, by the tenure holder. Petitioners claim that these costs led to cost savings as duplicated efforts are avoided. Department's Position We determine that the costs associated with overlapping tenures are costs normally incurred in the ordinary course of business, and, therefore, should not be adjusted for. Scaling Petitioners argue that scaling of timber is done by all harvesters in the United States and Canada in order to obtain volumes to pay loggers, to obtain volume and grade break-down for management purposes, and to perform quality control on loggers. Petitioners point out that the Department did not adjust for scaling costs in the Preliminary Determination and should not do so for the final. Respondents counter that in Alberta its harvesters must incur scaling costs that ordinary commercial harvesters do not; namely, those necessary to meet obligations imposed on them by the GOA. Respondents point to section 99 of the TMR, which states that all timber producers shall measure and scale timber volumes in accordance with the procedures and scaling regulations established by the Province. The TMR goes on to specify detailed obligations, including the type of scaling data that has to be recorded and the forms which must be maintained. In addition, the Alberta Scaling Manual, published by the Province, contains procedures for scaling as required by the TMR. Respondents moreover assert that the fact that Alberta issued both regulations and a scaling manual mandating the particular scaling activities it requires demonstrates that these are not activities the Province would expect any normal business to undertake for its own self-interest. Department's Position In the Preliminary Determination, we stated that "based on the information provided by respondents, we preliminarily determine that costs related to scaling are not mandatory and are not borne exclusively by tenure holders in Alberta." See 66 FR 43207. Respondents have not provided any information since that determination to indicate that commercial harvests do not have to scale lumber. Thus, no new information was provided to warrant a change to the Preliminary Determination; therefore, the Department continues not to include this cost in the calculation. Land Use Administration Petitioners argue that, as with costs related to overlapping tenures, any staff resources devoted to coordination with companies outside of the forest industry will, in a market, be directly related to the expected cost savings resulting from such efforts. Petitioners moreover state that tenure holders are entitled to compensation for many of the activities of these companies within their tenures. Therefore, petitioners argue, if the Department were to make an adjustment for land administration costs, it would also have to attempt to quantify the benefits received by tenure holders from their dealings with energy and mining companies on their tenures. Respondents counter that petitioners overlook the fact that Alberta law requires harvesters to undertake these administrative activities in lieu of the government. Respondents also maintain that it is the Provincial government alone which benefits from tenure holders performing these requirements. Department's Position As a result of insufficient evidence on the record, in the Preliminary Determination we determined not to adjust for land use administration. See 66 FR at 43027. We examined this cost at verification and found that land use administration costs are costs associated with tenure holders coordinating with energy and mining companies to minimize the impact of their activities on the forest. See Verification Report at 16. Although respondents claim that land use administration is mandated by law, the TMR and accompanying rules are inconclusive. Therefore, these costs are not explicitly mandated by the GOA, and we continue not to adjust for them in the final calculations. Other Adjustments to the Benchmark Petitioners argue that the Department should make certain adjustments to the benchmark for: tenure security, bid preparation costs, old-growth, time payment of timber dues, transportation costs, and other costs, as these issues specifically benefit Alberta's harvesters and not U.S. harvesters. Bid Preparation Costs Petitioners maintain that harvesters who must compete for timber in auctions or bids incur certain additional costs that tenure holders who do not have to compete for timber do not bear. Petitioners argue that the fact that Alberta does not require competitive bidding for tenure contracts results in reduced sales costs which should be adjusted for in the final calculations. Department's Position We disagree with petitioners' argument that the lack of competitive bidding for tenure contracts results in a cost which should be adjusted for. There is no information or evidence on the record to quantify such costs. Therefore, we continue not to adjust for them in the final calculations. Old Growth Timber Petitioners claim that the large majority of standing Alberta timber consists of mature or over-mature stands and that old-growth timber in Alberta is more valuable than second-growth timber. Respondents refute petitioners' argument that Alberta has old-growth timber and that this timber is more valuable than the U.S. benchmark timber. They further state that record evidence strongly refutes petitioners' claim, and, in fact, Alberta's timber is inferior to Montana's timber, as Alberta's trees are small, short and gnarled. Department's Position This comment is based on a comparison of Alberta to Montana. However, as previously stated, we are comparing Alberta to Minnesota. There is no information on the record to indicate that harvestable timber in Alberta is more valuable than harvestable timber in Minnesota due to the presence of old growth timber. Time of Payment Petitioners claim that Alberta tenure holders receive a benefit in the form of an interest free loan for the time between when the GOA invoices harvesters for stumpage on manufactured timber products and when the primary timber product is sold. Respondents refute petitioners' argument that Alberta tenure holders receive a benefit in the form of an interest- free loan from charging stumpage at the time of sale rather than time of harvest. They also note that the delay actually generates more revenue to the Province, because the price for lumber is higher during the summer season than during the winter season. Department's Position Prior to the Preliminary Determination, petitioners raised this issue as a new subsidy allegation. On August 9, 2001, we specifically declined to initiate an investigation of this alleged subsidy. See the August 9, 2001 Memorandum to Melissa G. Skinner, Director, Office of AD/CVD Enforcement VI concerning New Subsidy Allegation: Certain Softwood Lumber Products from Canada. Because we have declined to initiate on this allegation, the adjustment issue raised by petitioners is moot. Transportation Costs Respondents have stated that because Alberta's forests are farther away from their major lumber markets than their Montana counterparts, additional shipping costs for finished Alberta lumber would justify a downward adjustment to the Montana benchmark price. Petitioners disagree, asserting that since both Alberta and Montana harvesters must transport their final products to markets, transportation costs represent a cost that is borne on both sides of the border, and, therefore, it should not be adjusted for. In addition, petitioners argue that the primary costs in transporting lumber are in loading and unloading, and adding more miles to the haul adds relatively little marginal cost. Moreover, petitioners argue that respondents' choice of U.S. markets for distance comparisons is selective (i.e., in the north), and there is substantial timberland in the south, which is much closer to the U.S. markets. Department's Position We are not adjusting the Alberta stumpage price for differences in transportation costs from mill-to-market. It is clear that firms in both Alberta and the comparison markets transport lumber to the market as part of their ordinary course of business. However, even if quantifiable cost differences did exist, there is not enough evidence on the record to determine whether they reflect variations in the efficiency of firms or other considerations. Other Adjustments Petitioners argue that the Department should exclude certain charges, i.e., interest and penalties, and miscellaneous fees, from the cash stumpage fees paid by tenure holders because these fees are not related to the harvest of timber in Alberta. Respondents counter that interest charges accrue when stumpage fees are not paid in a timely manner. Penalties, state respondents, are imposed for transgressions of Alberta harvesting and other tenure rules. They further maintain that miscellaneous fees all represent value paid for the stumpage, and these fees constitutes a cost established by the TMR. Respondents point out that the Department verified all of these costs and reported no discrepancies. Department's Position We agree with respondents that we verified these costs and found no discrepancies. See Alberta Verification Report at 13. However, consistent with our preliminary calculation we continue not to include these other charges in the calculation. Quota Bonus Bids Quotas sometimes include a lump sum bonus bid paid up front. Petitioners maintain that, although no quotas were sold during the POI, the GOA calculated that bonus bids paid in previous years, when amortized over the 20-year life of quotas, amount to C$0.37/m3 of quota AAC and this figure was included in the GOA's calculation of stumpage fees paid during the POI. Petitioners argue that quota bonus bids should be credited as an offset to tenure security or not credit the bonus bids altogether. Respondents argue that if the Department fails to remove the competitively bid quota harvest volumes from its subsidy calculation, the Department must include the amortized bid value of C$0.37/m3 as an element of stumpage revenues. They argue that quota bonus bids are an integral part of Alberta's stumpage charges, as the Department recognized and verified in the past, including in Lumber III. Department's Position As stated above, the Department finds that quotas sold at open auction should not be excluded from the final calculations. Also, pursuant to section 351.511 of the Regulations, in the case of the provision of a good or service, the Secretary normally will consider a benefit as having been received as of the date on which the firm pays or, in the absence of payment, was due to pay for the government-provided good or service. As stated above, no quotas were sold during the POI; therefore, consistent with the section 351.511, we find that it is not appropriate to include respondents' amortized bonus bids in the final calculation. Free Trees During the Preliminary Determination, the Department relied upon an incomplete data chart and found that timber dues were not paid on coniferous timber harvested from deciduous stands. See 66 FR at 43207. Therefore, we calculated a subsidy value for the total volume of those trees by comparing them to the benchmark price. We then added this benefit into the calculation of total benefits for Alberta. Since the Preliminary Determination, respondents corrected the data on the record. The information on the record was verified and no discrepancies were found. See Alberta Verification Report at 19-20. Based on this revised information, we find that there were no free trees provided to deciduous harvesters of coniferous timber. The stumpage subsidy calculation includes the volumes of coniferous timber from deciduous stands in the total volumes used to calculate the subsidy rate. Pulpwood As discussed in the "Ontario" section, the merits of the inclusion of data pertaining to pulpwood sales were debated by the parties in memoranda and briefs submitted throughout the investigation. In general, respondents argued that the softwood timber harvested in Alberta and destined for sawmills to be used in the production of subject merchandise is, on average, much smaller in diameter than the softwood timber sold as sawtimber in Montana. As the Department used Montana as the cross-border benchmark in the Preliminary Determination, respondents focused their arguments on Montana. However, respondents from Ontario made similar arguments; therefore, to address issues raised by respondents and to be consistent with Ontario, we will address these issues as though raised with respect to Minnesota. Respondents contend that the softwood pulp prices contained in the reports for Minnesota are more reflective of the size of timber used in Alberta's sawmills. Petitioners state that the sawtimber data should be used because the proper comparison is between prices for Alberta's public timber used to make lumber and prices for Minnesota timber used to make lumber. Petitioners assert that the Department cannot use prices for one good (timber generally used to make pulp) to establish the value of a different good (timber used to make lumber). Department's Position The record in the instant investigation reflects the fact that sawmills in Minnesota purchase sawlogs exclusively to be used in the production of softwood lumber. We are not including pulpwood prices in the benchmark data because of the lack of sufficient information on the record indicating that logs normally classified as pulpwood are also used to produce softwood lumber in Minnesota. Overstatement of Volume of Timber Respondents claim that the Department overstated the relevant volume of subsidized wood in the preliminary calculations. They assert that the Department needs to convert nominal cubic meters of lumber to actual cubic meters of lumber to accurately represent the volume of cubic meters of lumber incorporated into the subject merchandise manufactured and shipped from Alberta during the POI. They also note that this number would need to be further adjusted by removing private and federal timber volumes. Respondents also disagree with the Department's inclusion of softwood by- products in the denominator to compensate for the overstatement of volume. They claim that this practice further distorts the subsidy calculations. The Department, they argue, should calculate the subsidy benefitting subject merchandise during the POI, not calculate the subsidy benefit on all products that use timber. They claim that the numerator used in the preliminary calculations included a large volume of non-investigated products and that the Department added in a smaller figure to the end product value in the denominator. Respondents further note that by overstating the numerator, the calculated subsidy rate was also overstated. Petitioners rebut respondents' allegation that the subsidy calculation is inflated because of the inclusion of by-products in the numerator. Petitioners maintain that respondents have provided no justification for departing from the methodology employed in the Preliminary Determination. Department's Position As explained in the "Numerator Issues" section of this memorandum, we have determined that the inclusion of softwood by-products in the numerator does not overstate the Provincial benefit. Overstatement of Total Volume Entering Sawmills Respondents maintain that the Department overstated the volume of timber used in Alberta to make subject merchandise. Specifically, respondents claim that the Department did not calculate a subsidy rate on the actual volumes of stumpage going into Alberta's softwood lumber; rather, it included all logs that could have gone to sawmills, which also included volumes of logs used to produce non-lumber products and non-subject merchandise. Respondents assert that for the other Provinces for which the Department calculated a benefit, the Department only included logs going to sawmills in its calculations. Respondents argue that the Department erred by not limiting the wood volumes in its calculations to the volumes actually entering sawmills; instead, the Department relied on Alberta's sawlog volume data. Respondents maintain that the sawlog data included substantial volumes of logs that do not enter sawmills nor are used to make lumber. Respondents explain that because the timber dues do not track lumber by end-product categories, the sawlog category includes timber used to make both subject and non-subject merchandise. The timber dues as charged in Alberta include lumber, pulp, and roundwood timber products, as noted in the TMR. In other words, timber that falls into the sawlog category can be used to make a variety of products, some of which are outside of the scope of this investigation. Respondents also claim that the sawlog category also includes marginal and damaged wood. Respondents argue that the damaged timber could be used to make lumber and was therefore included in the sawlog category. They emphasize that the sawlog category overstates the volume of logs used to make subject merchandise. Respondents take issue with the Department's decision in the Preliminary Determination not to modify downward the volume of sawlogs for the subsidy calculation to determine how many cubic meters of Provincial timber could have been used to produce subject merchandise. Instead, the Department used the sawlog volume as provided in the GOA's questionnaire responses. Respondents further maintain that they provided the Department with sufficient information to correct the volume used. Respondents urge the Department to correct this alleged error for the final. Petitioners argue that respondents' argument that the volume is overstated has many problems. For instance, petitioners point out that respondents have previously stated that the Alberta sawlog volume coming from Alberta's harvested trees was going almost exclusively to sawmills. Petitioners state that the sawlog figure reported by respondents is both slightly over-inclusive and under-inclusive, in amounts that the GOA cannot determine with precision. Moreover, petitioners claim that subtracting the volume of sawlogs harvested by tenure holders that do not own sawmills would be erroneous. They state that tenure holders that are not integrated companies can still produce lumber by either subcontracting the sawmilling process or by selling harvested logs to sawmills. Petitioners claim that there is no evidence that non-integrated tenure holders do not harvest saw timber to produce lumber. Petitioners also claim that applying a recovery rate to Alberta's final softwood lumber shipments would not result in an accurate sawlog volume. They state that the recovery rate is questionable and that the Department rejected a similar methodology in Lumber III. Petitioners also assert that timber used to make lumber is more valuable than timber used to make pulp. The reason that Alberta cannot separate out the sawlog and pulpwood volumes, argue petitioners, is that the GOA charges the same price for sawtimber and pulpwood. Therefore, Alberta's inability to provide accurate data should not result in the Department altering the sawlog volume. Petitioners urge the Department to use Alberta's reported softwood sawlog volume as the best information available under 351.308(a). Department's Position We note that the GOA itself explained that it could not isolate logs destined for sawmills as defined in the questionnaire for this investigation and as the other Provinces have done (see, e.g., the GOA's June 28, 2001 questionnaire response at I-3 and the Alberta Verification Report at 8). Thus, it follows that we cannot recalculate the sawlog category. Therefore, for the purposes of the final calculations, we continue to use the same data that we used when doing our preliminary calculations. Stumpage Calculation To determine Alberta's administratively-set stumpage price we summed the unit prices per tenure holder of the adjustment costs. (For discussion of what adjustments we are including in the final calculations see "Adjustment" section above). We next calculated a unit timber dues paid per tenure holder per species. We then weight-averaged the tenure holder in each species mix to derive a single administratively-set stumpage price for SPF and Douglas/ Larch/ Tamarack. To compare the species mix in Alberta and Minnesota, we calculated the difference between Provincial and Minnesota stumpage rates for the two softwood species mixes harvested in Provincial forests. We took the difference for each species category and multiplied it by Alberta's billed timber volume for the respective species category to arrive at the weighted benefit. We multiplied this amount by the portion of Alberta's species mix to derive a weighted-average benefit amount per species category. To calculate the benefit under Alberta's stumpage system, we first multiplied the adjusted price difference described above by the total softwood harvest billed by tenure holders during the POI. Next, we calculated the Provincial benefit. To derive the Provincial rate, we divided the Provincial benefit by the total value of softwood lumber shipments plus the total value of softwood by-products for the POI. Next, as explained in the "Subsidy Rate Calculation" section of this notice, we weight-averaged the benefit from this Provincial subsidy program by the Province's relative share of total U.S. exports. The countervailable subsidy for the Provincial stumpage programs can be found in the "Country- Wide Rate for Stumpage" section, below. 5. Province of Manitoba The Government of Manitoba (GOM) owns 94 percent of the forest area available for harvest and the federal government owns one percent. Private wood lot owners own the remaining 5 percent of forest land available for harvest. In Manitoba, there are three ways to acquire public timber from Crown lands: (1) Forest Management Licenses (FMLs); (2) Timber Sales Agreements (TSAs); or (3) Timber Permit (TPs). An FML is a long-term (up to 20 years) license, which may be renewed every five years, to harvest a stated volume of timber in a particular area. Licensees must manage their area to ensure: (i) the sustained yield, (ii) achievement of maximum timber growth potential, (iii) a mandated standard of environmental quality, and (iv) a public right of access for recreational and other uses of the forest. According to the GOM, the licensee must submit an annual operating plan and additional harvesting reports to the Forestry Branch of Manitoba Conservation. The TSA is a short-term (up to five years) right to harvest a stated volume of timber in a specific area generally issued to small and medium sized operators. There were 204 TSAs in effect during the POI. Licensees with TSAs harvest both hardwood and softwood lumber. Similar to the FMLs, the TSA holders must have an annual operating plan. Like FML holders, the stumpage must be paid within 30 days of the end of each quarter in which the timber is cut and scaled. The TPs are short-term (up to one year) licenses. License holders can only harvest a very small amount of timber. TP holders generally use the license to harvest firewood (softwood and hardwood) for their own use. Stumpage must be paid when the permit is issued. There were 2,617 permits in effect during the POI. Manitoba also has a quota system. The quota is a five-year, renewable, fixed allocation of timber, whereas, a TSA or TP provides direct access to the timber. The GOM states that all but a few quota holders also have timber sale agreements. Tenure holders pay stumpage fees at either the standard Provincial rate or a rate negotiated with the Province. The Forestry Service of the GOM has divided the Province into eight different forest regions. The standard Provincial rate varies depending on which of the forest regions the timber is harvested from and whether the wood type is Aspen/Poplar or all wood other than Aspen/Poplar. Otherwise, the rates do not vary by species or grade. The GOM used a base rate set by administrative determination for calculating the stumpage price for TS holders and TP licensees. The base rates were then adjusted according to changes in a weighted- average of two StatsCan industrial product price indices to derive an annual rate. The GOM reports the per unit stumpage amounts by dividing the total value of stumpage collected by the total quantity on a tenure on a species- specific basis. These values include a Fire Protection Charge (FPC) for holders of TSAs and FMLs. TSAs and TPs also pay a Forest Renewal Charge (FRC) to the Province. The values do not include the un-reimbursed costs that FMLs incur for renewal activity (i.e., basic silviculture). Benchmark Private Provincial Price Respondents have not provided any information on private timber sales in Manitoba, as they do not track harvests from private lands. See GOM June 28, 2001 Questionnaire Response at 55. However, respondents disagree with the use of any cross-border benchmark. (See "Benefits" section, above). Petitioners claim that even if private price and volume data were on the record, any private timber prices in Manitoba would be distorted by the dominance of Crown timber prices. Department's Position Despite the Department's requests for private pricing data from Manitoba, respondents failed to provide such data. See Department's May 1, 2001 Questionnaire, and July 25, 2001 Supplementary Questionnaire. The GOM reported that it does not collect data on private timber prices. Thus, we will continue to use a cross-border benchmark. Respondents' general cross- border issues are addressed in the "Benefits" section of this memorandum. Cross Border Benchmark As explained above, in the Preliminary Determination, we used stumpage prices in the United States because they provide the most accurate and commercially reasonable benchmark with which to measure the adequacy of remuneration. We used data from the state of Minnesota, which borders Manitoba, to calculate our cross-border benchmark. Respondents argue that although some species are found in both Minnesota and Manitoba, such as black spruce and jack pine, the relative proportions of these species differ significantly. They also argue that timber prices vary given different locations, species, and other factors. Respondents contend that Minnesota softwood timber sold from public lands is not comparable to Manitoba Crown softwood timber that is utilized by Manitoba saw mills. Respondents claim that Manitoba forests and comparison market forests differ in distribution of tree species, timber size, and harvesting and growing conditions from Minnesota. Petitioners maintain that the data pertaining to sales in Minnesota are the most suitable for the purpose of cross-border comparison state for Minnesota. Petitioners argue that due to the similar mix of species, quality, similar geographic, topographic, and ecological features, timber available in Minnesota and Manitoba are highly comparable. Department's Position In the Preliminary Determination, 66 FR at 43205, the Department used Minnesota public land saw timber prices to calculate the benchmark for measuring the adequacy of remuneration for the Crown timber utilized by Manitoba saw mills. No information that has been placed on the record since the Preliminary Determination warrants a change in this methodology. In fact, the information on the record indicates that the mix of Spruce- Pine species found in Manitoba is commercially comparable to the Spruce- Pine species found in Minnesota. See David Cox, Jack Lutz, and William McKillop, "Examining the Market Value of Public Softwood Sawtimber in Canada," at 15-25 (July 27, 2001) app. to Letter from Dewey Ballantine LLP to Department of Commerce (July 27, 2001). Therefore, as in the Preliminary Determination, we calculated the benchmark using the Minnesota stumpage prices in the Minnesota 2000 Corrected Public Stumpage Price Review and Price Index (Minnesota Price Review) published by the Division of Forestry, Minnesota Department of Natural Resources. 66 FR at 43208. Using the price and volume data from the Minnesota Price Review, we calculated weighted-average benchmark prices for all those species of categories reported by Manitoba, a Spruce- Pine category, and an "Other" category, which includes, among other species, cedar and red and white pine. We converted these figures from MBF to cubic meters using the conversion factor of 4.81 cubic meters per MBF (for discussion of the conversion factor used, see the "Conversion Factor" section of this memorandum). We also converted the price data from U.S. dollars to Canadian dollars, using an 18 month average exchange rate from the Bank of Canada. Adjustments As we noted in the Preliminary Determination, to make an appropriate comparison between the administered Manitoba prices and the benchmark prices, certain adjustments are required to reflect the different costs borne between purchasers in both markets. In fact, since the Preliminary Determination, we have received numerous comments from both respondents and petitioners on the types of adjustments which should be made to the Manitoba administered stumpage price. In general, we determine that adjustments to the Manitoba price which reflect costs borne by tenure holders by the GOM that are not incurred in Minnesota. We determine that there are certain costs that Crown timber harvesters in Manitoba incur that are not incurred by Minnesota harvesters. Therefore, we made certain adjustments to the derived basic stumpage rate for Manitoba. Silviculture In the Preliminary Determination, we made adjustments for the following silviculture and forest renewal costs: (1) general silviculture; (2) site preparation; (3) scarification; (4) tree planting; (5) seedling purchase; (6) regeneration surveys; and (7) silviculture projects. In the Preliminary Determination, the GOM reported the total amounts that Tolko incurred for expenses related to tree improvement and herbicide release. We did not include these expenses because the amounts were too small to have any impact on the calculations. In fact, the GOM did not calculate a per-unit amount for these costs because the amounts were insignificant. Therefore, no adjustment for tree improvement and herbicide release is necessary. Manitoba tenure holders incur silviculture costs. They also incur associated costs related to site preparation, scarification, tree planting, seedling purchase, regeneration, and silviculture projects. Petitioners accept that adjustments to GOM administered prices are justified to the extent the general silviculture work and other costs are government-mandated, and no comparable costs are incurred in Minnesota. See Petitioners' February 22, 2001 Case Brief, at VI-10-12. The GOM argues that we should adjust for these silviculture costs according to the same methodology and in the same amounts as we adjusted for in the Preliminary Determination, as well as for a number of additional costs it claims are required. Department's Position Prior to the Preliminary Determination, the GOM provided information detailing the un-reimbursed costs of basic silviculture activities performed by Tolko Industries, Ltd. (Tolko), the only FML holder that harvests softwood sawtimber. The GOM provided this data from Tolko's Annual Operating Report. In the Preliminary Determination, we weighted the un-reimbursed per unit costs reported for Tolko by the percentage of total volume that the FML softwood harvest represents and added this amount to the administered stumpage price. We have continued to use this methodology for this final determination. In a September 26, 2001 letter from Holland and Knight to the Department of Commerce, ("Sept. 26 Letter"), Tolko Industries, Ltd., provided in-kind costs incurred in Manitoba related to its activities required by its FML and by Environmental License for the year 2000. In response to additional questions from the Department, further information on the in-kind costs Tolko provided was submitted in a December 17, 2001 supplemental questionnaire response. We agree with the GOM that these silviculture costs are incurred by Manitoba tenure holders because they have a government obligation to perform general silviculture, without compensation. There is no information on the record to indicate that comparable costs are borne in Minnesota for these activities for companies that harvest timber on public land. Therefore, we determine that an upward adjustment for the following silviculture costs are warranted: (1) general silviculture; (2) site preparation; (3) scarification; (4) tree planting; (5) seedling purchase; (6) regeneration surveys; and (7) silviculture projects. In the Preliminary Determination, we noted that the TSA and TP holders pay the Province fees related to basic silviculture; however, such fees are already included in the stumpage. An upward adjustment to the administered stumpage price would result in double-counting. Therefore, we have not adjusted for TSA and TP fees. Costs of Developing Annual Report Manitoba tenure holders are required to prepare and submit annual reports that set forth their forest renewal costs, annual harvest plans and harvest block status reports to the GOM. Manitoba harvesters incur forestry administration costs, including environmental compliance costs, timber sales reporting requirements, and costs related to growth and yield data collection. In the Preliminary Determination, we adjusted for these costs. 66 FR at 43207. Petitioners claim that these costs are inappropriate and analogous to costs of government relations that companies incur in corresponding with state forestry officials determining long-range forest plans and policy. See Petitioners' February 22, 2001 Case Brief, at IV-13. Petitioners also claim that U.S. loggers incur similar costs. Department's Position We determine that an adjustment for forest planning costs such as these are warranted as there is no information on the record indicating that they are borne by harvesters in Minnesota. The Department disagrees with petitioners' contention that an upward adjustment for procurement costs should be made to the benchmark price, (see section below for discussion of adjustments not included). Forestry Administration In the Preliminary Determination, the Department made an adjustment to the derived basic stumpage rate for Manitoba to account for forestry administration costs incurred by Manitoba tenure harvesters. 66 FR at 43207. Petitioners claim that an adjustment for these costs is inappropriate and analogizes them to costs of government relations or compliance with forestry regulations that U.S. loggers in Minnesota incur in corresponding with state forestry officials determining long-range forest policy. Petitioners' February 22, 2001 Case Brief, at VI-13-14. Respondents argue that we should include the Forest Administration costs included by Tolko in its September 26, 2001 letter, in addition to those added in the Preliminary Determination. See Respondents' February 22, 2001 Case Brief, vol. 9, at 4. Department's Position We determine that an adjustment for forest planning costs such as these are warranted as there is no information on the record indicating that they are borne by harvesters in Minnesota. The Department also disagrees with petitioners' contention that an upward adjustment for procurement costs should be made to the benchmark price, (see section below for discussion of adjustments not included). Inventory Respondents claim that inventory costs were reported by the GOM and were incurred in connection with basic silviculture activities that FML tenure holders are required to perform, including the cost of growth and yield analysis and regeneration surveys. Respondents argue that absent record evidence of such costs in Minnesota, the Department should make the adjustment to the administered stumpage price in Manitoba. Respondents' February 22, 2001 Case Brief, vol. 9, at 5. Department's Position In the Preliminary Determination, we did not make an adjustment for expenses related to inventory, stating "that it is an industry-wide cost and is borne by harvesters in Minnesota." 66 FR at 43208. As described by respondents, the inventory costs reported in revised Exhibit MB-S-8 relate to costs incurred in connection with the basic silviculture activities FML holders are required to perform, including "the cost of growth and yield analysis and regeneration surveys." See Respondents' February 22, 2001 Case Brief, vol. 9, at 5. However, as described above we made an adjustment for regeneration surveys as part of basic silviculture. Respondents failed to provide information as to the particular activities comprising this inventory cost. Therefore, in order to avoid double counting and due of the lack of evidence on the record to substantiate respondents' claim of what tenure are responsible for, we continue to determine that an adjustment for these costs is not warranted. Geographic Information System (GIS) GIS is a computer system capable of assembling, storing, manipulating, and displaying geographically referenced information. Respondents' claim that use of such equipment is required in Tolko's FML and its accompanying environmental license. Respondents' February 22, 2001 Joint Case Brief, vol. 9, at 5-6. They state that the GIS is a tool used in planning forest activity and that FML licensees such as Tolko, are required to use the GIS to prepare plans such as the annual harvesting and renewal plans and ten- year management plans. Petitioners argue that the GIS costs are not mandated under the tenure responsibilities; rather, they are activities that maximize the value of the tenures. Respondents, however, claim that the GIS is an essential tool employed by FML holders for developing, maintaining, and executing its forest management planning. Department Position In the Preliminary Determination, we did not include the expenses associated with the use of a Geographic Information System (GIS) because such expenses were not required by the tenure arrangement. 66 FR at 43208. We determine that GIS is a tool and is not a cost specifically mandated by the GOM. See GOM June 28, 2001 Questionnaire Response, Exhibit MB-S-20, sections 15-17. Therefore, we continue to find no basis to adjust for GIS expenses. Dwarf Mistletoe Respondents argue that Tolko has placed information on the record showing that companies are responsible for eradicating pests or other infestation on harvested areas of the FML. Department's Position In the Preliminary Determination, we did not include the expenses of dwarf mistletoe control because we stated that these expenses were not required by the tenure arrangement. 66 FR at 43208. Section 23(H) of Exhibit MB-S-20 indicates that the GOM and FML holder will share responsibilities regarding pest infestations with the FML holder reporting pest problems. However, the GOM implements the program to eradicate the infestation, not the tenure holder. See June 28, 2001 GOM Questionnaire Response. We continue to find no basis in the record to adjust for dwarf mistletoe eradication, because there is insufficient evidence on the record to quantify what costs were incurred and to show that such costs were mandated by the FML. In respondents' case brief, they indicate that dwarf mistletoe eradication was included in the costs of Forestry Administration reported in Tolko's September 26, 2001 letter to the Department. See December 17, 2001 GOM supplemental questionnaire response at 8-9. Moreover, because we included the costs of forestry administration reported by Tolko in its September 26, 2001 letter in the forestry administration adjustment, we have subtracted the amount of dwarf mistletoe eradication previously reported by the GOM in Exhibit MB-S-10 of its June 28, 2001 questionnaire response from the forestry administration adjustment to avoid double counting. Road Costs In the Preliminary Determination, the Department did not make any adjustments for road construction or maintenance. The GOM does not undertake any road construction or maintenance on tenure land arrangements, although the tenure holders are responsible for any road costs, they must follow guidelines set by the GOM. These roads must be accessible to the public under section 14 of the FRL. After the Preliminary Determination, the GOM provided road costs in its third supplemental questionnaire response. Petitioners state that Manitoba harvesters are not required to build roads and therefore the Department should not make an adjustment for them. Department's Position We determine that tenure holders construct roads located inside an FML area and these roads must be built and maintained within the specifications established by the GOM and included in the FRL. Therefore, we determine an adjustment for these costs in the administratively-set price is warranted. We are making an adjustment for primary and secondary road construction and maintenance costs. Because harvesters on both sides of the border regularly construct tertiary roads as part of their seasonal harvesting operations an adjustment for tertiary road construction costs is not warranted. The road data placed on the record on behalf of the GOM does not provide a breakdown of road costs by categories of roads. Therefore, it is unclear from the information on the record what the distribution of road costs is in Manitoba. Because of similarities in the forestry conditions between Manitoba and Ontario, we determine that applying the ratio of primary and secondary road costs to tertiary road costs in Ontario to the road cost data on the record regarding Manitoba reasonably approximates the levels of construction of more permanent roads in Manitoba. We note that, as in the Preliminary Determination, we are including the expenses incurred by the GOM for renewal of areas outside of FMLs. Such expenses are incurred by the government, and therefore are not unreimbursed expenses incurred by the licensee. Stumpage Calculations Manitoba reported the stumpage volume and value by tenure type and species. The GOM stated that the vast majority of species harvested in Manitoba are white spruce, black spruce, and jack pine (collectively "spruce/pine"). However, Manitoba also reported an "other" category. We have maintained the same species categories for purposes of our final calculations. In the Preliminary Determination, we calculated the benefit by deriving a species-specific (i.e., "spruce/ pine" and "other") per unit stumpage cost in Manitoba by summing the species value of administered stumpage over volume. Next, we calculated an average "spruce/pine" price, weighted by the percentage of spruce and pine volume. The GOM reported the per unit costs incurred by Tolko as a ratio of its costs over its sawlog harvest. To apply the adjustments listed above, we weighted the per unit cost by the percentage of the FML harvest of the total harvest to account for the fact that the TSA and TP holders do not incur this cost. We then added these revised adjustments to the "spruce/pine" stumpage price and the "other" price. As a benchmark for the "spruce/pine" rate, we calculated a weighted average price of species identical (i.e. white and black spruce, and jack pine) to the species in Manitoba. We then subtracted the difference between the benchmark and the administratively-set stumpage rate. We classified the remaining species found in the Minnesota Price Review in an "other" category which we used as a benchmark for the "other" category found in Manitoba. As discussed in the "Ontario" section, the merits of the inclusion of data pertaining to pulpwood sales were debated by the parties in memoranda and briefs submitted throughout the investigation. In general, respondents argued that the softwood timber harvested in Manitoba and destined to sawmills for the production of subject merchandise is, on average, much smaller in diameter than the softwood timber sold as sawtimber in Minnesota. Respondents therefore contend that the softwood pulp prices contained the reports for Minnesota are more reflective of the size of timber used in Manitoba's sawmills. Petitioners state that the sawtimber data should be used because the proper comparison is between prices for Manitoba's public timber used to make lumber and prices for Minnesota timber used to make lumber. Petitioners assert that the Department cannot use prices for one good (timber generally used to make pulp) to establish the value of a different good (timber used to make lumber). We are not including pulpwood prices in the benchmark data because of the lack of sufficient information on the record indicating that logs normally classified as pulpwood are also used to produce softwood lumber in Minnesota. As explained above, we have decided to use stumpage prices in the United States for our benchmark. In the case of Manitoba, we are using data from the state of Minnesota to calculate our benchmark. We obtained this data from the Minnesota 2000 Corrected Public Stumpage Price Review and Price Index, published by the Minnesota Department of Natural Resources, Division of Forestry. Specifically, we used the weighted-average prices for each species in Minnesota, from April, 2000 through March, 2001. We converted these figures from thousand board feet to cubic meters using the conversion factor of 4.81. We also converted the prices from U.S. dollars to Canadian dollars, using monthly average exchange rates from the Bank of Canada in effect during the POI, in order to derive our basic stumpage rate in C$/m3 for each species. To calculate the benefit under Manitoba's stumpage system, we first took our calculated per unit price differential and factored in necessary adjustments, which are detailed above. We next multiplied the per unit price differential by the harvested volume to arrive at the total benefit. Next, to derive the Provincial rate, we divided the Provincial benefit by the total value of softwood lumber shipments plus the total value of softwood by-products for the POI. Next, as explained in the "Subsidy Rate Calculation" section of this notice, we weight averaged the benefit from this Provincial subsidy program by the Province's relative share of total U.S. exports. The countervailable subsidy for the Provincial stumpage programs can be found in the "Country-Wide Rate for Stumpage" section, below. 6. Province of Saskatchewan In Saskatchewan, the northern half of the Province is designated as Forest Crown land. According to the Government of Saskatchewan (GOS), only the lower third of this land contains harvestable timber. This harvestable area where commercial forestry activities occur is referred to as the Commercial Forest Zone (CFZ). The CFZ comprises approximately 12 million hectares. Of this amount, the GOS states that 55 percent contains productive or harvestable land. The GOS states that there are no private lands within the CFZ. In Saskatchewan, all private lands are generally located south of the CFZ. According to information submitted by the GOS, Crown lands accounted for approximately 89 percent of the softwood sawlogs harvested in Saskatchewan during the POI. Private and Federal lands accounted for 9 and 1 percent of the softwood sawlog harvest, respectively. The right to harvest timber on Crown lands, or stumpage, can only be acquired by a license pursuant to Saskatchewan's Forest Resources Management Act. These licenses come in three forms: Forest Management Areas (FMAs), Forest Product Permits (FPPs), and Term Supply Licenses (TSLs). The Saskatchewan Environment and Resource Management Department (SERM) is the government agency responsible for the administration of Provincial timber programs, which includes setting the price of stumpage in the Province. FMAs grant the licensee the right to harvest Crown timber for a term not exceeding 20 years. At every fifth year of the FMA, the term may be extended for an additional 5 years. According to the GOS, the FMAs set out the rights and responsibilities of the licensee which, in particular, focus on the long-term sustainable use of Crown land covered by the agreement. The GOS negotiates the terms of FMAs with each licencee. Thus, no standard terms or conditions apply to FMAs. All FMAs, however, must pay certain charges. FMA licensees are charged forest management fees. These fees vary across the Province in relation to the preponderance of timber types within the FMA and the costs associated with reforestation of the species that exist there. Four FMAs were in effect during the POI: the Mistik Management FMA, the L&M Wood Products FMA, the Weyerhaeuser FMA, and the Pasquia-Porcupine FMA, which is also a FMA of Weyerhaeuser. All four of these FMA licensees own their own mills. According to information submitted by the GOS, these four FMAs accounted for approximately 86 percent of the softwood sawlog harvest in the CFZ. The GOS states that its policy is to grant FMAs to large mills requiring large volumes of timber and that it requires FMA licensees to operate their facilities on a regular basis. Failure to do so could result in the termination of the FMA and the loss of the licensee's tenure. The GOS states that the requirement relates to the Province's responsibilities as a landowner as well as to good forest management practices. FPPs are the second type of stumpage license issued by the GOS. FPPs are annual licenses that confer the right to harvest specified forest products. Each FPP expires on either the date specified on the permit or at the end of the GOC's fiscal year, whichever comes first. FPPs cannot be renewed. Approximately 700 FPPs were issued during the POI. During the POI, FPPs accounted for 14 percent of the Province's softwood sawlog harvest. The terms and conditions of FPPs vary in accordance with the type of forest product harvested. The GOS states that it allows FPP licensees to operate in FMA areas. In those instances, the FPPs must pay forest management fees to the FMA licensee. The rates charged to the FPPs are equal to those charged to the FMAs by the GOS. The FMAs then forward these fees to the GOS. FPPs operating on lands not covered by a FMA are required to pay forest management fees directly to the Province. TSLs are similar to FMAs, but have a term of 10 years. As is the case with FMAs, TSLs must pay processing facility and forest management fees. In the Preliminary Determination the Department stated that one TSL was in effect during the POI (66 FR at 43209); however, respondents revised this statement to read that no TSLs were in effect during the POI. The SERM also charges licensees stumpage dues on harvested trees. There are two steps to the SERM's method of setting stumpage rates. These steps apply to all tenure arrangements. The first part is a base rate of dues which applies to each cubic meter harvested during the year. The second part is an incremental rate which applies to a percentage of product value above a threshold trigger price. Information from the GOS indicates that the incremental rates for softwood sawlogs are a partial function of lumber prices as reported in Random Lengths Lumber Report, an industry trade publication. With respect to the stumpage dues paid by FMAs, the GOS states that while each FMA uses the same basic structure, each FMA has individually negotiated its base and incremental stumpage rate with the Province. These negotiated dues vary among FMAs according to tree size and species. The GOS states that these negotiated rates reflect the relative value of the timber included in the FMA license and that the licenses are negotiated in an arm's-length transaction. Payments of stumpage dues vary according to license. FMA licensees submit their base dues on a monthly basis. Incremental dues are paid either monthly or quarterly in accordance with the terms of the particular FMA. FPP licensees have three payment options. FFP licensees may pay stumpage dues: (1) when the permit is issued, (2) in equalized payments for a maximum of three equalized payments throughout the year, or (3) monthly, based on the timber scaled during that period. Up-front payment and equalized payment options are calculated based on the total volume of timber included in the FPP. The amount of dues payable is determined through scaling the amount of timber harvested. The GOS states that scaling is conducted by licensed scalers. Benchmark Private Provincial Price Petitioners argue against using private timber data as a benchmark for Crown timber prices in the Province of Saskatchewan. Their argument specifically refers to the fact that 88.6% of the softwood sawlog harvest in Saskatchewan occurred on Crown lands. That said, petitioners claim that any private timber prices would be distorted by the dominance of Crown timber prices. Regardless of the actual value of the prices, they cannot be relied upon to represent competitively determined market prices. Respondents disagree with the use of any cross-border benchmark, yet do not provide support for any alternative domestic benchmark. (See "Benefits" section, above). Respondents did not explicitly argue for the use of Saskatchewan's private prices. Department's Position Despite the Department's requests for private pricing data from Saskatchewan, respondents failed to provide such data. See Department's May 1, 2001 Questionnaire, and July 25, 2001 Supplementary Questionnaire. In responding to these questionnaires, the GOS reported that it does not collect data on private timber prices, although it did report private timber volumes. The Department agrees with petitioners and, given the lack of data presented for use in a private, domestic timber price benchmark, will continue to use a cross-border benchmark. The Department does address the issues of the respondent in relation to the specific choice of cross- border benchmark in the "Benefits" section of this memorandum. Cross-Border Benchmark As explained above, we preliminarily determined that stumpage prices in the United States provide the most accurate benchmark. In the case of Saskatchewan, for the Preliminary Determination, we used data from the state of Montana, which borders Saskatchewan, to calculate our cross- border benchmark. Respondents argue that the Department should not use Montana as a cross- border benchmark, as Montana timber and timber pricing is not comparable to Saskatchewan stumpage. Respondents argue that differences in topography, climate, and biological characteristics contribute to different price, quality, species, marketability, transportation, and other conditions in the timber in Saskatchewan and Montana. Rather, they propose that the Department use data from the interior of Alaska, as Alaska shares the same boreal climate. Alaska, unlike Montana, also shares the white spruce species with Saskatchewan. Respondents state that Alaska's Department of Natural Resource (DNR) sales are much lower than Montana's SPF sales. Respondents use this to demonstrate that timber prices vary given different locations, species, and other factors. While respondents state that they do not support any cross-border comparisons, the Department's use of Montana in the Preliminary Determination was inappropriate, as Montana and Saskatchewan do not share any commercial species. Petitioners maintain that Montana represents the best cross-border comparison state for Saskatchewan. In addition, petitioners disagree with respondents' suggestion of using Alaska as a comparison because of the great distance between Saskatchewan and Alaska, and that it is unlikely that Alaska would represent "prevailing market conditions" in Saskatchewan. Petitioners also argue that respondents did not present any detailed information about the sales in Alaska. (See Petitioners' February 22, 2002 Case Briefs, page VI-28). Further, petitioners claim that Alaska timber sales frequently only have a single bidder. Id. Petitioners also state that if the Department wanted to choose a benchmark from a noncontiguous state, then Minnesota would be a reasonable choice. Department's Position We agree with respondents that Montana does not represent the best cross- border comparison for Saskatchewan. Not only does SPF account for 99.89 percent of Saskatchewan's forests and only approximately 32 percent of the benchmark volume in Montana, the SPF mixes in Saskatchewan and Montana are different. In addition, we find that topography, climate, and biological characteristics are more comparable between Minnesota and Saskatchewan, in part because Minnesota and Saskatchewan are on the same side (i.e., east) of the Continental Divide. In contrast, almost all of the timber sales in Montana come from west of the Continental divide. Therefore, for the purposes of the final calculations, we relied on data from Minnesota to calculate our U.S. benchmark price. We agree with petitioners that Alaska is not an appropriate comparison benchmark for Saskatchewan. The Alaska market is not comparable to the Saskatchewan market. Notably, respondents did not present any detailed information concerning sales in Alaska. We are aware, however, that many sales in Alaska only have a single bidder (see British Columbia section of this memorandum). As we noted in that section in response to this comment, the lack of competition potentially distorts prices and renders the Tongass prices inappropriate to include in our benchmark. With respect to the data that we are using for Minnesota, we obtained this data from the Minnesota 2000 Corrected Public Stumpage Price Review and Price Index, (Public Stumpage Price Review) published by the State of Minnesota, Department of Natural Resources, Division of Forestry. From the Public Stumpage Price Review we obtained the total weighted-average price for all species of timber in Minnesota for fiscal year 2000. (22) We created two species mixes: a SPF category, which included balsam fir, white spruce and jack pine; and a Tamarack category. We weight averaged the prices of each species in the specific mixes by their volume to derive a benchmark stumpage price per species. We converted these figures from MBF to cubic meters using the conversion factor of 4.81 (for discussion of the conversion factor used, see "Conversion Factor" section of this memorandum). We also converted the data from U.S. dollars to Canadian dollars, using an 18 month average exchange rate from the Bank of Canada, to derive the benchmark stumpage price in C$/m3 for each species. (23) Method and Application of Adjustments Tenure holders in Saskatchewan are required to fulfill and/or pay for certain timber-harvesting obligations, including silviculture and forest management activities. In the Preliminarily Determination we found that it was necessary to factor in cost adjustments to the administered prices in Saskatchewan to reflect the costs of certain mandatory activities that are not factored into the administered price. In the Preliminary Determination we found that FMA and FPP licensees must also pay as a condition of their license several in-kind costs related to forest management. These include, but are not limited to, long-term operation, planning, environment plans, periodic independent audits of forest management activities and scaling- related costs, including payments for scaling services, scaler training, and scaling plans. In addition, the GOS states that FPPs are also required to pay road user fees as determined by local governments within the Province. We did not make an adjustment because there was not enough information on the record that would allow us to quantify these in-kind costs. See 66 FR at 43210. Department's Position For the final calculations we continue to find that certain cost adjustments should be made to the administratively-set stumpage price. The GOS stated in its initial questionnaire response that it does not require tenure holders to report their management costs. Therefore, the GOS was unable to report the relative costs associated with tenure obligations. On November 15, 2001, Mistik Management Ltd., one of the FMA tenure holders in the investigation, placed its in-kind costs on the record. Mistik used the Department's Preliminary Determination as a guideline for those activities that it should report. The Department did not use any of Mistik's cost information in the final calculations, as its information was subsequently included with other FMA holder costs in the GOS's third supplemental questionnaire response. Forest Management Activities In the Preliminary Determination, the Department did not make any costs adjustments pertaining to Forest Management Activities. However, the Department has since gained a better understanding of the different regulations governing Saskatchewan's Timber Industry. FMA holders are required under section 11(a) of the Forest Resource Management Regulations (FRMR) to prepare forest management plans, such as an annual operating plan. The forest management plan must include such information pertaining to the forest diversity, the identification of areas where forest harvesting will not be conducted, the manipulation and preservation of the forest for other uses and values, forest protection from fire, insects and disease and other. Petitioners argue that all harvesters, including those in U.S., must devote resources to planning strategies and such costs should not be taken into account by the Department. Further, petitioners claim that such input into the GOS public forest planning process is a valuable asset and helps reduce overall costs. In addition, as many U.S. harvesters must evaluate stands which they do not obtain through the auction process, petitioners argue that these costs are higher in U.S. than Saskatchewan and if anything, should add to the benchmark price. Respondents disagree with petitioners' claim that these costs should not be included and contend that the Department should use the costs provided in the responses. Department's Position The Department finds that it is appropriate to include these costs in the final calculations, as they are mandated under the FRMR. The Department also disagrees with petitioners' contention that an upward adjustment should be made to the benchmark price. See section below for discussion of adjustments not included. Basic Silviculture In the Preliminary Determination, the Department made adjustments for basic silviculture activities. Under section 37 of the FRMR, tenure holders must "ensure that all lands that have been harvested or cleared as a result of the forest operations. . .are renewed." Further, the renewal activities must be carried out to the standards or objectives set out in the licence or operating plan. The Department also included in the preliminary calculations an adjustment for forest management fees, also referred to as forest renewal fees. See 66 FR 43209. Petitioners argue that in the Preliminary Determination, the Department adjusted for forest renewal fees paid into the FMA forest renewal trust fund and for FMA expenditures paid from this trust fund, thus double counting. Petitioners contend that the basic silviculture and forest management fees cover the same expenses; therefore, the Department should not adjust for both activities. Respondents agree with the Department's Preliminary Determination, in adjusting for basic silviculture and forest renewal activities. They recommend that the Department continue to include these adjustments in the final determination. Department's Position The Department continues to grant a silviculture adjustment for the final calculations; however, the Department removed forest inventory and other costs from the basic silviculture amount reported by the GOS, as it is now included in the Forest Management Planning, (see above). The Department agrees with petitioners that we double counted reforestation costs by including both basic silviculture and forest management fees. For the final calculations, the Department is not including the forest management fees. Road Costs In the Preliminary Determination, the Department did not make any adjustments for road construction or maintenance. The GOS does not undertake any road construction or maintenance on tenure land arrangements, while the tenure holders are responsible for any road costs they must follow guidelines set forth in the Environmental Assessment Act (Environmental Act). These roads must be accessible to the public under section 38 of the FRMR. After the Preliminary Determination, the GOS provided road costs in its third supplemental questionnaire response. Petitioners state that the building of roads is not required for Saskatchewan harvesters and therefore an adjustment is not necessary. In addition, petitioners state that these costs were not estimated by the GOS, eliminating the possibility for an adjustment. They also argue that U.S. harvesters must also build roads and that therefore the Department should not make an adjustment. Department's Position The Department determines that tenure holders must construct roads located inside an FMA area and these roads must be built and maintained within the specifications under the Environmental Act and FRMR; therefore, it is appropriate to include these costs in the administratively-set stumpage price. Calculation of the Subsidy Veneer Logs Respondents claim that the Department erred in the Preliminary Determination by including the volume of veneer logs in the calculation, as they were excluded from the scope the of investigation. Respondents point out the veneer logs constitute a separate category from softwood lumber sawlogs and carry a distinct cash dues rate. They note that all billed volume of veneer logs, in fact, went only to make veneer products and should be excluded from the investigation and should not be included in calculating the final determination subsidy rate. Petitioners agree that, if the Department is satisfied that all logs billed as veneer logs were not used to make lumber, the Department should exclude veneer logs from its subsidy calculation. Department's Position The Department agrees with both petitioners and respondents that veneer logs should not be included in the final calculation. Both parties are correct that veneer logs are outside of the scope for this investigation. Pulpwood As discussed in the "Ontario" section, the merits of the inclusion of data pertaining to pulpwood sales were debated by the parties in memoranda and briefs submitted throughout the investigation. In general, respondents argued that the softwood timber harvested in Saskatchewan and destined to sawmills for the production of subject merchandise is, on average, much smaller in diameter than the softwood timber sold as sawtimber in Montana. As the Department used Montana as the preliminary cross-border benchmark, respondents focused their arguments on Montana. However, respondents from Ontario did make arguments with respect to pulpwood from Minnesota. Thus, we will address this issue with respect to the arguments advanced with respect to the inclusion of Minnesota pulpwood. Respondents contend that the softwood pulp prices contained in the reports for Minnesota are more reflective of the size of timber used in Saskatchewan's sawmills. Petitioners state that the sawtimber data should be used because the proper comparison is between prices for Saskatchewan's public timber used to make lumber and prices for Minnesota timber used to make lumber. Petitioners assert that the Department cannot use prices for one good (timber generally used to make pulp) to establish the value of a different good (timber used to make lumber). Department's Position We are not including pulpwood prices in the benchmark data because of the lack of sufficient information on the record indicating that logs normally classified as pulpwood are also used to produce softwood lumber in Minnesota. Stumpage Calculation To determine Saskatchewan's administratively-set stumpage price, we first summed the unit price costs associated with forest management planning, basic silviculture, and roads. (For discussion of what adjustments we are including in the final calculations see "Adjustment" section above). We next calculated a unit timber dues paid per species, to which we added the unit adjustment costs, resulting in the total unit stumpage price. We then weight-averaged the prices of each species mix to derive a single administratively-set stumpage price for SPF and Douglas/ Larch/ Tamarack. As explained above, we have decided to use stumpage prices in the United States for our benchmark. In the case of Saskatchewan, we are using data from the state of Minnesota to calculate our benchmark. We obtained this data from the Public Stumpage Price Review, published by the Minnesota Department of Natural Resources, Division of Forestry. Specifically, we used the weighted-average prices for each species in Minnesota, from April, 2000 through March, 2001. We converted these figures from thousand board feet to cubic meters using the conversion factor of 4.81. We also converted the prices from U.S. dollars to Canadian dollars, using monthly average exchange rates from the Bank of Canada in effect during the POI, in order to derive our basic stumpage rate in C$/m3 for each species. To calculate the benefit under Saskatchewan's stumpage system, we first took our calculated per unit price differential and factored in necessary adjustments, which are detailed above. We next multiplied the per unit price differential by the harvested volume to arrive at the total benefit. Next, as explained in the "Subsidy Rate Calculation" section of this memorandum, we weight averaged the benefit from this Provincial subsidy program by the Province's relative share of total U.S. exports. The total countervailable subsidy for the Provincial stumpage programs can be found in the "Country-Wide Rate for Stumpage" section of the memorandum. Country-Wide Rate for Stumpage. The countervailable subsidy rate for the Provincial stumpage programs is 19.25 percent ad valorem. Conversion Factor In the Preliminary Determination, we used a factor of 5.66 to convert U.S. stumpage prices, which are expressed on a per-thousand board feet ("MBF") basis, to a per cubic meter basis for purposes of comparing to Canadian stumpage prices. See, e.g., Preliminary Determination, 66 FR at 43200. This factor was selected because it had been used in a previous U.S. government study to compare stumpage prices in the United States and Canada. (24) This figure is based on a 1973 Price-Waterhouse study. (25) Since the Preliminary Determination we have received significant commentary on the appropriate conversion factor. The numerous studies, factual submissions, and commentary submitted by the parties demonstrate that there are a range of factors to consider in determining the appropriate conversion factor. In addition, there is a wide range of views concerning what an appropriate factor would be. It is clear from these submissions that there is no one conversion factor that is universally accepted. Petitioners have suggested that we use one standard conversion factor for all of our benchmark regions. Petitioners suggest a conversion factor of 4.53. They suggest that this is the internationally accepted standard conversion factor and cite numerous sources that reference this figure, e.g., Food & Agriculture Organization and StatsCan. We agree with petitioners that this may be the most commonly cited figure. However, this figure is not actually used to perform calculations by most of the cited sources. Rather, it is provided as a point of reference. The reason for this is that, in the normal course of business for most companies and institutions, there is little need to perform this calculation in either Canada or the United States. Respondents have suggested a variety of different conversion factors ranging from 6.25 to 8.62. In general, these suggested conversion factors are based on private studies conducted on behalf of respondents specifically for purposes of this investigation. As we have stated elsewhere in this memorandum, because of the conflicting private sources of data submitted, the only way we can ensure an objective result is by relying exclusively on published information prepared in the ordinary course of business by public agencies. (26) Moreover, some of these scaling studies submitted by respondents are based solely on the trees in Canada, not the U.S. trees that underlie the reported stumpage prices. The point of the exercise is to convert thousand board feet as used in the United States to cubic meters, which is the measure used in Canada, not the other way around. In addition, respondents have argued that any conversion factor used must account for a variety of factors, including different scaling rules, different tree characteristics, different utilization standards, and related factors. We agree with respondents that an ideal conversion factor should take all of these factors into account. However, we disagree that any of the conversion factors they submitted adequately account for these differences. The selection of an appropriate conversion factor is an extremely complicated technical matter. The record is replete with expert testimony from a range of sources as well as detailed studies. The record shows conversion factors ranging from 3.48 to 8.51. The record also suggests that we need to account for numerous criteria, including diameter, taper, species, scaling rules, utilization practices, and rot deductions. In attempting to sort through these factors, we are mindful of the fact that most of the conversion factors discussed are designed to express the relationship between different volume measurements. They are not designed to measure price differences. Because U.S. stumpage prices are recorded in thousand board feet and Canadian stumpage prices are recorded in cubic meters, we must use a conversion factor to compare these prices. Thus, we must be cautious in evaluating which conversion factor is the most appropriate. In this regard, the record contains only two official publications in which U.S. and Canadian stumpage prices were actually compared. The first is the ITC study we relied on in the Preliminary Determination. The second is the recent United States Forest Service study "Profile 2001: Softwood Sawmills in the United States and Canada" ('Sawmill Study") in which three different factors were used: 1) 5.3 for Scribner Long Log, 2) 4.7 for Scribner Short Log, and 3) 4.5 for International 1/4 inch. Of these two sources, the Sawmill Study is more current; however, there is no explanation given for how these conversion factors were derived. In contrast, the ITC study contains a reasonably detailed explanation of how the numbers were derived. Given this, we find that the ITC study is more reliable and have chosen to use the factors set forth in that study. Petitioners pointed out that we made an error in interpreting this report by applying the 5.66 factor to all regions when it was only intended to be applied to the coastal region. Petitioners are correct. Footnote 4 of Appendix J makes clear that the 5.66 applies to Scribner Long Log, and 4.81 applies to Scribner Short Log. Because Scribner Long Log is used only in Western Washington, we have used it only for that region. Scribner Short Log is used in the majority of the states we used as benchmarks. Thus, we have used the 4.81 factor for all other states. Even though Maine and a portion of Michigan use a different scaling rule, the International 1/4 Inch Rule, we have applied the 4.81 factor there as well. This is because the ITC study does not contain a conversion factor for this rule, and it is more important to be consistent across the states. II. Other Programs Determined To Confer Subsidies Programs Administered by the Government of Canada 1. Non-Payable Grants and Conditionally Repayable Contributions from the Department of Western Economic Diversification The Western Diversification Program (WDP) was introduced in 1987, and is administered by the Department of Western Economic Diversification, a department of the GOC. The WDP supports projects that promote or enhance economic development or diversification in Western Canada, including the initiation, promotion or expansion of enterprises, the establishment of new businesses, research and development activities, and the development of business infrastructure. As part of its mandate to assist in the development of Western Canada, the WDP provides non-repayable contributions (grants) to companies located in Western Canada. According to the GOC, seven companies in the softwood lumber industry have received grants in the last ten years, the period corresponding to the AUL of the softwood lumber industry. We determine that this program is specific under section 771(5A)(D)(iv) of the Act because assistance under this program is limited to designated regions in Canada. In addition, the provision of grants by the GOC constitutes a financial contribution provided within the meaning of section 771(5)(D)(i) of the Act. Both recurring and non-recurring grants were provided under this program. As noted in the "Recurring and Non-recurring Benefits" section of this Decision Memorandum, all grants provided under this program were expensed in the year of receipt. Therefore, to calculate the benefit provided under this program during the POI, we summed the amount of grants provided to all producers/exporters of softwood lumber during the POI and divided that amount by the f.o.b. value of total sales of softwood lumber for the POI. Using this methodology, we determine the countervailable subsidy from this program to be less than 0.005 percent ad valorem. 2. Federal Economic Development Initiative in Northern Ontario (FedNor) FedNor is an agency of Industry Canada, a department of the GOC, which encourages investment, innovation, and trade in Northern Ontario. Specifically, FedNor's mandate is to promote economic growth, diversification, job creation and sustainable, self-reliant communities in Northern Ontario. FedNor has historically provided assistance to not-for- profit entities and to small businesses. In March 1996, FedNor was re- structured so that nearly all direct funding to commercial businesses was eliminated. According to the GOC, most of FedNor's assistance is provided to Community Futures Development Corporations (CFDCs). CFDCs are not-for- profit community organizations. CFDCs undertake strategic community planning activities, provide small business counseling and advisory services, and offer commercial loans to small and medium-sized businesses. Besides contributing to the operating costs of the CFDCs, FedNor also provides investment funds to the CFDCs in Northern Ontario. The CFDCs use these funds to provide loans to small and medium-sized businesses in the region. According to the response of the GOC, once FedNor provides funds to the CFDCs, FedNor has no involvement in any lending decisions made by the CFDCs. FedNor usually will only require that the interest rate charged by the CFDCs on their loans be at least the prime rate plus two percent. The GOC stated in its response that during the ten year period corresponding to the AUL, FedNor provided direct assistance, in the form of grants, to entities in the softwood lumber industry on six occasions. In addition, the CFDCs had 40 loans outstanding during the POI to companies that are producers of softwood lumber. Because this program is limited to certain regions in Ontario, we determine that assistance provided under the FedNor program is specific within the meaning of section 771(5A)(D)(iv) of the Act. With respect to the loans provided under this program by the CFDCs, we determine that no benefit is provided within the meaning of section 771(5)(E)(ii) of the Act, because the reported interest rates charged on each of these loans is equal to or higher than the interest rate charged on comparable commercial loans, as described in the "Benchmark for Loans and Discount Rate" section, above. However, with respect to the grants provided by FedNor, we determine that a financial contribution within the meaning of section 771(5)(D)(i) of the Act has been provided to the softwood lumber industry. As noted in the "Recurring and Non-recurring Benefits" section of this Decision Memorandum, all grants provided under this program were expensed in the year of receipt. Therefore, to calculate the benefit provided under this program, we summed the amount of grants provided to all producers/exporters of softwood lumber during the POI and divided that amount by the f.o.b. value of total sales of softwood lumber for the POI. Using this methodology, we determine the countervailable subsidy from this program to be less than 0.005 percent ad valorem. Programs Administered by the Province of British Columbia 1. Forest Renewal B.C. In June 1994, the GBC enacted the Forest Renewal Act to renew the forest economy of British Columbia by, among other things, improving forest management of Crown lands, supporting training for displaced forestry workers, and promoting enhanced community and First Nations involvement in the forestry sector. To achieve these goals, the Forest Renewal Act created Forest Renewal B.C., a Crown corporation. The corporation's strategic objectives are implemented through three business units: the Forests and Environment Business Unit, the Value-Added Business Unit, and the Communities and Workforce Business Unit. While much of the activities of Forest Renewal B.C. are unrelated to the provision of assistance to softwood lumber producers, petitioners allege that this agency provided both grants and loans to producers of softwood lumber. Forest Renewal B.C. has provided grants directly to softwood lumber producers. These grants have been provided to softwood lumber producers in two ways: (1) as part of ad hoc arrangements between Forest Renewal B.C. and softwood lumber companies, and (2) as part of established grant programs to support activities such as business development, industry infrastructure, training, and marketing. Because direct grant assistance is provided only to support the forest products industry, we determine that these grants are specific under section 771(5A)(D) of the Act. The provision of these grants constitute a financial contribution within the meaning of section 771(5)(D)(i) of the Act. Forest Renewal B.C. generally does not make direct loans to individual softwood lumber companies. Instead, it provides funds to community groups and independent financial institutions, which may provide loans to companies involved in softwood lumber production. Forest Renewal B.C. has made direct loans and provided loan guarantees directly to softwood lumber producers on four occasions. In each of these instances, the loan assistance was provided in conjunction with the Job Protection Commission. (See "Job Protection Commission" section, below.) However, the funds for these direct loans and loan guarantees were provided by Forest Renewal B.C. and have been reported under this program. With respect to the loans provided by Forest Renewal B.C. (either directly or through intermediaries), we determine that no benefit is provided within the meaning of section 771(5)(E)(ii) because the reported interest rates charged on each of these loans is equal to or higher than the interest rate charged on comparable commercial loans, described in the "Benchmark for Loans and Discount Rate" section, above. With respect to the loan guarantees, we determine that no benefit is provided within the meaning of section 771(5)(E)(iii) because the reported interest rates charged on each of the guaranteed loans, after adjusting for any difference in guarantee fees, is equal to or higher than the interest rate charged on comparable commercial loans As noted in the "Recurring and Non-recurring Benefits" section of this notice, all grants provided under this program are expensed in the year of receipt. Certain marketing grants were provided for programs supporting exports to Asian markets. In accordance with section 351.525(b)(4) of the CVD Regulations, we did not include marketing grants tied to Asian markets in our benefit calculations because they were tied to particular markets and thus, only benefitted sales to those markets. To calculate the benefit provided under this program, we summed the amount of grants provided to all producers/exporters of softwood lumber during the POI (other than those tied to Asian markets) and divided that amount by the f.o.b. value of total sales of softwood lumber for the POI for the Province of British Columbia. Next, as explained in the "Subsidy Rate Calculation" section of this notice, we weight-averaged the benefit from this Provincial subsidy program by the Province's relative share of total exports to the United States. Using this methodology, we determine the countervailable subsidy from this program to be 0.09 percent ad valorem. 2. Job Protection Commission The British Columbia Job Protection Commission (the Commission) was created in 1991, pursuant to The Job Protection Act, to minimize job loss, particularly in one-industry communities, and to reduce the negative effect on regional and local communities when companies encounter financial difficulties. The Commission acts as a facilitator between debt holders, other B.C. government agencies, and private financial institutions, and the troubled companies and their employees. The Commission assists in designing a work-out plan that will allow the companies to continue as going concerns and improve their financial conditions. The Commission may make recommendations to the various parties and debt-holders, but each debt-holder makes its own decision as to its role in any company work-out or restructuring. The first step undertaken under the program is a financial analysis of the troubled company. The purpose of this financial analysis is to determine whether the company is viable. If it is determined that the troubled company is not viable, then the company would not be eligible to participate in the program. During this stage, consultants would be hired to conduct an independent financial analysis of the company. The fees for the consultant would generally be paid by the Commission with cost-sharing by the stakeholders of the company. If the financial analysis of the company reveals that the financial difficulties of the company undermine the long-term viability of the company, then the Commission will decide that the company does not warrant assistance. The company then will be informed that no further action will be undertaken by the Commission. Assistance under this program is only warranted if the company's long-term economic viability is positive. As noted above, no direct assistance is provided under this program by the Commission. However, if after the financial analysis of the company, it is determined that the company does possess long-term economic viability, then the Commission will attempt to negotiate with the company's stakeholders and creditors, including other government agencies, in an attempt to resolve the company's short-term financial difficulties. This could take the form of asking commercial banks to extend additional credit to the company or to restructure the company's loan payments; asking for wage or work concessions from the employees' union; asking suppliers to extend payment terms or to continue providing needed supplies to the company; and asking government agencies to extend or waive "imposts" due them from the company, such as taxes or fees. However, the last form of assistance, that provided by other government agencies, could only be provided to "strategic" industries. If the stakeholders of the company agree to provide assistance, then a Mediation Plan or, an Economic Plan is developed for the company. Each of these restructuring plans lists the commitments from the stakeholders. The difference between a Mediation Plan and an Economic Plan is that the Economic Plan is only available to strategic industries, because the Economic Plan lists the commitments made to the company from a government agency involving modifications to the monies due to the agency from that company. These monies or "imposts" could take the form of taxes, fees such as stumpage payments, or payments due to the Provincial utility company. Under these Economic Plans, the government could defer or waive the payments of these taxes, charges and fees. Individual Economic Plans can last no longer than five years. Companies involved in the production of softwood lumber participated in Economic Plans under this program. During verification, we examined the number and type of companies which received general assistance from the Commission. We noted that the Commission provided consulting services and assistance to hundreds of companies from a wide and diverse range of industries. Therefore, we determine that the consulting services provided by the Commission are not countervailable because this type of assistance is not specific, as required under section 771(5A) of the Act. The types of assistance provided through the Economic Plans are only provided to companies located within "strategic" industries. These strategic industries primarily are comprised of the logging and forest products industry, mining, and fishing. In addition, of the 112 Economic Plans entered into under this program, 96 of the Plans, comprising 86 percent of the total were provided for companies in the forest and wood products industry. Because the benefits provided by the Economic Plans are not provided to a wide and diverse range of industries, we determine that assistance under the Economic Plans is specific under section 771(5A)(D) of the Act. In addition, because the government, government agencies, or government-owned corporations may forgive or defer taxes or other fees due them under the Economic Plans, a financial contribution under this program is provided with respect to section 771(5)(D) of the Act. Although some benefits are provided under the Economic Plans, we are unable to quantify these benefits for this final determination. This is because to quantify the benefit provided to softwood lumber producers under this program, individual company responses are required from all the softwood lumber producers which had Economic Plans in effect during the POI. For the same reasons that it was not practicable to examine a large number of exclusion requests during this aggregate investigation, it was also not practicable to solicit and verify individual company responses in the context of the examination of this program. We will further consider this issue in the context of any administrative review if this investigation results in the issuance of a CVD order. Program Administered by the Province of Quebec 1. Private Forest Development Program The Private Forest Development Program (PFDP) promotes the development of private forest resources in Quebec. Specifically, the PFDP provides silviculture support to private woodlot owners through payments, either made directly to forest engineers or via reimbursement to the woodlot owner, for silviculture treatments executed on private land. This program is funded by both the Provincial government through the Ministere des Ressources Naturelles (MRN) and by sawmill operators. The majority of the program funds come from the MRN. However, under the authority of the MRN, wood processing plant operators are charged a fee of C$1.45 for each cubic meter of timber acquired from private land. This fee is used to fund the PFDP. We verified that 15 sawmills received grants under this program during the POI. Because assistance under this program is limited to private woodlot owners, we determine that assistance provided under this program is specific under section 771(5A)(D) of the Act. In addition, payments by PFDP constitute a financial contribution under section 771(5)(D)(i) of the Act. The amount of the benefit conferred under this program to softwood lumber producers is equal to the grant of funds provided to the producers under the PFDP during the POI. Respondents argue that no benefit is provided to sawmill operators under this program because they are required to make contributions to PFDP for lumber harvested on private land. Respondents state that the sawmill operators' contributions were greater than the amount of silviculture reimbursements the mills received under this program during the POI. However, every holder of a wood processing plant operating permit must pay the fee of C$1.45 for every cubic meter of timber acquired from a private forest, regardless of whether or not that mill owns private forest land. The sawmill operators that received assistance under the PFDP received assistance not because they used timber from private forest lands but because they owned private forest land. Therefore, we determine that the fees paid to harvest timber from private land do not qualify as an appropriate offset to the grants received under the PFDP pursuant to section 771(6) of the Act. Section 771(6) of the Act specifically enumerates the only adjustments that can be made to the benefit conferred by a countervailable subsidy and these fees do not qualify as an offset. To calculate the benefit provided under this program, we summed the amount of grants provided to all producers/exporters of softwood lumber during the POI and divided that amount by the f.o.b. value of total sales of softwood lumber for the POI for the Province of Quebec. Next, as explained in the "Subsidy Rate Calculation" section of this notice, we weight-averaged the benefit from this Provincial subsidy program by the Province's relative share of total exports to the United States. Using this methodology, we determine the countervailable subsidy from this program to be less than 0.005 percent ad valorem. III. Programs Determined to be Not Countervailable 1. Funds for Job Creation by the Province of Quebec Quebec's Ministere des Ressources Naturelles administers this program but entrusts the program's operation to Rexforet Inc., a subsidiary of SGF Rexfor, and to Quebec's Conference of Forest Cooperatives (known by the French abbreviation, CCFQ). CCFQ is an umbrella organization of 41 forest cooperatives. These cooperatives are private, non-profit, community-based entities organized to pool the resources of land owners and forest operators and to provide support for forestry operations. This program was created in 1994 to train and develop manpower and respond to the anticipated shortage of qualified forest management workers by training unemployed individuals and fostering their integration into regular work teams. Training under this program is limited to unemployed individuals. Based on our analysis, training assistance under this program is provided only to unemployed individuals, and not to individuals already employed by the forest products industry. In accordance with section 351.513(a) of the CVD Regulations, worker-related subsidies, such as government-assisted training programs, only provide a benefit to a company to the extent that the assistance relieves a firm of an obligation that it normally would incur. Because the training assistance provided under this program is provided to only unemployed individuals, we determine that this program does not provide a countervailable benefit because this assistance does not relieve companies producing the subject merchandise of an expense they normally would incur. 2. Sales Tax Exemption for Seedlings by the Province of Ontario The Retail Sales Tax Act (RSTA) provides the legal authority for the Province of Ontario to collect taxes on sales and certain services in Ontario. The Retail Sales Tax Branch of the Ontario Ministry of Finance is responsible for the administration of the RSTA. Article 2 of RSTA establishes that sales of tangible personal property and certain services are subject to an eight percent tax to be borne by the purchaser. However, exemptions to the sales tax are provided under Article 7 of the RSTA, which provides exemptions for numerous categories of goods and services. Paragraph 64 of Article 7 provides that the sales of cones, cuttings, seeds and seedlings for planting in a Crown forest by a forest resource license holder are included in this list of exemptions. This exemption became effective on May 3, 2000. Prior to May 3, 2000, the forest license holders were required to pay sales tax on seedling purchases in connection with their reforestation obligations. However, under the Crown Forest Sustainability Act, Ontario reimburses license holders for reforestation expenses. Therefore, prior to the tax exemption, the license holders would pay the sales tax on seedlings and then be reimbursed for the sales tax as part of their reimbursement of reforestation expenses. The reimbursement of reforestation expenses to forest license holders under the Crown Forest Sustainability Act is accounted for in our calculation of the benefit conferred by Ontario's stumpage program. The tax exemption for seedlings is part of the Province of Ontario's general provision for sales tax and sales tax exemptions under the RSTA. Therefore, to determine whether the sales tax exemption on seedlings is specific, the Department is required, under section 771(5A)(D) of the Act, to examine this exemption in connection with the sales tax exemptions provided under the RSTA. An examination of the items exempted from the sales tax under the RSTA shows that eligible exemptions are numerous and cover hundreds of items across a wide range and a multitude of industries. Further, an examination of the RSTA shows that the actual recipients of the sales tax exemptions are not limited in number, and not limited by enterprise or industry. In addition, the recipients of the sales tax exemption on seedlings have not received a predominant or disproportionate share of tax exemptions under the RSTA. Therefore, we determine that this sales tax exemption program is not specific under section 771(5A)(D) of the Act. Thus, we determine that this program is not countervailable. 3. Forest Resources Improvement Program Petitioners alleged that the Province of Alberta provides funds to the Forest Resources Improvement Association (FRIAA) in order to support the Forest Resources Improvement Program (FRIP), a research program. Petitioners claim that, to the extent that producers of the subject merchandise are provided with funds under this program and these funds relieve the producers of obligations which they would otherwise incur, this program provides a financial contribution and benefit to producers of the subject merchandise. FRIAA is a non-profit association that was established by the Province of Alberta for the main purpose of ensuring that public money is channeled back into projects that will improve the forest, rather than going into general revenue. FRIAA's purpose is to carry out initiatives that are geared toward public forest resources and the improvement of the trees, wildlife habitats, recreational areas, etc. Such projects include: watershed analysis, education projects in schools, recreation, ecological inventory, and wildlife habitat analysis. FRIAA was founded in 1997. FRIP is the vehicle through which FRIAA achieves its objectives. The purpose of FRIP is to deliver projects and provide information that improves forest resources. It is geared toward benefitting the public forests for the common good of all Albertans. FRIP's projects are proposed by anyone with an interest in forests in Alberta. There are specific criteria in place to make sure that the projects are improving at least one forest resource; these criteria dictate that the projects must not duplicate a responsibility already mandated to the tenure holders. We verified that FRIP funds cannot be used for activities that are the responsibility of tenure holders under legislation, regulation or tenure agreement. Funds also can not be used for facility construction, improvement of operations, product research and development or for the purchase of capital assets. Therefore, we determine that this program does not provide a benefit to producers of the subject merchandise under section 771(5)(E) of the Act. Thus, we determine that this program is not countervailable. IV. Programs Determined Not To Confer A Benefit 1. Export Assistance Under the Societe de Developpement Industrial du Quebec (SDI)/Investissement Quebec The SDI export assistance program was established in 1994 and expired in 1998, when it was replaced by export assistance under Investissement Quebec (IQ). The objective of SDI, as established in its founding legislation, was to promote the "economic development of Quebec, particularly by encouraging the development of businesses, the growth of exports, [and] research and development of new techniques." During its existence, SDI worked mainly with businesses whose growth was dependent on technological innovation and exports. IQ was also established, in part, to facilitate export activities. IQ works with private financial institutions by assuming risks to support projects that might otherwise be cancelled or postponed. IQ assistance is geared mainly to companies whose operations create a significant impact in terms of innovation and exports. Export assistance is provided by IQ's small- and medium-sized businesses (SMB) program which is fundamentally similar to the SDI export assistance program. During the POI, there were three outstanding long-term loan guarantees provided to softwood lumber producers in Quebec. In the Preliminary Determination, there was information on the record that indicated that this program provided export guarantees for projects considered too risky for private financial institutions. In order to determine whether a benefit was provided under this program, the Department constructed a benchmark in the Preliminary Determination to account for the level of risk in the provision of loan guarantees under this program. We examined this issue during verification and found that producers of subject merchandise using this program were able to obtain commercial loans from private financial institutions. Based upon this verified information, we are applying our standard benchmark methodology in this final determination. Therefore, to determine whether the loan guarantees provided a benefit, in accordance with section 771(5)(E)(iii) of the Act, we compared the interest rate on the guaranteed loans, including adjusting for any differences in guarantee fees, to the amount the recipients would pay for a comparable commercial loan. Using this methodology, we determine that no benefit was provided by these loan guarantees because the interest rates paid under this program were equal to or higher than the interest rates charged on comparable commercial loans. Because we determine that no benefit is provided under this program during the POI, there is no need to address the issue of specificity. 2. Assistance under Article 7 of the SDI Assistance under Article 7 was administered by the SDI, a government corporation. In 1998, Article 7 of the SDI was replaced by Article 28, that is administered by Investissement Quebec. Under Article 7, SDI provided financial assistance in the form of loans, loan guarantees, grants, assumption of interest expenses, and equity investments to projects that would significantly promote the development of Quebec's economy. According to the GOQ's response, prior to authorizing assistance, SDI would review a project to ensure that it had strong profit potential and that the recipient business possessed the necessary financial structure, adequate technical and management personnel, and the means of production and marketing required to complete the proposed project. The Article 28 program operates in fundamentally the same manner as Article 7. During the POI, softwood lumber companies had outstanding loans under Article 7. No other assistance was provided to softwood lumber companies under Article 7. There were no outstanding loans or other assistance provided to softwood lumber companies under Article 28. To determine whether the Article 7 loans provided a benefit to the softwood lumber industry, in accordance with section 771(5)(E)(ii) of the Act, we compared the interest rates charged on the Article 7 loans to the benchmark interest rate charged on comparable commercial loans as described in the "Benchmarks for Loans and Discount Rates" section of this notice. Using this methodology, we determine that no benefit was provided by these loans because the interest rates charged under this program were equal to or higher than the interest rates charged on comparable commercial loans. Because we determine that no benefit is provided under this program during the POI, there is no need to address the issue of specificity. 3. Assistance from the Societe de Recuperation d'Exploitation et de Developpement Forestiers du Quebec (Rexfor) Petitioners alleged that SGF Rexfor, Inc. (Rexfor) acts as a conduit for passing funds to the lumber industry. They alleged that Rexfor is currently receiving and issuing below-market loans to lumber producers. Rexfor is a corporation all of whose shares are owned by the Societe Generale de Financement du Quebec (SGF). SGF is an industrial and financial holding company that finances economic development projects in cooperation with industrial partners. The former Societe de Recuperation d'Exploitation et de Developpement Forestiers du Quebec was created in 1969, and Rexfor was created in 1998, when the former company was merged with three other Crown corporations into SGF. Rexfor is SGF's vehicle for investment in the forest products industry. Rexfor receives and analyzes investment opportunities and determines whether to become an investor either through equity or participative subordinated debentures. Debentures are used as an investment vehicle when Rexfor determines that a project is worthwhile, but is not large enough to necessitate more complex equity arrangements. Rexfor has no outstanding loans or advances provided by the GOQ. However, during the POI, Rexfor had two long-term loans (debentures) outstanding to softwood lumber producers. We are not investigating equity investments made in softwood lumber producers by Rexfor because (i) there was no such allegation, and (ii) there is no information on the record to suggest that Rexfor's investment decisions were inconsistent with the usual investment practice of private investors as required under section 771(5)(E)(i) of the Act. Because assistance from Rexfor is limited to companies in the forest products industry, we determine that this program is specific under section 771(5A)(D) of the Act. With respect to the long-term loans provided by Rexfor, these loans qualify as financial contributions under section 771(5)(D)(i) of the Act. To determine whether these loans provided a benefit to the softwood lumber industry in accordance with section 771(5)(E)(ii) of the Act, we compared the interest rates charged on the Rexfor loans to the benchmark interest rates charged on commercial loans as described in the "Benchmarks for Loans and Discount Rates" section of this notice. Using this methodology, we determine that no benefit was provided by these loans because the interest rates charged under this program were equal to or higher than the interest rates charged on comparable commercial loans. One of the loans provided by Rexfor was provided to a company which subsequently entered bankruptcy negotiations with Rexfor and other creditors. However, the settlement with the creditors was subsequent to the POI. Thus, there is no need to examine whether a benefit was provided to that softwood lumber producer by Rexfor as a result of the creditor settlement. V. Other Programs 1. Tembec Redemption of Preferred Stock Held by SDI Petitioners alleged that in 1994, Tembec Inc. (Tembec) redeemed preferred stock with a face value of C$80 million held by SDI in exchange for only C$20 million of Tembec's Class A voting shares. Petitioners alleged that through this transaction, the Province of Quebec, acting through SDI, a government-owned corporation, provided Tembec with a financial contribution of C$60 million, which represents the difference between the value of the redeemed preferred stock and the Class A voting shares of Tembec. Petitioners alleged that a benefit is provided to the subject merchandise because Tembec is a softwood lumber producer. According to the government response, Temboard and Company Limited Partnership (Temboard Partnership) was formed in April 1988, for the purpose of constructing and operating a paperboard mill. Tembec was one of the two limited partners of Temboard Partnership. Tembec produces a number of forest products including softwood lumber. In November 1988, a credit agreement was signed between Temboard Partnership and SDI. The SDI loans provided under this credit agreement were for the construction and start- up of the new paperboard mill of Temboard Partnership. Interest on the SDI loans was capitalized until the outstanding debt of the SDI loans to Temboard Partnership reached C$80 million. As a result of adverse conditions affecting the operations of Temboard Partnership, one of the partners withdrew from the partnership and wrote off its investment in May 1991. Tembec decided to continue providing support to the paperboard mill company and, therefore, became the sole owner of Temboard Partnership. In September 1991, Temboard was incorporated and assumed all of the assets and liabilities of the Temboard Partnership. Temboard Inc. then incorporated a wholly-owned entity, Temfin Inc. (Temfin) for the sole purpose of refinancing Temboard's debt, primarily through the issuance of "Distressed Preferred Shares" to its commercial bank creditors and to SDI. In subsequent years, the financial condition of Temboard Inc. continued to deteriorate, which required another restructuring of the troubled paperboard mill company. In 1994, because of the financial condition of Temboard Inc., SDI exchanged its Distressed Preferred Shares, which held a nominal value of C$80 million, for two million publicly listed Tembec Class A common shares. This exchange required Tembec Inc. to issue capital of C$20 million. As noted above, we are conducting this investigation on an aggregate basis. Therefore, we must examine and determine whether there is any benefit conferred on production and exportation of subject merchandise from Canada from this company-specific subsidy allegation. This company- specific allegation involves a set of complex financial transactions between Tembec, its subsidiaries and SDI. Although this program may provide a benefit to Tembec, we must analyze this allegation in the context of the larger aggregate nature of this investigation. Consistent with section 777A(e)(2)(B) of the Act, we are conducting this investigation on an aggregate basis because of the extraordinarily large number of Canadian producers. This program is not available to softwood lumber producers, it is only available to one specific company. Because we are not calculating company-specific subsidy rates and this allegation is only applicable to one specific company, we determine that it is not appropriate to analyze this program in the context of an aggregate final determination. Subsidies to Skeena Cellulose Inc. (Skeena) Petitioners alleged that the Province of British Columbia provided Skeena with millions of dollars in aid in an attempt to save the company from bankruptcy. The agency responsible for administering the Province's assistance to Skeena was the British Columbia Ministry of Employment and Investment (MEI). Skeena is primarily a pulp company but it does operate sawmills which produce subject merchandise. The assistance provided to Skeena by the MEI was in the form of grants for road building, equity investment, payments made in connection with wage concessions by the company's pulp mill workers, and general stumpage reductions affecting low- grade hemlock used in pulp production. In addition, MEI provided certain loans, and guaranteed certain loans from Skeena's creditors. As noted above, we are conducting this investigation on an aggregate basis. Therefore, we must examine and determine whether there is any benefit conferred on production and exportation of subject merchandise from Canada from this company-specific subsidy allegation. This company- specific allegation involves a set of complex financial transactions between Skeena, its creditors and shareholders, and the government of British Columbia. Although this program may provide a benefit to Skenna, we must analyze this allegation in the context of the larger aggregate nature of this investigation. Consistent with section 777A(e)(2)(B) of the Act, we are conducting this investigation on an aggregate basis because of the extraordinarily large number of Canadian producers. This program is not available to softwood lumber produces, it is only available to one specific company. Because we are not calculating company-specific subsidy rates and this allegation is only applicable to one specific company, we determine that it is not appropriate to analyzes this program in the context of an aggregate final determination. VI. Programs Determined Not To Be Used 1. Canadian Forest Service Industry, Trade and Economics Program 2. Loan Guarantees to Attract New Mills from the Province of Alberta Program Which Has Been Terminated 1. Export Support Loan Program from the Province of Ontario In 1995, the Ontario Ministry of Finance terminated all lending and loan guarantee programs administered by the Ontario Development Corporations, including the Export Support Loan Program. Programs Which We Did Not Investigate On August 31 and December 20, 2001, petitioners submitted new subsidy allegations. The Department declined to investigate the following allegations: Subsidies Provided by Canada's Export Development Corporation (EDC) Petitioners alleged that Canada's EDC provides lumber producers countervailable subsidies. Petitioners provided several news articles which discuss EDC activities. Petitioners argued the articles contain information sufficient to warrant investigating the EDC's financing practices. Petitioners also argued that the articles provided sufficient information to warrant investigating whether the EDC is providing countervailable assistance to lumber producers with respect to the payment of countervailing duty cash deposits. Petitioners argued that the EDC provides financing (i.e., financial contributions) that is inconsistent with the commercial practices of private parties and that this financing provided a benefit to lumber producers. Petitioners also argued that the lumber industry is a user of EDC and therefore is a beneficiary. Petitioners argued the EDC's assistance appears to be contingent upon exporting and therefore is a countervailable export subsidy. Petitioners stated that, in any event, the forest industry appears to be the dominant beneficiary of EDC benefits. Petitioners also argued that Canadian lumber companies are seeking a new program to assist them in meeting countervailing duty order bonding requirements. Petitioners state that Canada may task the EDC to administer a program designed to help lumber producers meet such requirements. The Department declined to investigate the programs administered by Canada's export credit agency, the EDC. This allegation was untimely submitted pursuant to 19 CFR 351.301. Furthermore, the Department's Regulations (19 CFR 351.202) provide that, "to the extent reasonably available to the petitioner," the petitioner shall provide "any law, regulation, or decree under which [the alleged countervailable subsidy] is provided, the manner in which it is paid, and the value of the subsidy to exporters or producers of the subject merchandise..." Petitioners have not provided this information. Petitioners' allegations are largely explanations of the types of services provided by the EDC. For the most part, the articles provided by petitioners contain sweeping statements regarding the programs administered by the EDC rather than specific information indicating that a particular EDC program may have provided countervailable benefits to lumber producers during the POI. The May 25, 2000 article, entitled "Secret of EDC's 'success': Taxpayers money," mentions that EDC has a credit line which "now carries a balance of some $16 billion at the government preferential rate." Petitioners provide no information indicating that lumber producers may have been provided credit from that line of credit during the POI. Petitioners did not provide information indicating how this line of credit is administered, nor did petitioners provide information indicating what types of parties are eligible to apply for credit from this credit line. With regard to the allegation that Canada may create an EDC program for the purpose of helping exporters meet countervailing duty bonding requirements, petitioners' allegation is insufficient. All the information provided by petitioners clearly indicates that, as of August 2001, such a program had not yet been implemented. Therefore, no such program existed during the POI. Timber Damage Compensation in Alberta Petitioners argued that, under the Alberta Forests Act, FMA holders are entitled to reasonable compensation from any person who causes loss of or damage to any of the timber in the FMA. Petitioners explained that, when energy companies damage timber (via drilling, exploring, or building pipelines), they are required to compensate the FMA holder for the value of that timber, even though the FMA holders do not pay the GOA for it. Petitioners asserted that, because the energy industry in Alberta bids for the right to engage in activities on Crown land, any required timber damage assessments will be incorporated into the market-determined bids. Petitioners, therefore, argued that, in practice, timber damage assessments do not represent transfers from the energy industry to the forest industry, but are transfers from the government (in terms of energy royalties foregone) to the FMA holders. Petitioners stated that the current average compensation to be paid for coniferous timber is C$20.96/cubic meter or C$1,134/ha. Petitioners argued that this provision of a nominal property right that functions to channel additional government money to the forest industry through the energy industry is an indirect subsidy as defined in 19 U.S.C. 1677(5)(B)(iii). Petitioners stated that, because FMA holders do not pay for this valuable right, it is a benefit within the meaning of 19 U.S.C. 1677(5)(E)(iv). Petitioners argued that this benefit pertained only to FMA holders and therefore is specific under 19 U.S.C.(5A)(D)(i). Petitioners argued that 351.311 of the Department's Regulations provides for the investigation of a new subsidy discovered during the course of an investigation if sufficient time remains before the scheduled final determination. Petitioners argued that the basic documents showing the existence and nature of the subsidy are on the record and that a brief questionnaire for determining the amount of timber damage assessment paid to Alberta FMA holders during the POI would provide a sufficient basis for the Department to establish and measure the subsidy within the time available. The Department did not further investigate on this allegation. Section .R. 351.301 of the Department's Regulations states that subsidy allegations are due no later than 40 days before the preliminary determination. Section 351.311 of the Department's Regulations, which governs the treatment of practices discovered during the investigation, provides that the Department will examine such an allegation if the Department concludes that sufficient time remains before the scheduled date for the final determination. This allegation was made by petitioners on December 20, 2001, over four months after our August 7th Preliminary Determination, and only several weeks before the beginning of verification. Thus, this allegation was untimely, pursuant to section 351.301 of the Regulations. In addition, there was insufficient time to examine this allegation, issue a questionnaire to the relevant respondents, analyze the response, issue relevant supplemental questionnaires, and reschedule and complete verification prior to the scheduled date for the final determination in this extremely complex investigation. If this investigation results in a CVD order, then petitioners may resubmit this allegation in any subsequent administration review. We note that our decision not to investigate this allegation is supported by the decision in Bethlehem Steel Corporation, et.al., v. United States, Slip-Op. 01-95 (August 8, 2001), in which the CIT upheld the Department's determination not to investigate an allegation made in the investigation of CTL Plate from Korea. The Department did not initiate an investigation of the Korean allegation because the allegation was made three months after the preliminary determination and just prior to verification. Allegation Based on Article Regarding Skeena Cellulose Petitioners provided a July 31, 2001 news article which a states that Skenna's total debt reached $332 million, well above the previous government estimate of $225 million. Petitioners stated that this figure is in whole or in part attributable to preferential loans made by the Government of British Columbia to Skeena. This was not a new allegation. As indicated in the "Subsidies to Skeena Cellulose Inc." section of the Preliminary Determination, the Department was already examining this program. TOTAL AD VALOREM RATE: In accordance with 777A(e)(2)(B) of the Act, we have calculated a single country-wide subsidy rate to be applied to all producers and exporters of the subject merchandise from Canada. This rate is summarized in the table below: ________________________________________________________________________ Producer/Exporter Net Subsidy Rate ________________________________________________________________________ All Producers/Exporters 19.34 % ad valorem ________________________________________________________________________ As indicated above, the Department exempted softwood lumber products from the Maritime Provinces from this investigation. This exemption, however, does not apply to softwood lumber products produced in the Maritime Provinces from Crown timber harvested in any other Province. Additionally, as explained above in the "Company Exclusions" section of the notice, we are excluding the following companies: Armand Duhamel et fils Inc., Bardeaux et Cedres, Beaubois Coaticook Inc., Busque & Laflamme Inc., Carrier & Begin Inc., Clermond Hamel, J.D. Irving, Ltd., Les Produits. Forestiers. D.G., Ltee, Marcel Lauzon Inc., Mobilier Rustique, Paul Vallee Inc., Rene Bernard, Inc., Roland Boulanger & Cite., Ltee, Scierie Alexandre Lemay, Scierie La Patrie, Inc., Scierie Tech, Inc., Wilfrid Paquet et fils, Ltee, B. Luken Logging Ltd., Frontier Lumber, and Sault Forest Products Ltd. Therefore, we are directing the U.S. Customs Service to exempt from the suspension of liquidation only entries of softwood lumber products from Canada which are accompanied by an original Certificate of Origin issued by the Maritime Lumber Bureau (MLB), and those of the above-listed excluded companies. The MLB certificate will specifically state that the corresponding entries cover softwood lumber products produced in the Maritime Provinces from logs originating in Nova Scotia, New Brunswick, Prince Edward Island, Newfoundland, or the state of Maine. ANALYSIS OF COMMENTS: Comments which have not already been directly or indirectly addressed in the narrative sections above, are addressed below: Comment 1: Adjust Provincial Stumpage Rates for U.S. Procurement Costs Petitioners contend that the Department should adjust the Provincial stumpage prices downward to reflect the costs incurred by U.S. harvesters in procuring timber. According to petitioners, tenureholders in Canada enjoy a steady supply of timber and, consequently, have little need to obtain timber from other sources. In contrast, petitioners state that U.S. sawmills may employ a number of procurement foresters to ensure that mill needs are met. Petitioners cite comments made in a study prepared for the Coalition for Fair Lumber Imports to support their assertion. To quantify this proposed adjustment, petitioners refer to surveys of loggers in Maine of procurement costs. Respondents argue that no adjustment for procurement costs should be granted because the costs cited by petitioners are not reliable. Respondents note that the proposed costs are based on a survey in which the number of survey participants is unknown, the range of adjustments is unclear, and other factors are not disclosed. Respondents also point out that even the proponents of a procurement cost adjustment admit that survey responses were "widely divergent." Department's Position We are not granting an adjustment for procurement costs. We agree with the questions raised by respondents concerning petitioners' cost survey data. Therefore, information on the record does not sufficiently demonstrate that such an adjustment is warranted. Comment 2: Tenure Security Rights are Countervailable Petitioners state the Department should adjust the Provincial stumpage prices downward to compensate for the secure tenure rights enjoyed by Provincial tenure holders. Petitioners note that private timber harvesters in the United States only have short-term contracts for the right to extract timber; tenure holders in Canada, in contrast, maintain tenure agreements of 25 years. Petitioners state that long-term tenures enable Canadian sawmills to invest in capital and plan for the future more effectively than U.S. harvesters. To quantify this benefit, petitioners cite data presented previously in this investigation. Respondents dismiss petitioners' request for a tenure security adjustment. Respondents state that the Department previously found that the long-term obligations inherent in tenure arrangements were not necessarily a benefit. Moreover, respondents argue that petitioners did not derive a figure for this adjustment on a sound methodological basis. Lastly, respondents note that the Department has never found a countervailable subsidy to exist because of the long-term nature of the tenure. Department's Position We recognize, at least in theory, the point that petitioners are making. Theoretically, there could be some value to having long-term tenure rights guaranteed. However, we did not make a determination as to whether a countervailable benefit is provided by secured tenure rights in this final determination. The information on the record did not contain the appropriate data necessary to make an accurate quantification of the alleged benefit conferred by the long-term harvesting rights held by the Provincial tenure holders. There was no need to analyze whether a countervailable subsidy is conferred through the holding of long-term tenure rights without the necessary data on the record with which to quantify this alleged benefit. Therefore, the Department has not made an adjustment to the Provincial stumpage prices to account for secure tenure rights as proposed by petitioners. Comment 3: Forest Renewal B.C. and Job Protection Commission Being Terminated Respondents state that the Government of British Columbia has announced that it will terminate Forest Renewal B.C. effective March 31, 2002, and that the Job Protection Commission will be terminated effective March 1, 2002. Thus, they state that under Article 19.1 of the Subsidies Agreement, the Department should not impose countervailing duties with respect to Forest Renewal B.C. and the Job Protection Commission because these programs will have been withdrawn before the likely date of any countervailing duty order. Department's Position Section 351.526 of the Regulations governs program-wide changes, including the termination of an investigated program. Under this regulation, the Department may adjust the estimated countervailing duty rate to account for the termination of a program. However, section 351.526(a)(1) makes clear that the program-wide change must take place before the date of the preliminary determination in an investigation so that the termination can be verified and so that the Department can determine whether any residual benefits continue to be bestowed even after the program has been terminated. Therefore, the announced termination of Forest Renewal B.C. and the Job Protection Commission do not qualify as program-wide changes. As such, the Department will not adjust the cash deposit rate established in this investigation. Our regulations are consistent with the provisions of the Subsidies Agreement. Comment 4: Clerical Errors in Forest Renewal B.C. Subsidy Calculation Respondents state that clerical errors were made by the Department in the calculation of the subsidy rate for Forest Renewal B.C. They allege that the Department used the authorized grant amounts rather than the disbursed amounts for the "Technology" and "Business Development" grant programs. They also allege that the Department included grants tied to the Japanese market and to furniture products and log buildings in the subsidy calculations. Department's Position We agree that the subsidy calculation for this program should be based on the actual disbursed grant amounts rather than the authorized grant amounts. Thus, we have made these changes in the calculations for this final determination. We also agree that grants tied to non-U.S. markets and to products that fall outside the scope of this investigation should not be included in the subsidy calculation for this program. In addition, two service agreements were also listed as having provided grants under this program. The grants listed under these two agreements have been excluded from the benefit calculation because these grants did not benefit producers of the subject merchandise. Comment 5: The Private Forest Development Program is not Specific under the Act Respondents state that the Department erred in finding that this program was specific under section 771(5A) of the Act. They argue that private woodlot owners do not constitute an "industry" or an "enterprise" within the meaning of the Act. Respondents state that private woodlot owners own land and that private land holdings are not specific. They state that there are more than 40,000 registered woodlot owners in Quebec, of which 13,000 receive silviculture reimbursements each year. They also argue that there is no dominant or disproportionate use of this program by any enterprise or industry. Department's Position As discussed earlier in this memorandum, this program is specific under section 771(5A) of the Act. The program is limited to private woodlot owners who are certified forest producers under Quebec's Forestry Act. The purpose of this program is to provide grants to those certified forest producers for silviculture expenses incurred on private lands to ensure a sustainable yield of harvestable timber. Thus, the subsidy provided under this program is not one which is "broadly available and widely used throughout an economy" as described in the SAA. See SAA at 929. Comment 6: Loan Guarantees from Investissement Quebec are Not Export Subsidies Respondents argue that the loan guarantees provided to producers of the subject merchandise are not export subsidies because any goods exported out of the Province of Quebec qualify for this program. Therefore, under this program, shipments to other parts of Canada also qualify for the Investissement Quebec loan guarantees. Department Position Based upon information gathered during verification, we have determined that the recipients of the loan guarantees under this program received comparable commercial loans at interest rates equal to or lower than the rates received under this program. Therefore, we have determined that no benefits were received by producers/exporters of the subject merchandise during the POI. Because we have determined that this program did not provide a benefit during the POI, the issue of whether this program provides an export subsidy is moot. Comment 7: Job Protection Commission (Commission) is Not Countervailable Respondents argue that the Commission does not provide countervailable benefits to producers of the subject merchandise. First, respondents argue that the Commission does not provide any benefits to producers of the subject merchandise. They argue that the Commission merely functions as a facilitator between companies and their creditors, and does not provide any grants, loans, loan guarantees, or other forms of assistance to companies. Second, respondents argue that the program is not specific because the program is spread widely throughout the B.C. economy and is not specific to any enterprise or industry. Petitioners state that the Commission does incur costs on behalf of the companies it assists, thus a financial contribution is provided. Petitioners also note that only a strategic industry may receive the Commission's assistance in asking government agencies to extend or waive "imposts" due them from a company, such as taxes or fees. Department's Position Pursuant to this program, a government agency may provide an extension or a waiver of taxes or fees due them from a company participating in this program. An extension or a waiver (i.e., forgiveness) of government fees or taxes constitute a financial contribution under the statute. The fact that this extension or waiver is not provided directly by the Commission, but is provided under the operations and administration of this program, does not negate the fact that a financial contribution is made under the Job Protection Commission program. In addition, there are certain aspects of this program that do provide specific benefits. Under this program, Economic Plans can be implemented only for strategic industries. As noted earlier, we found that the assistance provided pursuant to the Economic Plans was specific under section 771(5A)(D) of the Act. Comment 8: The Industry, Trade and Economics Program is Not Countervailable Respondents argue that the Canadian Forest Service's Industry, Trade and Economics program is not countervailable. They argue that no research activities are conducted on behalf of commercial entities under this program. Department's Position We found this program not used; therefore, the Department did not analyze nor seek data to determine whether countervailable benefits are provided under this program. RECOMMENDATION: Based on our analysis of the comments received, we recommend adopting all of the above positions. If these recommendations are accepted, we will publish the final results of the determination in the Federal Register. __________ __________ Agree Disagree ______________________ Faryar Shirzad Assistant Secretary for Import Administration ______________________ Date __________________________________________________________________________ footnotes: 1. A group of products that were excluded from the scope as classified was listed in the preliminary determinations as Group A. This list remains applicable as we determined , through our review of the petition and factual information submitted, and consultations with the parties, that the products were outside the scope of the investigations. Group A. Softwood lumber products excluded from the scope: 1. Trusses and truss kits, properly classified under HTSUS 4418.90 2. I-Joist beams 3. Assembled box spring frames 4. Pallets and pallet kits, properly classified under HTSUS 4415.20 5. Garage doors 6. Edge-glued wood, properly classified under HTSUS item 4421.90.98.40 7. Properly classified complete door frames. 8. Properly classified complete window frames 9. Properly classified furniture 2. Vanderhoof Specialty Wood Products Inc. (Vanderhoof), American Bayridge, Mid America Lumber, Lindal Cedar Homes, Ltd. (Lindal), and Interact Wood Products Ltd. (Interact), all Canadian producers of merchandise within the scope of the investigation, the Quebec Lumber Manufacturers Association (QLMA), and Goodfellow Inc., an independent remanufacturer in Canada of softwood lumber products, collectively referred to as respondents. 3. As discussed elsewhere in this memorandum, we received requests from two parties for company-specific rates. 4. Respondents make the assertion that it is the Department's established practice to use first-mill data. This is incorrect, because even though we calculated the subsidy margin in the previous lumber investigation on a first-mill basis, we did so only because we concluded that data on remanufactured shipments were not available. In that case we clearly stated our preference for using the total value of softwood lumber shipments in accordance with our normal practice. 5. Petitioners have also alleged that a ban on the export of logs provides a benefit to softwood lumber producers. However, we have not addressed this allegation in this determination because any conceivable benefit provided through a log ban would already be included in the calculation of the stumpage benefit based upon our selected market-based benchmark prices for stumpage. 6. See Final Negative Countervailing Duty Determination; Live Cattle From Canada, 64 FR 57040 (October 22, 1999). 7. The only state used in our benchmark comparisons that has log export restrictions in place is Washington. 8. These Proposed CVD Regulations were never adopted by the Department. 9. We would note that, although the GOQ's brief refers to the "third overall benchmark in the hierarchy," after disregarding the first hierarchy in Lumber III, we refer to the "next alternative benchmark," the second benchmark in the hierarchy. 57 FR at 22597. 10. Memorandum to Faryar Shirzad, Assistant Secretary for Import Administration, from Bernard T. Carreau, Deputy Assistant Secretary for Import Administration, "Preliminary Affirmative Determination of Critical Circumstances" (August 9, 2001). 11. In Lumber III (Final Affirmative Countervailing Duty Determination: Certain Softwood Lumber Products from Canada, 57 FR 22570; 22580 (May 28, 1992), we referred to the specific class of stumpage beneficiaries as the pulp and paper products and solid wood products industries, which were defined as the primary timber processing group (i.e., sawmills and pulp and paper mills). 12. Respondents also cite to Live Swine from Canada, 61 FR 30366 (May 29, 1996). The analysis of specificity in an agricultural case is not instructive to the specificity analysis conducted in non-agricultural cases because the Department has an exception for specificity in investigations involving agricultural products. Pursuant to section 351.502(d) of the CVD Regulations, a program will not be regarded as specific under section 771(5A)(D) of the Act solely because the subsidy is limited to the agricultural sector. 13. We have used only stumpage dues and volumes from TSFMA holders when deriving Quebec's Provincial subsidy rate. 14. There are 15 wood producers' syndicates and marketing boards in Quebec. Membership is voluntary. Their task is to represent their members in dealings with Federal and local governments on matters related to silviculture, forest management, forest policies, laws, environmental certification, registration of forest producers, resource sustainability, and tax issues. 15. For a step-by-step description of how the MRN calculates stumpage dues for each of its tariffing zones, see Exhibit 16 of the February 15, 2002 Government of Quebec Verification Report. 16. In the Government of Quebec's rebuttal brief (March 2002), the GOQ questions the accuracy of our verification report with respect to the lobbying activities of the private marketing boards. However, our verification report accurately reflects the statements made to Department representative verifiers during verification. 17. We note that the MFS publishes its stumpage price report on a calendar year basis. Thus, in order to be consistent, we based our distribution of studwood going to sawmills on calendar year 2000 data from the USDA Report. 18. One of the four mills identified by MFS officials as having a studmill in operation had four different sawmills (three producing sawlogs and one producing studwood), as opposed to the other three mills that were dedicated solely to studmills. The report from the USDA does not provide volumes per production lines. Thus, in the absence of any other information regarding the production volume of the mill in question, we assumed that each of the four mills accounted for equal shares of the total production reported in the USDA report. 19. Petitioners quote to the Thai Steel preliminary determination. The finding that there were no in-country, market-determined prices that could be used as benchmark prices was unchanged in the final determination. See Final Affirmative Countervailing Duty Determination: Certain Hot-Rolled Carbon Steel Flat Products From Thailand, 66 FR 50409 (October 3, 2001) and the accompanying unpublished Issues and Decision Memorandum in the Final Affirmative Countervailing Duty Determination: Certain Hot-Rolled Carbon Steel Flat Products from Thailand. 20. Table Part A covers the first 107,296 m3 of roundwood, while Part B covers excess over 107,296 m3 of roundwood. 21. We note that under FMAs, timber dues charged for timber used in pulp production are the same as timber dues charged for roundwood and chips. The GOA has indicated that sawlogs and pulplogs are indistinguishable prior to processing; the distinction in name relates exclusively to their ultimate mill destination. In this investigation, subject merchandise does not include pulpwood. Since the GOA does not differentiate between pulplogs and sawlogs, we are not making such an adjustment. 22. Some of the volume and value data from the Public Stumpage Price Review includes timber sales starting from a period of time outside of the POI. We feel that it is appropriate to keep those sales in; therefore, we are using all data reported in the Public Stumpage Price Review. 23. As noted in footnote 2, above, we included some sales from outside of the POI; therefore, we included the exchange rates in effect during the entire time period, to more accurately correspond to the benchmark data. 24. Conditions Relating to the Importation of Softwood Lumber into the United States, USITC Publication 1241, April 1982. 25. Regional Comparison of Stumpage, Taxation, and Other Factors in the Forest Industries of British Colombia and the U.S. Pacific Northwest 26. For Washington and British Columbia, petitioners and respondents submitted private scaling data that showed different results.