(Cite as: 48 FR 24159, *24165) re du Commerce Exterieur of Quebec. Prior to a December 1982 reorganization in the provincial government, APEX was administered by the Ministe>=2re de l'Industrie, du Commerce et du Tourisme (Office Quebecois du Commerce Exterieur). The program has been available since 1977 to manufacturing and service companies in Quebec. Under APEX, grants are awarded to companies for market research and for trade expositions for the promotion of exports of Quebec goods and services outside Canada. In 1982, two small APEX grants were made to exporters of the products under investigation specifically to develop export markets in the United States. Because APEX is expressly designed to stimulate exports, we determine that the program confers benefits which constitute export subsidies. One of the 1982 grants went to a producer of softwood lumber and softwood shakes and shingles. We allocated it over the 1981 export sales to the United States of those products, and calculated a subsidy of less than 0.001 per cent ad valorem. We allocated the other 1982 grant, which went to a producer of softwood fence, over the total 1981 export sales to the United States of softwood fence and calculated a subsidy of 0.002 percent ad valorem.c. Societe de Recuperation, d'Exploitation et de Developpement Forestiers du Quebec. The Societe de Recuperation, d'Exploitation et de Developpement Forestiers du Quebec (REXFOR) was incorporated in 1973 under Quebec's REXFOR Act as a provincial Crown (Cite as: 48 FR 24159, *24165) corporation. Under the joint trusteeship of the Ministe>=2re des Finances and the Ministe>=2re de l'Energie et des Ressources of Quebec, its entire stock is allotted to the former, which approves REXFOR's operating and investment budgets. REXFOR was created to manage specific provincially owned forest lands, to preserve and protect provincial forest lands through silviculture, and to encourage the development of the "forest industry" in Quebec. REXFOR owns sawmills and pulp and paper mills, and produces the softwood products under investigation as well as a wide variety of products not under investigation. In carrying out these activities, REXFOR receives funds from both the Canadian and Quebec governments, and is also an active investor in and provider of funds to the "forest products industry" in Quebec. (1) Assistance to REXFOR from the Government of Canada. REXFOR and three of its subsidiaries producing softwood lumber received six RDIP grants from DREE. These grants, which we determine to confer subsidies, are included in the federal portion of the "Programs Determined to Confer Subsidies" section of this notice. (2) Assistance to REXFOR from the Government of Quebec.--(a) Loans and Loan Guarantees. Between 1973 and 1977, REXFOR and its subsidiaries received a number of loans and a loan guarantee from the government of Quebec (GOQ) at interest rates inconsistent with commercial considerations. We consider these (Cite as: 48 FR 24159, *24165) loans and loan guarantee to have been targeted to a specific company. Accordingly, we determine that these loans and loan guarantee confer a subsidy on REXFOR. To calculate this subsidy, we compared the principal and interest a company would pay a normal commercial lender in any given year with amounts actually repaid in that year. For purposes of these determinations, we included deferral of principal and interest payments in our subsidy calculations. The benchmark rate used was the chartered banks prime rate in Canada, as published in the OECD Financial Statistics. After calculating the payment differential in each year of the loan, we then calculated the present value of this stream of benefits in the year the loan was made, using the secondary market bond yield for Canadian government bonds, as published in the OECD Financial Statistics, as the discount rate. We allocated the benefits from these loans and loan guarantee over the total sales of the producers of softwood lumber and softwood shakes and shingles and calculated a subsidy of less than 0.001 percent ad valorem. (b) Grants. Between 1977 and 1981, REXFOR received a grant from the GOQ for the production of softwood lumber. We consider grants made to REXFOR by the GOQ to have been targeted to a specific company. Accordingly, we determine that this grant confers a subsidy on REXFOR. We calculated the benefit to REXFOR in accordance with the grant methods (Cite as: 48 FR 24159, *24165) described in the "Analysis of Programs" section of this notice. We allocated the benefit received over the total sales of the producers of softwood lumber, and calculated a subsidy of less than 0.001 percent ad valorem. (c) Loss Coverage. In two instances, the GOQ covered operating losses sustained by REXFOR in connection with two of its subsidiaries which respectively produce softwood lumber (Scieries Chic-Chocs) and all the products under investigation (Samoco). In both instances, the amounts received exceeded the losses sustained by REXFOR. In the case of Scieries Chic-Chocs, the excess of the funds received over the loss incurred was used to purchase fixed assets; in the case of Samoco, the excess was transferred into REXFOR's retaining earnings. We determine that loss coverage confers a subsidy. We expensed those portions of the grants used to cover actual operating losses in the year in which they were received. We treated the excess amounts as grants and allocated them over 15 years, the average useful life of capital assets of sawmill plants and equipment. We allocated the benefit received over the total sales of the prducers of softwood lumber (in the case of Scieries Chic-Chocs) and of the producers of the products under investigation (in the case of Samoco), and calculated a subsidy of 0.017 percent ad valorem for softwood lumber, and 0.014 percent ad valorem for softwood shakes and shingles and softwood fence. (Cite as: 48 FR 24159, *24165) (d) Equity Purchases. The GOQ has made equity purchases in REXFOR under two difference sections of the REXFOR Act. Under section 6 of the REXFOR Act, the proceeds from *24166 (Cite as: 48 FR 24159, *24166) Quebec's equity purchases are made available to REXFOR for "general intvestment" purposes to be used as the company sees fit. Under section 7, the proceeds from Quebec's purchases of REXFOR stock are specifically directed by the GOQ to be used for loans to or equity purchases in third companies which may or may not be subsidiaries or affiliates of REXFOR, some of which produce softwood lumber or shakes and shingles. (i) After analyzing REXFOR's financial statements since 1973, especially the company's debt position and rate of return on equity, we conclude that the GOQ's section 6 equity infustions into REXFOR were not inconsistent with commercial considerations. Therefore, we determine that government equity purchases in REXFOR that were not specifically directed do not confer a subsidy. (ii) With regard to government equity purchases made pursuant to section 7 that were specifically directed, but not to producers of the products under investigation, we determine that these purchases did not confer subsidies on the products under investigation. (iii) With regard to equity purchases made by the GOQ pursuant to section 7 that were specifically directed to producers of the products under investigation: (Cite as: 48 FR 24159, *24166) Where the proceeds were used by REXFOR to make equity infusions in subsidiaries, affiliates or unrelated companies, we must consider whether these infusions were made on terms inconsistent with commercial considerations. Our analysis of these companies leads us to conclude, based on verified financial data contained in the responses and REXFOR's annual reports, that REXFOR's equity purchases in these companies were in fact not inconsistent with commercial considerations. Accordingly, we determine that these equity purchases do not confer subsidies within the meaning of the Act on producers of the products under investigation. There were no loans made by REXFOR pursuant to section 7 that were specifically directed to producers of the products under investigation, for which principal was still outstanding during the period for which we are measuring subsidization.
d. FRI Tax Abatement Program. The Tax Abatement Program (TAP) is one of two programs under the aegis of the Fonds de Relance Industrielle (FRI) of Que>= 1bec, which provided assistance to producers of the products under investigation. The second FRI program, i.e., the Industrial Incentives Fund, is discussed below in the section titled "Programs Determined Not To Confer Subsidies." The FRI is a fund, administered by the Ministe>=2re de l'Industrie, du Commerce et du Tourisme of Quebec with the assistance of Revenu Quebec, (Cite as: 48 FR 24159, *24166) which provides financial aid in order to stimulate modernization and development of Quebec-based manufacturing enterprises. TAP applies to capital equipment investments of at least $50,000 and allows a company to retain the lesser of 50 percent of taxes payable to the province or 25 percent of the investment costs. The total abatement can be spread over a maximum of five years. The company chooses in which of those five tax years it will file for the abatement and may use the retained amount as it sees fit, but it may not claim more than $500,000 during the five-year period. The program was discontinued in 1981, and no applications filed after March 31, 1981 have been accepted. However, disbursements are still being made on previously approved applications. Companies located in the metropolitan area of Montreal are excluded from this program. Since TAP is limited to companies located within specific regions, we conclude that it confers a subsidy within the meaning of the Act. Producers of the products under investigation took advantage of tax savings under this program. Total tax abatements claimed by these producers for the 1981 tax year amounted to $284,481. We consider this benefit to be received in 1982 because the companies do not know their tax savings under TAP until the completion of the tax year. We allocated these savings over the total sales value of the products under investigation, and calculated a subsidy of 0.005 percent ad valorem. (Cite as: 48 FR 24159, *24166) e. SDI Export Expansion Program. The Societe de Developpement Industriel (SDI) was established in 1971 by the Assemblee Nationale (Legislature) of Quebec as a Crown corporation. SDI is wholly owned by the province and administered by the Ministe>=2re de l'Industrie, du Commerce et du Tourisme, but has certain powers and authority of its own as spelled out in the SDI Act. SDI gives financial assistance to the private sector in order to promote new business investment, plant expansion or modernization, and the export of Quebec goods and services. This assistance comes in several forms: Loans, loan guarantees, grants as cash reimbursements for interest costs on investments or partial forgiveness of loans, and acquisition of capital stock (the latter with the proviso that SDI not hold a majority of any given company's shares). SDI receives annual budget appropriations voted by the Assemblee Nationale which are used to cover its administrative expenses and grants. In fiscal 1981-1982, SDI received $55.8 million from the Assemblee, of which $44.9 million was specifically earmarked for "subsidies" (grants). Another source of SDI funding is an endowment established by the GOQ at the time of SDI's formation in 1971 to provide liquidity against which SDI could guarantee its loans. This fund now totals $47.4 million, of which $32 million is the initial endowment and the balance is accumulated interest. Finally, SDI finances itself, in part, through borrowings on the capital markets, which amounted to (Cite as: 48 FR 24159, *24166) $74 million as of July 15, 1982. SDI assistance programs fall under three categories: the Export Expansion Program, which we determine to confer a subsidy for the reasons outlined below; development grant programs; and loans and loan guarantees to manufacturing firms. The latter two categories are described later in the "Programs Determined Not to Confer Subsidies" section of this notice. Under the Export Expansion Program, SDI reimbursed interest costs to Quebec firms whose direct exports increased by 25 percent over the previous year. The program has been discontinued; May 25, 1981 was the final date for receipt of new applications. Disbursements were made through May 1982. The maximum grant awarded to a recipient company was the lesser of two percent of the company's export sales value or the amount of interest expense paid in a given year. Once the total grant was computed, SDI allocated the amount to the company for U.S. and overseas exports respectively, in direct proportion to the company's export sales to the United States and overseas. Producers of softwood lumber received funds under this program. We determine the Export Expansion Program to confer an export subsidy. Because interest charges are normally expensed in the year paid, we calculated the benefit by allocating the amound provided by SDI in 1981 (the most recent year for which data are available) to softwood lumber producers for their exports to the United States over the total sales value of exports of softwood lumber to the (Cite as: 48 FR 24159, *24166) United States, and calculated a subsidy of 0.019 percent ad valorem. Producers of softwood shakes and shingles and softwood fence did not receive funds *24167 (Cite as: 48 FR 24159, *24167) under this program during the period for which we are measuring subsidization. II. Programs Determined Not To Confer Subsidies We determine that the Canadian federal provincial governments are not providing subsidies to manufacturers, producers, or exporters of certain softwood products included in these investigations under the following programs: A. Stumpage Programs of the Canadian Federal and Provincial Governments Petitioner alleges that the stumpage programs [FN2] of the Canadian federal and provincial governments confer both a domestic and an export subsidy on the products under investigation. FN2 In general, "stumpage" refers to standing timber and "stumpage programs" refer to the systems by which individuals and companies acquire rights to cut and remove standing timber from government forest lands. The stumpage (Cite as: 48 FR 24159, *24167) programs of the various Canadian governments are described in further detail in Appendix B of this notice. Concerning the former allegation, petitioner alleges that stumpage programs are provided to a specific group of industries within the meaning of subsection 771(5)(B) of the Act. Also, rather than alleging that stumpage programs constitute the provision of a good at preferential rates under subsection 771(5)(B)(ii) of the Act, petitioner alleges that stumpage programs constitute the assumption of a cost of production within the meaning of subsection 771(5)(B)(iv) of the Act. Essentially, petitioner claims that "assumption," as used in subsection (iv), should have a broad, all-inclusive meaning, encompassing any governmental activity that reduces or absorbs production costs on terms inconsistent with commercial considerations. First, stumpage programs do not confer an export subsidy, because they do not operate and are not intended to stimulate export rather than domestic sales, and because they are not offered contingent upon export performance. The mere fact that significant quantities of products made from stumpage are exported to the U.S. does not mean that stumpage programs confer an export subsidy. Further, stumpage programs do not confer a countervailable domestic subsidy for the following reasons. First, we determine tht stumpage programs are not provided only to a "specific enterprise or industry, or group of enterprises or (Cite as: 48 FR 24159, *24167) industries." Rather, they are available within Canada on similar terms regardless of the industry or enterprise of the recipient. The only limitations as to the types of industries that use stumpage reflect the inherent characteristics of this natural resource and the current level of technology. As technological advances have increased the potential users of standing timber, stumpage has been made available to the new users. Any current limitations on use are not due to activities of the Canadian governments. Although nominal general availability of a program does not necessarily suffice to avoid its being considered a possible domestic subsidy, the Department further determines that stumpage is used within Canada by several groups of industries. Stumpage is cut by the lumber and wood products industries (which manufacture products ranging from simple "two-by-fours" to window frames), the veneer, plywood and building boards industries, the pulp and paper industries (which manufacture products ranging from cardboard boxes to newsprint), and the furniture manufacturing industries, each of which requires different types of processing equipment and uses different channels of trading. Stumpage permits are also held by individual consumers and by industries producing turpentine, charcoal, wood alcohol, and even food additives (i.e., vanillin and lignin). In this regard, we note also that, under the classification systems of both Canada and the United States, the (Cite as: 48 FR 24159, *24167) lumber and wood products industries, the pulp and paper industries, and the furniture manufacturing industries constitute at least three groups of industries. Therefore, in view of its general availability without governmental limitation and its use by wide-ranging and diverse industries, we determine that stumpage is not provided to a "specific group of * * * industries." We note, however, the importance of stumpage's general availability without governmental limitation. Where, on the other hand, the governments expressly limit programs to the so-called "forest products industries," we have found some domestic subsidies. Unlike stumpage programs, these types of programs involve the provision of benefits, usually money, that can be used by all enterprises and all industries. In such cases, the restrictions on availability are due entirely to governmental action, and not to any specific characteristics of that which is provided. With respect to these types of programs, we believe that there is sufficient evidence of governmental action to support a determination that a benefit is conferred upon a "specific group of * * * industries." Even if stumpage programs were being provided to a "specific group of * * * industries," we determine that they would not confer a domestic subsidy. In this regard, we determine that Canadian stumpage programs, except for certain aspects of those of Ontario and Quebec, do not confer a domestic (Cite as: 48 FR 24159, *24167) subsidy, because they do not provide goods at preferential rates to the producers of the products under investigation within the meaning of subsection 771(5)(B)(ii). In our opinion, subsections 771(5)(B)(i)-(iv) are mutually exclusive. We recognize that subsections (i)-(iv) are not an all-inclusive list of domestic subsidies. However, we maintain that where a particular subsection clearly covers a given program, the determination whether that program is a subsidy must be based upon the standard provided in the relevant subsection. In addition, we recognize that in some situations it may be arguable as to which subsection most closely describes a particular program. However, this problem does not arise in the instant investigations, because stumpage programs clearly involve the prosision of a good (raw timber), and thus clearly fall within sucsection (ii). Therefore, we determine that subsection (ii) is the controlling provision insofat as these stumpage programs are concerned. The standard contained in subsection (ii) is "preferential," which normally means only more favorable to some within the relevant jurisdiction than to others within that jurisdiction. [FN3] In this context, it does not mean "inconsistent with commercial considerations," a distinct term used in subsection 771(5)(B)(i) (which is not applicable with regard to stumpage programs in general, because they do not involve the provision of capital, loans, or loan guarantees). (Cite as: 48 FR 24159, *24167) FN3 There may be other cases in which the number of users of a good or service may be so limited that the preferentiality test may need to be examined further. In addition, as the Department and the Department of the Treasury have recognized in prior cases, "different" does not necessarily mean "preferential." Assuming arguendo that subsection (iv) also applies to stumpage programs, we determine that Canadian stumpage programs do not "assume" a cost of production. We believe that the most reasonable interpretation of "assumption" is that it refers only to government activity which relieves an enterprise or industry of a pre-existing statutory or contractual obligation. Otherwise, subsection (iv) would embrace all of the activities described in preceding subsection (i)-(iii), because *24168 (Cite as: 48 FR 24159, *24168) the activities described in those subsections could all be regarded as activities which reduce or absorb--and thereby arguably "assume"--costs of production. Such a broad construction of the term "assumption" would make subsection (iv) largely redundant of subsections (i)-(iii) and is, as a matter of law, not preferred. Accordingly, "assumption," as used in subsection (iv), means something other than the universe of governmental activities which could have the effect of reducing or absorbing a cost of production. Rather, it refers to a specific type of activity. In the financial and legal terms relevant to subsection 771 (Cite as: 48 FR 24159, *24168) (5)(B)'s list of domestic subsidies, an "assumption" is the relief from a pre- existing statutory or contractual obligation. Under this interpretation, stumpage programs do not constitute the assumption of a cost of production, because the Canadian governments do not relieve the producers of any pre-existing statutory or contractual obligations. To the contrary, the governments impose a cost for the stumpage, which they have owned themselves for well over a century. These imposed costs include not only cash payments for stumpage, but also one or more other costs, such as ground rents, forest management plans, silviculture and road building, as detailed for each province in Appendix B. Even if "assumption" were construed more broadly, we determine, based upon available information in the record of these investigations, that Canadian stumpage programs have not effectively reduced, and thereby "assumed," a cost of production. Petitioner claims that because there is an allegedly unified North American market for softwood lumber, shakes and shingles and fence, the Department should compare Canadian stumpage prices to prices for stumpage in the United States. We disagree. First, it has been the Department's policy not to use cross-border comparisons in establishing commercial benchmarks. Second, while there may be a unified North American market for each of the products under investigation, there is not a unified market and a unified price for stumpage, because each individual stand of timber is unique due to a (Cite as: 48 FR 24159, *24168) variety of factors, such as species combination, density, quality, size, age, accessibility, and terrain and climate. Stumpage prices vary substantially both regionally and locally within Canada and the United States, even within a mill's timber supply area. For example, a publication called Timber-Mart South publishes stumpage prices for the southeastern United States. This publication covers thirteen states, each divided into three regions, and lists separate prices for each species within each region of each state. We believe that a comparison of Canadian stumpage prices with U.S. prices would be arbitrary and capricious in view of: (1) The wide differences between species composition; size, quality, and density ot timber; terrain and accessibility of the standing timber throughout the United States and Canada; (2) the additional payments which are required in many provinces in Canada, but not generally in the United States; (3) the fact that in recent years, prices in national forests in the United States have been bid anywhere between two to five years in advance of cut, without taking into account the fluctuations in demand for lumber; and (4) the fact that in recent years the U.S. Forest Service has restricted the supply of timber in certain national forests due to budgetary and environmental constraints. Alternatively, even if one believes that there is a rational basis for comparing U.S. and Canadian stumpage prices, the record of these investigations includes studies showing that once appropriate adjustments are made to take (Cite as: 48 FR 24159, *24168) into account the differences in quality, accessibility, as well as additional cash payments and in-kind services, Canadian prices for standing timber do not vary significantly from U.S. prices. Indeed, in some cases the Canadian price may be higher. Therefore, even if one were to use U.S. prices as a benchmark, there is evidence in the record which establishes that the Canadian governments do not assume costs of production through their stumpage programs. In the absence of a market price for stumpage with which Canadian stumpage prices may reasonably be compared, we could, as petitioner suggests, alternatively determine whether Canadian stumpage prices reflect "true market value." The value of stumpage derives from a number of factors, including the price of the end products made from it, and not from any intrinsic value of the standing timber. One method of establishing stumpage prices, which is used in BC and some parts of the United States, is to calculate its residual value based upon the end-product price. Under the residual value approach, the seller makes allowances for normal profit and risk factors and deducts manufacturing costs from the end-product price to determine the minimum price for stumpage below which it will not sell. As noted above, residual valuation is used in BC, which between 1977 and 1981 produced 67 percent of the softwood lumber manufactured in Canada. We believe that it constitutes a reasonable method for establishing stumpage prices. (Cite as: 48 FR 24159, *24168) Therefore, we determine that prices charged in BC for stumpage may not be said not to reflect "true market value," as alleged by petitioner. Accordingly, one cannot find that stumpage programs in BC assume a cost of production, even if that term is interpreted broadly. In addition, other provinces established stumpage prices (such as competitively bid prices) which cannot be said not to reflect "true market value." For all the above reasons, we determine that Canadian stumpage programs do not assume a cost of producing the products under investigation. In conclusion, based on information in the record, we determine that Canadian stumpage programs (with the exceptions noted above for Ontario and Quebec) do not confer a subsidy within the meaning of the Act because they are not offered contingent upon export performance, because they are not provided to a "specific enterprise or industry, or group of enterprises or industries," and because they do not confer a domestic subsidy within the meaning of subsection 771(5)(B). B. Federal Programs 1. Deductible Inventory Allowance. The federal Income Tax Act authorizes a deduction equal to three percent of the opening value of inventories held for sale or for the production of goods for sale. This deduction is available on (Cite as: 48 FR 24159, *24168) equal terms to all businesses holding inventories for sale throughout Canada. We determine that the deductible inventory allowance does not confer countervailable benefits because it is not limited to a specific industry, group of industries or to companies in specific regions.
2. Capital Cost Allowances. The federal Income Tax Regulations provide for a capital cost allowance for businesses throughout Canada that purchase qualifying assets used in abating water or air pollution, manufacturing or processing, or conserving energy. These companies receive a full write-off over three years with a cumulative maximum deduction of 25 percent in the first year, 75 percent in the second year and 100 percent in the third year. This is the only method of depreciation allowed for these *24169 (Cite as: 48 FR 24159, *24169) properties, and they are depreciated according to this schedule regardless of use by industrial sector. We determine that these capital cost allowances do not confer countervailable benefits because they ae not limited to a specific industry, group of industries or to companies in specific regions.
3. Export Credit Insurance. Petitioner alleges that the GOC covered export credit insurance losses incurred by the Export Development Corporation (EDC). EDC is a Canadian Crown corporation providing financial services to Canadian exporters and foreign buyers to develop Canada's export trade. The GOC is the sole stockholder in EDC. One of EDC's financial services is export credit (Cite as: 48 FR 24159, *24169) insurance. EDC maintains its own commercial insurance operation, as well as a separate operation on behalf of the government. We verified that exports to the United States of the products under investigation are not insured under the government account. EDC has never incurred a fiscal year loss on its commercial operations, although there has been a downward trend in earnings. This downward trend in earnings prompted EDC to develop a cost allocation and accounting system in 1982. Although not fully implemented, the system is designed to assign costs and forecast revenue requirements more accurately for all of EDC's commercial operations, including the insurance operation. In this regard, EDC's Financial Planning Division also conducts an annual review of the past five year's claims experience, and then forecasts the percentage of every premium dollar that should be assigned to claims. In 1982, the percentage of every premium dollar allocated to cover future claims was increased from 38 percent to 50 percent. Because the claims provision was increased, EDC has raised its premium rates twice in the past two years. We verified that between 1982 and 1983, premiums on exports of lumber to the United States were raised 25 percent. Based upon our review of information on the record, it appears that the petitioner's allegation pertains to export credit insurance losses sustained by EDC in its operation on behalf of the GOC and not in its commercial operation. Exports to the United States of the products under investigation are insured (Cite as: 48 FR 24159, *24169) solely through EDC's commercial operation. Further, as noted above, EDC has raised premium rates when the claims provision was increased. Thus, it appears that EDC is charging premiums sufficient to cover long-term operating costs and losses. We determine that EDC's export credit insurance does not confer an export subsidy within the meaning of the Act.
4. Federal Employment Programs.--a. Local Employment Assistance Program. The Local Employment Assistance Program (LEAP), administered by the Canada Employment and Immigration Commission (CEIC), aims to increase the self- sufficiency of chronically un- or under-employed workers, such as handicapped persons, through grants for job creation and worker training. LEAP assistance is not limited to a specific industry, group of industries or to companies in specific regions. Moreover, "for-profit" organizations or entrprises are not eligible for LEAP funding. We determine that these grants did not confer any countervailable benefits upon the producers of the products under investigation. b. Work Sharing Program. The purpose of the Work Sharing Program, which is also administered by the CEIC, is to avert temporary layoffs during short- term economic downturns by reducing workweeks, taking steps so that available work is shared, and providing unemployment benefits when no work is available. It does not relieve participating employers of any contractual oblibations. Employees of producers of the products under investigation received benefits (Cite as: 48 FR 24159, *24169) under this program. The Work Sharing Program is financed through the national Unemployment Insurance (UI) fund, to which employers contribute 47 percent; employees, 33 percent; and the federal government, 20 percent. Eligibility is not limited to a specific industry, group of industries or to companies in specific regions. Any company whose employers and employees pay regular UI premiums may receive Work Sharing assistance. Therefore, we determine that the Work Sharing Program did not confer any countervailable benefits to producers of the products under investigation. 5. Regional Development Incentives Program (RDIP)--Loan Guarantees. The RDIP, administered by DREE, as described in the "Programs Determined to Confer Subsidies" section of this notice, provides loan guarantees to manufacturers whose capital investment projects for establishing new facilities or expanding or modernizing existing facilities will create jobs and economic opportunities in areas designated as economicaly disadvantaged. Under the loan guarantee program, DREE insures ultimate payment of losses related to approved loans at a cost of one percent of the balance of the guaranteed principal per annum. Some producers of the products under investigation have defaulted on these loans. However, the security or assets pledged by the companies enabled the private lender to recover the principal and thus avoid an insurance claim against DREE. (Cite as: 48 FR 24159, *24169) These loans are made on terms not inconsistent with commercial considerations. We determine that no benefit is being provided by RDIP loan guarantees, as all loans to producers of products under investigation were contracted at a rate of interest above the average Canadian commercial rate of interest based on the chartered banks' prime lending rate, as reported in the OECD Financial Statistics.
6. Enterprise Development Program (EDP). The Enterprise Development Program (EDP) was established in 1977 to provide loans, loan insurance and contributions to manufacturers (individuals, firms or corporations in Canada engaged in a manufacturing or processing activity) and, in the case of loan insurance, to private lenders to assist in projects of product development or enhancement, or for other types of productivity initiatives. The program is administered by one national and ten regional Enterprise Development Boards (one in each province), in conjunction with the federal Department of Industry, Trade and Commerce. Enterprise Development Regulations provide a listing of the qualifying purposes for which any loan, loan insurance or contribution may be issued, and state that a regional board may exercise and perform the powers, duties and functions of the Board under the regulations with respect to: Any loan, insurance or contribution made where the total amount of any such loan, insurance or contribution does not exceed $200,000, the (Cite as: 48 FR 24159, *24169) aggregate liability of the manufacturer does not exceed $200,000 and the dollar volume of sales of the manufacturer did not exceed $5,000,000 in its fiscal year immediately preceding the application for the loan, insurance or contribution. Any loan or insurance where the total amount of any such loan or insurance does not exceed $50,000 and the aggregate liability of the manufacturer does not exceed $200,000, except as a result of the making of such loan or the provision of such insurance. Any contribution where the total amount of the contribution does not exceed $20,000 and the aggregate liability of the manufacturer does not exceed $200,000, except as a result of the making of such contributions. Loan insurance and contributions are determined not to confer subsidies and are discussed below, while loans *24170 (Cite as: 48 FR 24159, *24170) provided under EDP are discussed in the "Programs Determined Not to Be Used" section of this notice. a. EDP Loan Insurance. The GOC provides loan insurance under the EDP to private lenders for loans to companies for approved productivity projects. The private lender pays a fee of one percent per annum, twice yearly, on the outstanding obligation for the insurance. The insurance allows the lender to recover up to 90 percent of the actual loss it experiences on defaulted loans after all security has been realized. Companies participating in this program first negotiate a loan insurance (Cite as: 48 FR 24159, *24170) agreement witht he Enterprise Development Board and then go to the private market to negotiate a loan. Loans vary in duration from three to ten years, with the repayment schedule being set by the lender. Loan insurance may be provided under EDP on loans made by a private lender to a manufacturer, individual, firm or corporation in Canada if a loan is required to enable the manufacturer to meet changing competitive circumstances and if the provision of loan insurance is necessary to encourage private lending at normal commercial rates. A few producers of the products under investigation received loan insurance under the EDP. We verified that EDP loan insurance was provided to a wide range of industries and was not limited to companies in specific regions. Therefore, we determine that the provision of the loan insurance does not confer a subsidy. b. DEP Contribution. Under EDP the GOC shares the cost of approved projects with companies. Audits are conducted to verify that expenditures were made for the intended purpose. Contributions are administered in accordance with the terms and conditions approved by the Treasury Board. The funds are available to manfuacturers in any industry or region for a project which represents a significant departure from a company's traditional productivity improvement practices and has an existing potential for productivity gains but demonstrated uncertainty as to benefits. The cost of any feasibility study and (Cite as: 48 FR 24159, *24170) implementation of the results thereof should represent a significant burden on the company's resources. In addition, the manufacturer must be capable of implementing the results of the study. We found that small contributions were provided to producers of the products under investigation to assist in product development, proposal development, identification of new products and productivity enhancement. We verified that EDP grants were provided to a wide range of industries and were not limited to companies in specific regions. Therefore, we determine that they do not confer a subsidy on the products under investigation.
7. Transportation Programs. a. Rail Freight Rates. There are 33 common carrier companies providing rail transportation services in Canada, almost half of which are U.S. subsidiary lines. Of the Canadian lines, two companies-- Canadian National (CN) and Canadian Pacific (CP)--are engaged in countrywide transport. Their combined trackage comprises 89 percent of the total railway trackage in Canada. CP is a privately owned company, while CN is a Canadian Crown corporation. Laws and regulations governing railway operations and freight rates are promulgated by the federal government and administered by the Canadian Transport Commission. Both Canadian and U.S. railroads offer several types of rates: class rates, competitive rates, commodity rates, and contract rates. In Canada, "agreed (Cite as: 48 FR 24159, *24170) charges" is the term applied to contract rates for intra-Canada shipments. Rail shipments within Canada that do not fall under agreed charges generally move under competitive or commodity rates. At the present time, class rates apply to very little rail traffic. International rail shipments move under rates established jointly by the U.S. and Canadian rail companies involved. The petitioner alleged that agreed charges are a domestic subsidy because they are below "tariff rates" and because they apply only to "forest (wood) products." In its response, the GOC provided copies of published agreed charges covering a large number of different commodities, such as foodstuffs, automobiles, appliances and petroleum products. Ten of these agreed charges cover shipments of lumber, shakes and shingles, and fence. Agreed charges are generally used when the companies are moving large volumes on a regular basis. As require by section 32(2) of the Transport Act of 1938, the railroads that are competitive at the points of origin and/or destination must concur on the agreed charge rates to be charged the shippers. The railroads develop a joint position which is then presented to the shippers. We verified that agreed charges are rates agreed upon after arm's length negotiations between the Canadian railway(s) and the shippers. Agreed charges are renegotiated every year and reflect such variables as market and modal competition, value of the commodity, loadability, and equipment use. In addition to the agreed upon rates, agreed charges stipulate that a certain (Cite as: 48 FR 24159, *24170) percentage of volume must be shipped. For lumber this volume requirement is 80 percent. The lumber agreed charges also specify that the railcars must be completely off-loaded in Canada and that the agreed charge rates cannot be used in constructing combination rates to the United States. Under agreed charge regulations, any shipper who is moving the same goods under similar conditions between the same points can become a signatory to the agreed charge, and cannot be charged more than the agreed charge rate. Agreed charges, like all rates charged by the railroads, must be compensatory; that is, the rate must cover the railroads' variable costs on each movement. However, the railroads charge what the market will bear. As such, their variable costs represent a floor below which a rate cannot go, but they do not represent a ceiling on rates. During verification, we compared agreed charge rates for lumber with agreed charge rates for some other commodities and found that lumber agreed charge rates are higher both in cents per ton and cents per ton-mile. Moreover, although the rates charged by the railroads are not calculated on a per car- mile or per ton-mile basis, the Waybill Analysis from 1978-80 (the latests available published statistics) for all rate structures shows that "forest products" generated higher revenue for the railways than all other commodities both on a per car-mile and per ton-mile basis. Because there are a number of agreed charges covering a wide range of (Cite as: 48 FR 24159, *24170) commodities and because agreed charges are negotiated at arm's length, we determine that agreed charges do not confer benefits which constitute subsidies within the meaning of the Act. b. Currency Exchange Rate Tariff (No. 6016A). The currency exchange rate tariff was implemented in 1921 on all rail shipments between the United States and Canada. Because of currency fluctuations, the railroads agreed that the value of that portion of the rail haul taking place in the United States should be reflected in U.S. currency and the value of that portion taking place in Canada should be reflected in Canadian currency. A study was conducted showing that of the total amount of freight charges collected on international shipments, 60 percent accrued to U.S. railways and 40 percent accrued to Canadian railways. Based on this study, Canadian railways were *24171 (Cite as: 48 FR 24159, *24171) authorized to collect a surcharge of 60 percent or to provide a discount of 40 percent on international shipments depending on prevailing exchange rates. These percentages were calculated to correspond to the average portion of a movement that took place in each country. Although the Canadian government has not legally mandated the exchange rate tariff since 1967, it is still applied by the Canadian railroads to all rail traffic between Canada and the United States. The program works as follows. When U.S. funds are at a premium in relation to Canadian funds, the Canadian railways collect a surcharge of 60 percent of the