1 Case briefs and rebuttal briefs were submitted to the Department on October 19, 2004, and October 27,
2004, respectively.
69 FR 75917, December 20, 2004
C-122-839
1st Administrative Review
POR: 05/22/2002 - 03/31/2003
Public Document
Office III: Lumber Team
December 13, 2004
MEMORANDUM TO: James J. Jochum
Assistant Secretary
for Import Administration
FROM: Barbara E. Tillman
Acting Deputy Assistant Secretary
for Import Administration
SUBJECT: Issues and Decision Memorandum: Final Results of Administrative
Review: Certain Softwood Lumber Products from Canada
SUMMARY
We have analyzed the comments and rebuttal comments1 of interested parties in the final results
of the above-mentioned countervailing duty (CVD) administrative review covering the period May 22,
2002, through March 31, 2003 (the POR). As a result of our analysis, we have made certain
modifications to our Notice of Preliminary Results of Countervailing Duty Administrative Review:
Certain Softwood Lumber Products From Canada, 69 FR 33204 (June 14, 2004) (Preliminary
Results). The “Methodology and Background Information” and “Analysis of Programs” sections below
describe the decisions made in this CVD administrative review. 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 INFORMATION
I. Company-Specific Reviews
As noted in the Preliminary Results, the Department determined to calculate company-specific
rates, to the extent practicable. See the March 15, 2004, Memorandum to James J. Jochum, Assistant
2 All public documents and public versions of business proprietary documents are available in the public
file located in the Department’s Central Records Unit (CRU), room B-099.
Secretary, for Import Administration, from Holly A. Kuga, Acting Deputy Assistant Secretary, Group
II, concerning Selection of Companies for Company-Specific Reviews (Company Selection
Memorandum).2
In the Preliminary Results we stated that, to provide parties an opportunity to comment, the
Department intended to issue a decision memorandum related to subsidy rate calculations involving the
companies selected for individual review prior to issuing the final results of this review. See 69 FR at
33206. On October 8, 2004, we issued a memorandum detailing our analysis of Fontaine Inc.
(formerly J.A. Fontaine), Les Produits Forestiers Dube Inc., Scierie West Brome Inc., and Scierie
Lapointe & Roy Ltee., and announced our intent to rescind the reviews with respect to Bear Lumber
Ltd., Bois Daaquam Inc., Cambie Cedar Products Ltd., Midway Lumber Mills Ltd., Nickel Lake
Lumber, Twin Rivers Cedar Products Ltd., and Uphill Wood Supply Inc. See Memorandum to James
J. Jochum, Assistant Secretary for Import Administration, from Jeffrey May, Deputy Assistant
Secretary for Import Administration, concerning Preliminary Results of Company-Specific Reviews and
Notice of Intent to Partially Rescind Certain Company-Specific Reviews (Company-Specific
Preliminary Memorandum).
We received comments from numerous parties regarding our March 15, 2004, selection of only
11 companies for company-specific reviews. In addition, parties commented on our decision not to
conduct company-specific reviews of certain companies and our preliminary determination to rescind
the reviews of seven of the 11 companies. See Comments 1 - 9 and the Department’s positions in
response thereto.
For these final results, we continue to find that Fontaine Inc., Les Produits Forestiers Dube
Inc., and Scierie West Brome Inc., each has a company-specific net subsidy rate of zero percent ad
valorem and that Scierie Lapointe & Roy Ltee. has a company-specific de minimis net subsidy rate.
See the December 13, 2004, Company-Specific Final Calculations Memorandum. Further, for the
reasons set forth in the Company-Specific Preliminary Memorandum, we have rescinded the companyspecific
reviews of Bear Lumber Ltd., Bois Daaquam Inc., Cambie Cedar Products Ltd., Midway
Lumber Mills Ltd., Nickel Lake Lumber, Twin Rivers Cedar Products Ltd., and Uphill Wood Supply
Inc.
II. Subsidies Valuation Information
A. Aggregation and Company-Specific Rates
In accordance with 19 CFR 351.213(b), the Government of Canada (GOC) and the Coalition
for Fair Lumber Imports Executive Committee (petitioners) requested an administrative review of this
countervailing duty order and both requested that this review be conducted on an aggregate basis. See
Initiation of Antidumping and Countervailing Duty Administrative Reviews and Request for Revocation
in Part, 68 FR 39055 (July 1, 2003) (Initiation Notice). Because of the extraordinarily large number of
softwood lumber producers in Canada, the Department determined to conduct this administrative
review of the order on an aggregate basis and calculate a single country-wide subsidy rate to be applied
to all exports of subject merchandise. See section 777A(e)(2)(B) of the Tariff Act of 1930, as
amended (the Act) and the July 25, 2003, Memorandum to Joseph A. Spetrini, Acting Assistant
Secretary for Import Administration, from Holly A. Kuga, Acting Deputy Assistant Secretary, Group
II, regarding Methodology for Conducting the Review (Review Methodology Memorandum).
As noted in the Preliminary Results, the Department solicited information from the GOC on an
aggregate or industry-wide basis in accordance with section 777A(e)(2)(B) of the Act, rather than from
individual producers and exporters. See 69 FR at 33206. Although as noted above, we received
comments regarding company-specific reviews, no interested party objected to the conduct of the
review on an aggregate basis. For purposes of these final results, we have aggregated the subsidy
information on an industry-wide basis. Specifically, we used the information provided by the GOC and
Provincial governments and calculated one subsidy rate for the Canadian softwood lumber industry for
exports of softwood lumber to the United States.
B. Allocation Period
In the underlying investigation, and the Preliminary Results of this review, pursuant to 19 CFR
351.524(d)(2), the Department allocated, where applicable, all of the non-recurring subsidies provided
to the producers/exporters of subject merchandise over a 10-year 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.
See Notice of 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, 66 FR 43186
(August 2001), Notice of Final Affirmative Countervailing Duty Determination and Final Negative
Critical Circumstances Determination: Certain Softwood Lumber Products From Canada, 67 FR
15545 (April 2, 2002) (Lumber IV), and Preliminary Results. No interested party challenged the 10-
year AUL derived from the IRS tables. Thus, in the final results of this review, we have allocated,
where applicable, all of the non-recurring subsidies provided to the producers/exporters of subject
merchandise over a 10-year AUL.
C. Recurring and Non-Recurring Benefits
The Department has previously determined that the sale of Crown timber by Canadian
provinces confers countervailable benefits on the production and exportation of the subject
merchandise under section 771(5)(E)(iv) of the Act, because the stumpage fees at which the timber is
sold is for less than adequate remuneration. For the reasons described in the program sections below,
the Department continues to find that Canadian provinces sell Crown timber for less than adequate
remuneration to softwood lumber producers in Canada. Pursuant to section 351.524(c)(1) of the CVD
Regulations, subsidies conferred by the government provision of a good or service normally involve
recurring benefits. See Countervailing Duties; Final Rule, 63 FR 65348 (November 25, 1998) (CVD
Regulations). Therefore, consistent with our regulations and past practice, benefits conferred by the
provinces’ administered Crown stumpage programs have, for purposes of these final results, been
expensed in the year of receipt.
In this review the Department also investigated other programs that involve the provision of
grants to producers and exporters of subject merchandise. Under section 351.524 of the CVD
Regulations, benefits from grants can either be classified as providing recurring or non-recurring
benefits. Recurring benefits are expensed in the year of receipt, while grants providing non-recurring
benefits are allocated over time corresponding to the AUL of the industry under review. Specifically,
under section 351.524(b)(2) of the CVD Regulations, grants which provide non-recurring benefits will
also be expensed in the year of receipt if the amount of the grant under the program is less than 0.5
percent of the relevant sales during the year in which the grant was approved (referred to as the 0.5
percent test).
D. Benchmarks for Loans and Discount Rate
In selecting benchmark interest rates for use in calculating the benefits conferred by the various
loan programs under review, the Department’s normal practice is to compare the amount paid by the
borrower on the government provided loans with the amount the firm would pay on a comparable
commercial loan actually obtained on the market. See section 771(5)(E)(ii) of the Act; 19 CFR
351.505(a)(1) and (3)(i). However, because we conducted this review on an aggregate basis and,
with the exception of the company-specific reviews noted above, we are not examining individual
companies, for those programs requiring a Canadian dollar-denominated discount rate or the
application of a Canadian dollar-denominated, short-term or long-term benchmark interest rate, we
used for these final results the national average interest rates on commercial short-term or long-term
Canadian dollar-denominated loans as reported by the GOC.
The information submitted by the GOC was for fixed-rate short-term and long-term debt. For
short-term debt, the GOC provided monthly weight-averaged short-term interest rates based on the
prime business rate, SME rate, three-month corporate paper rate, and one-month bankers’ acceptance
rate, as reported by the Bank of Canada. For long-term debt, the GOC provided quarterly implied
rates calculated from long-term debt and the interest payments made on long-term debt as reported by
Statistics Canada (STATCAN). Based on these rates, we derived simple averaged POR rates for
both short-term and long-term debt.
Some of the reviewed 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 POR as reported by the
GOC.
Regarding the selection of a discount rate for the purposes of allocating non-recurring subsidies
over time, we are directed by 19 CFR 351.524(d)(3). Because we conducted this review on an
aggregate basis under section 777A(e)(2)(B) of the Act, we used as the discount rate, the average cost
of long-term fixed-rate loans in Canada as reported by the GOC. See 19 CFR 351.524(d)(3)(i)(B).
E. Aggregate Subsidy Rate Calculation
As noted above, this administrative review was conducted on an aggregate basis, with the
exception of the individual company-specific reviews. We have used the same methodology to
calculate the country-wide rate for the programs subject to this review that we used in the investigation
and in the Preliminary Results.
1. Provincial Crown Stumpage Programs
For stumpage programs administered by the Canadian provinces subject to this review, we
first calculated a provincial subsidy rate by dividing the aggregate benefit conferred under each specific
provincial stumpage program by the total stumpage denominator calculated for that province. For
further information regarding the stumpage denominator, see the “Denominator Issues” section, below.
As required by section 777A(e)(2)(B) of the Act, we next calculated a single country-wide subsidy
rate. To calculate the country-wide subsidy rate conferred on the subject merchandise from all
stumpage programs, we weight-averaged the subsidy rate from each provincial stumpage program by
the respective province’s relative shares of total exports to the United States during the POR. As in
Lumber IV and in the Preliminary Results, these weight-averages of the subject merchandise do not
include exports from the Maritime Provinces. See e.g., the April 25, 2002, Memorandum to Faryar
Shirzad, Assistant Secretary for Import Administration, from Bernard T. Carreau, Deputy Assistant
Secretary for Import Administration, regarding Ministerial Error Allegations Filed by Respondents and
Petitioners. We then summed these weight-averaged subsidy rates to determine the country-wide rate
for all provincial Crown stumpage programs.
2. Other Programs
We also examined a number of non-stumpage programs administered by the Canadian Federal
Government and certain Provincial Governments in Canada. These included programs previously
investigated and programs newly alleged in this review. To calculate the country-wide rate for these
programs, we used a different methodology than that employed in the investigation. For federal
programs that were found to be specific because they were limited to certain regions, we calculated the
countervailable subsidy rate by dividing the benefit by the relevant denominator (i.e., total production of
softwood lumber in the region or total exports of softwood lumber to the United States from that
region), and then multiplying that result by the relative share of total softwood exports to the United
States from that region. For federal programs that were not regionally specific, we divided the benefit
by the relevant sales (i.e., total sales of softwood lumber, total sales of the wood products
manufacturing industry (which includes softwood lumber), or total sales of the wood products
manufacturing and paper industries).
For provincial programs, we calculated the countervailable subsidy rate by dividing the benefit
by the relevant sales amount for that province (i.e., total exports of softwood lumber from that province
to the United States, total sales of softwood lumber in that province, or total sales of the wood products
manufacturing and paper industries in that province). That result was then multiplied by the relative
share of total softwood exports to the United States from that province.
Where the countervailable subsidy rate for a program was less than 0.005 percent, the program
was not included in calculating the country-wide countervailing duty rate.
3. Excluded Companies
In the investigation, we deducted from the above-mentioned denominators, sales by companies
that were excluded from the countervailing duty order. As noted in the Preliminary Results, the
Department has also concluded expedited reviews for a number of companies, pursuant to which a
number of additional companies have been excluded from the countervailing duty order. Pursuant to
our prior practice, we have deducted the sales of all companies excluded from the countervailing duty
order from the relevant sales denominators used to calculate the country-wide subsidy rates, as well as
the sales of companies individually reviewed in this review, as discussed above.
In the Preliminary Results, we estimated the companies’ POR sales using sales data they
supplied during the underlying investigation or expedited review. Specifically, we indexed the sales data
of the excluded companies to the POR using province-specific lumber price indices obtained from
STATCAN. We then subtracted the indexed sales data of the excluded companies from the provincial
and Canada-wide sales denominators.
As noted in the Preliminary Results, on May 25, 2004, we requested sales data for the POR
from the companies that were excluded from the countervailing duty order as a result of the exclusion
and expedited review process. We received only one response to that request. Additionally, we did
not receive any comments from parties on our treatment of these companies’ sales in our Preliminary
Results. As a result, for these final results, we have continued to estimate the companies’ POR sales
using the sales data they supplied during the underlying investigation or expedited reviews, with the
exception of the company that responded, for which we used the reported values. Because, for these
final results, we are providing company-specific rates to four companies, we have also excluded their
sales from our denominator calculations.
In addition, as discussed more fully in the Department’s position in response to Comment 17,
for these final results, we have estimated the excluded companies’ POR stumpage benefits using the
data they supplied during the underlying investigation or expedited review. Because the underlying data
related to volumes of logs and/or lumber acquired by the companies, we applied the province-specific
benefit rates calculated in these final results to the volumes relied on in the investigation or expedited
review. We then subtracted the stumpage benefits of the excluded companies from the provincial and
Canada-wide stumpage numerators.
F. Pass-through
During the underlying investigation and this administrative review, the Canadian parties claimed
that a portion of the Crown logs processed by sawmills were purchased by the mills in arm’s-length
transactions with independent harvesters and such logs must be excluded from the subsidy calculation
unless the Department determines that the benefit to the independent harvester passed through to the
lumber producers. In the Preliminary Results, we determined that Alberta, British Columbia (B.C.),
Manitoba, Ontario, and Saskatchewan each failed to substantiate its claim that logs entering sawmills
during the POR included logs purchased in arm’s-length transactions. See 69 FR at 33208, 33209.
We received comments from numerous parties on these issues. See Comments 10 - 11,
below. For the final results of this review, we have continued to determine that Alberta, B.C.,
Manitoba, Ontario, and Saskatchewan each failed to substantiate its claim that logs entering sawmills
during the POR included logs purchased in arm’s-length transactions.
III. Denominator
As noted above and as discussed in the Preliminary Results, the Department is determining the
stumpage subsidies to production of softwood lumber in Canada on an aggregate basis. See 69 FR at
33209. The methodology employed to calculate the ad valorem subsidy rate requires the use of a
compatible numerator and denominator. In the Preliminary Results, the Department explained that in
the numerator of the calculation, the Department included only the benefit from those softwood Crown
logs that entered and were processed by sawmills during the POR (i.e., logs used in the lumber
production process). Accordingly, the denominator used for this final calculation included only those
products that result from the softwood lumber manufacturing process.
Consistent with the Department’s previously established methodology, we included the
following in the denominator: softwood lumber, including softwood lumber that undergoes some further
processing (so-called “remanufactured” lumber), softwood co-products (e.g., wood chips) that resulted
from lumber production at sawmills, and residual products produced by sawmills that were the result of
the softwood lumber manufacturing process, specifically, softwood fuelwood and untreated softwood
ties.
To establish the value for the denominator, during the course of this administrative review, the
Department repeatedly sought information regarding the GOC’s sales denominator data for each of the
provinces under review. As discussed in the Preliminary Results, however, despite our repeated
requests, that data was not provided for Manitoba and Saskatchewan.
In the Preliminary Results, the Department found that the GOC had failed to cooperate to the
best of its ability by failing to make any effort to seek waivers from the small number of affected
companies in Manitoba and Saskatchewan and that an adverse inference was warranted. As adverse
facts available, we relied upon information supplied by the GOC in its questionnaire responses. For
further discussion of this issue, see Comment 17, below.
Also in the Preliminary Results, the Department declined to include any shakes and shingles
products in the denominator of the subsidy rate calculations because we have no way separately to
determine the values of treated and untreated shakes and shingles in the residual products category.
3 In this review, we did not examine the stumpage programs with respect to the Yukon Territory, Northwest
Territories, and timber sold on federal land because the amount of exports to the United States is insignificant and
would have no measurable effect on any subsidy rate calculated in this review.
Finally, in response to the GOC’s request that the denominator should be expanded to include
“other softwood products” produced by non-sawmill wood product producers using inputs obtained
from sawmills, the Department preliminarily found that the products listed by the GOC in the “other
softwood products” category are outputs of non-sawmill wood product manufacturers that may use
lumber as an input, but are not the direct result of the softwood lumber manufacturing process. See
Preliminary Results, 69 FR at 33212. Therefore, the Department concluded that inclusion of such
products in the denominator is inappropriate because it is inconsistent with the methodology used to
calculate the numerator. Concerning softwood “co-products” produced by non-sawmill
establishments, the Department also preliminarily determined not to include these values in the
denominator because we lacked the information necessary to determine the value of softwood coproducts
made by remanufacturers that resulted from the softwood lumber manufacturing process. We
received comments from interested parties on our denominator. See Comment 16, below.
After considering the comments, for these final results we have not changed our calculation of
the denominator, other than, as discussed above in the “Excluded Companies” section of this
memorandum.
ANALYSIS OF PROGRAMS
I. Provincial Stumpage Programs
Determined to Confer Subsidies
In Canada, the vast majority of standing timber that is sold originates from lands owned by the
Crown. Each of the reviewed Canadian provinces, i.e., Alberta, B.C., Manitoba, Ontario, Quebec,
and Saskatchewan,3 has established programs through which they charge certain license holders
“stumpage” fees for standing timber harvested from these Crown lands. These programs, the sole
purpose of which is to provide lumber producers with timber, are described in detail in the provincespecific
sections of the Preliminary Results. See 69 FR at 33219 - 33227. We did not receive any
comments with respect to the operation of any of the provinces’ stumpage programs. Therefore, we
have not repeated the full description of the provincial stumpage programs here.
In accordance with section 771(5) of the Act, to find a countervailable subsidy, the Department
must determine that a government provided a financial contribution and that a benefit was thereby
conferred, and that the subsidy is specific within the meaning of section 771(5A) of the Act. As set
forth below, no new information or argument on the record of this review has resulted in a change in the
Department’s determinations from Lumber IV and the Preliminary Results that the provincial stumpage
programs constitute financial contributions provided by the provincial governments and that they are
specific. However, there is new information on the record of this review that was not on the record in
the underlying investigation that resulted in our decision to use different benchmarks against which to
measure the adequacy of remuneration, i.e., to measure the benefit conferred. In addition, based on
our analysis of information and comments received since the Preliminary Results, as discussed more
fully below, we have determined to use a different benchmark against which to measure the adequacy
of remuneration with respect to B.C.
A. Financial Contribution and Specificity
As noted in our Preliminary Results, and consistent with Lumber IV, the Department
determined, consistent with section 771(5)(D)(iii) of the Act, that the Canadian provincial stumpage
programs constitute a financial contribution because the provincial governments are providing a good to
lumber producers, and that good is timber. As in the investigation, the Department noted that the
ordinary meaning of “goods” is broad, encompassing all “property or possessions” and “saleable
commodities.” The Department found that “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, the
Department found that the term specifically includes
“. . . growing crops and other identified things to be severed from real property.” The Department
further determined that an examination of the provincial stumpage systems demonstrated that the sole
purpose of the tenures was to provide lumber producers with timber. Thus, the Department
determined that regardless of whether the provinces are supplying timber or making it available through
a right of access, they are providing timber. See Preliminary Results, 69 FR at 33213.
No new information has been placed on the record of this review warranting a change in our
finding that the provincial stumpage programs constitute a financial contribution in the form of a good,
and that the provinces are providing that good (i.e., timber) to lumber producers. Consistent with
Lumber IV, we continue to find that the stumpage programs constitute a financial contribution provided
to lumber producers within the meaning of section 771(5)(D)(iii) of the Act.
In our Preliminary Results and in Lumber IV, the Department determined that provincial
stumpage subsidy programs were used by a “limited number of certain enterprises” and, thus, were
specific in accordance with section 771(5A)(D)(iii)(I) of the Act. More particularly, the Department
found that stumpage subsidy programs were used by a single group of industries, comprised of pulp and
paper mills, and the saw mills and remanufacturers that produce the subject merchandise. This is true in
each of the reviewed provinces. We received comments on this determination. See Comment 18,
below. Based on our analysis of the information and arguments on the record, the Department
continues to find that the stumpage programs are specific within the meaning of section
771(5A)(D)(iii)(I) of the Act.
B. Benefit - Benchmark
Section 771(5)(E)(iv) of the Act and section 351.511(a) of the CVD Regulations govern the
determination of whether a benefit has been conferred from subsidies involving the provision of a good
or service. Pursuant to 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.
Section 351.511(a)(2) of the CVD Regulations sets forth the hierarchy for selecting a
benchmark price to determine whether a government good or service is provided for less than adequate
remuneration. The hierarchy, in order of preference, is: (1) market-determined prices from actual
transactions within the country under investigation or review; (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. See Preliminary Results, 69 FR at 33213 -
33219, for a full discussion of the application of the hierarchy.
Private Provincial Market Prices
As discussed in the Preliminary Results, the Department preliminarily found that there were no
private market prices in the provinces whose stumpage programs are under review that could serve as
first-tier benchmarks. Specifically, the Department preliminarily found with respect to Manitoba and
Saskatchewan, there was no province-specific private stumpage data upon which to base a first tier
benchmark arising from those provinces. Additionally, B.C. did not provide private stumpage prices
for the record of this proceeding. Instead, B.C. provided prices from auctions the government
administers under the Small Business Forest Enterprise Program (SBFEP). As we did in Lumber IV,
and following the guidelines laid out in section 351.511 of our regulations, we preliminarily did not rely
on these prices as we found that the auctions were not competitively run because they were not open to
all bidders. Alberta reported private price data and government competitive bid data as reported in
Alberta’s Timber Damage Assessment (TDA) 2003 update. As discussed in the Preliminary Results,
the Department determined that we were unable to use these transactions as benchmark prices based
on the evidence on the record demonstrating that Alberta’s private timber market prices are
administratively set and do not reflect market determined prices as required by the CVD Regulations.
Ontario provided a survey of private prices prepared by Demers Gobeil Mercier & Accocies Inc.
(DGM). As discussed in the Preliminary Results, this pricing data was prepared for the sole purpose of
responding to the Department’s questionnaire in this administrative review. The Department also
explained that because it was unable to verify the private pricing data to determine its reliability and
accuracy, the Department preliminarily determined that the data could not serve to establish a market
benchmark. See Id., 69 FR at 33214,- 33215. Finally, although Quebec provided private stumpage
prices charged in Quebec, the Department preliminarily determined that record evidence demonstrated
4 Where appropriate, we also compared prices of certain non-SPF species for which price data is available
in the Maritimes.
that these prices were not suitable for use as a benchmark within the meaning of section
351.511(a)(2)(i) of the CVD Regulations because the incentives that tenure holders face vis-a-vis the
private market are distorted by a combination of the Government of Quebec’s (GOQ’s) administered
stumpage system, the relative size of public and private markets, feed back effects between the private
and public markets, and a non-binding annual allowable cut (AAC).
We received comments from parties concerning our preliminary finding that there were no
useable private market prices provided by Alberta, Ontario, and Quebec. See Comments 19 - 33,
below. Based on our analysis of the information and arguments on the record, for purposes of these
final results, we continue to find that there are no useable private market prices in the provinces whose
provincial stumpage programs are under review.
Private Stumpage Prices in New Brunswick and Nova Scotia
As noted in the Preliminary Results, unlike the investigation, in this review we have additional
information on private timber prices in Canada. Specifically, we have private stumpage prices from
New Brunswick and Nova Scotia (together, the Maritimes). Because private price data for the
Maritimes are on the record of this administrative review, we closely examined these prices to
determine whether they constitute market-determined in-country prices under the first tier of our
adequate remuneration hierarchy. See section 351.511(a)(2)(i) of the CVD Regulations.
In the Preliminary Results, the Department described the Maritimes’ pricing data in detail and,
after consideration of the arguments of the interested parties, we preliminarily found that those prices
are appropriate market-determined benchmark prices, consistent with the first tier of our regulatory
hierarchy. We also preliminarily determined that the Maritimes’ prices for eastern Spruce-Pine-Fir
(SPF) are comparable to Crown stumpage prices for the SPF species groupings in Quebec, Ontario,
Manitoba, Saskatchewan and a portion of Alberta because the species in the Maritimes are
representative of the species in those provinces. Accordingly, we preliminarily determined to use the
private Maritimes’ timber prices in our benefit calculation and compared these prices to the Crown
stumpage prices in each of the provinces to determine whether the Crown prices were for less than
adequate remuneration.4 See Preliminary Results, 69 FR at 33218 - 33219.
We also preliminarily determined that a comparison of the Maritimes’ prices to those in B.C.
and western Alberta is appropriate for benchmark purposes. However, we preliminarily determined
that record evidence also indicated that there are differences in values between eastern and western
SPF because trees in the West are generally larger, and yield more and better quality lumber.
Therefore, we preliminarily determined to adjust the benchmark prices to account for the higher value
trees in B.C. and western Alberta. See Id.
After issuance of the Preliminary Results, we provided interested parties an opportunity to
submit new information relevant to the use of data from the Maritimes and the comparability of this data
to similar data in other Canadian provinces. We received such new information on August 31, 2004,
5 In Comment 43 of this Decision Memorandum, we discuss the change in our methodology with respect to
Alberta.
and September 10, 2004. We conducted verification of the information provided by the Maritimes
between September 13 and 24, 2004.
In addition, we received comments from interested parties on our use of the private Maritimes’
timber prices. Interested parties objected to our preliminary finding that the Maritimes’ pricing data
represents market-determined prices that are an appropriate benchmark consistent with our first tier
benchmark. See Comments 34 - 38, below. In addition, parties objected to our benchmark
adjustment (the East-West adjustment) as applied to B.C. and a portion of Alberta.
Based on our analysis of the comments received and evidence on the record, for these final
results, we continue to find that the Maritimes’ prices are an appropriate benchmark under the first tier
of our regulations for purposes of measuring the adequacy of remuneration of the stumpage programs in
Alberta, Manitoba, Ontario, Quebec, and Saskatchewan. Further, we have determined that an East-
West adjustment to the Maritimes benchmark is not needed nor appropriate for a portion of Alberta.
See Comment 43, below.
However, with respect to B.C., we have determined that the Maritimes’ pricing data, in light of
the needed adjustments, may not be the most appropriate benchmark. Rather, as discussed in detail
below, we have determined that the most appropriate benchmark with which to measure the adequacy
of remuneration for the B.C. stumpage program is a benchmark based on U.S. logs.
Benchmark Prices for B.C.
1. The Maritimes Benchmarks Are Not the Most Appropriate for B.C.
In the Preliminary Results, we determined that there were no private market stumpage prices in
the provinces whose provincial stumpage programs are under review that can serve as benchmarks.
However, we found that private stumpage prices in the Maritimes constitute market-determined, incountry
prices under the first tier of the adequate remuneration hierarchy in the Department’s
regulations. We therefore used those Maritimes’ prices in the Preliminary Results as benchmarks to
assess the adequacy of remuneration for provincial stumpage. As discussed above, we continue to find
that those Maritimes’ prices are in-country, market-determined prices under tier one of our regulations.
As discussed above, we continue to find that the Maritimes’ prices are appropriate benchmarks to
assess the adequacy of remuneration for the provincial stumpage programs in Alberta5, Manitoba,
Ontario, Quebec, and Saskatchewan. With respect to B.C., however, we are modifying our
methodology. We find that because of the extensive differences between the species harvested in B.C.
and the Maritimes, the adjusted Maritimes’ prices are not the most appropriate benchmarks available
to measure the adequacy of remuneration for B.C.
In the Preliminary Results, we found that there was substantial similarity between the species in
the Maritimes and B.C., recognizing that the majority of all Canadian lumber production is marketed
and sold as one generally recognized and commercially interchangeable product, “SPF.” On that basis,
6 See the December 13, 2004, Benchmark Calculation Memorandum, which contains the actual ratios applied
to the benchmark prices.
7 March 15, 2004, memorandum Factual Information Regarding Use of Maritimes Stumpage Prices.
8 March 15, 2004, BCTLC submission of factual information.
we preliminarily found that a comparison of the Maritimes’ prices to those in B.C. was appropriate for
benchmark purposes. However, we also found that B.C. species were generally larger and produced
more valuable lumber than timber species harvested in the Maritimes. We therefore adjusted the
Maritimes’ benchmark prices to account for the differences in values between eastern and western SPF
using an adjustment based on the ratio of market-determined stumpage prices in the United States of
eastern SPF and the western timber (East/West Adjustment).6 See Preliminary Results, 69 FR at
33219.
Interested parties raised numerous comments following the Preliminary Results regarding the
comparability of species in B.C. and eastern SPF species in the Maritimes. Specifically, the parties
question the degree of commercial interchangeability of eastern SPF with prevalent B.C. species, such
as fir-larch, and hem-fir. With respect to commercial interchangeability, evidence on the record
demonstrates that the prices for certain framing lumber products made from SPF, hem-fir, and fir-larch
are published together with no differentiation given between the products. This indicates some degree
of commercial overlap. However, the record also reflects that hem-fir and fir-larch are identified as
being ideal in a number of specialized applications for which SPF is not. For example, the Canadian
Lumber Grading Authority’s Standard Grading Rules for Canadian Lumber and the Western Wood
Products Association’s Western Lumber Product Use Manual both show that fir-larch has certain
different physical characteristics and is used in a wider range of applications than eastern SPF, i.e.,
“appearance grades”.7 In the context of determining an appropriate benchmark, this evidence
demonstrates that the degree of commercial interchangeability between the species in B.C. and eastern
SPF species in the Maritimes is less than we originally believed it to be. In addition, other record
evidence attests to the greater value of western timber relative to eastern timber, based in part in size.
For example, a recent U.S. Forest Service report Profile 2001 Softwood Sawmills in the United States
and Canada stated that “western timber tends to be larger and hence more valuable than eastern and
northern trees.”8 However, the report provides no basis for adjusting for this difference. Based on the
record of this proceeding, therefore, we concluded that the East/West adjustment that we used in the
Preliminary Results may not provide an appropriate means of taking account of differences in value
between the species. Accordingly, we looked to other information on the record that better reflected
the market value of B.C. timber.
2. World Market Prices
In considering the second tier regulatory hierarchy, we are cognizant of the fact that the
NAFTA Panel considering the Lumber IV found that standing timber is not a good that is commonly
9 The evidence on the record of the NAFTA remand supported a different conclusion. In the Matter of
Certain Softwood Lumber Products from Canada: Final Affirmative Countervailing Duty Determination; Secretariat
File No. USA-CDA-2002-1904-03, Remand Determination (January 12, 2004).
10 For example, in evaluating export applications for standing timber, B.C. uses log price estimates as part of
its analysis.
traded across borders. As a consequence, according to the Panel, there is no world market price for
timber that satisfies U.S. statutory or regulatory requirements. The Panel also observed that because
the Department’s adjustments did not adequately account for differences in Canadian market
conditions, the Department construed the statute in a manner contrary to law.
In the First Remand we disagreed with the Panel’s conclusion and noted our continuing belief
that the resulting benchmarks constitute world market prices for timber that are commercially available
to purchasers in Canada, within the meaning of 19 CFR 351.511(a)(2)(ii). See Remand Determination
In the Matter of Certain Softwood Lumber from Canada: Final Affirmative Countervailing Duty
Determination, Secretariat File No. USA-CDA-2002-1904-03 NAFTA Binational Panel Review
(January 12, 2004). We nonetheless followed the Panel’s instruction and for the purpose of the
remand, established a new methodology to determine the existence of a benefit.
In this review, the petitioners have once again suggested that U.S. stumpage prices should be
considered an appropriate benchmark either as world market prices or based on market principles.
For the reasons discussed below, we have determined that U.S. stumpage prices are not the most
appropriate benchmarks for purposes of measuring the adequacy of remuneration of B.C. stumpage
programs.
3. B.C. Log Prices Are Not An Appropriate Benchmark
In this review, we collected and analyzed detailed information on log transactions in B.C. The
record supports two significant findings. The first is that stumpage and log markets are closely
intertwined and therefore Crown stumpage prices affect both stumpage and log prices. The second is
that Crown logs are, in fact, sold in substantial quantities on the log market. Based on this evidence and
these findings, we determine that there are no market-determined log prices in B.C. upon which we can
measure the adequacy of remuneration.9
The Log Export Restraint (LER) response established that stumpage and log markets are
closely intertwined. For example, the application process for the right to export timber after processing
involves a variety of analyses that include stumpage costs and log prices. See the June 2, 2004,
Memorandum to Melissa G. Skinner, Director, from Stephanie Moore and Joy Zhang, Case Analysts,
concerning Verification of the Questionnaire Responses Submitted by the Government of British
Columbia (GOBC Verification Report) at Exhibits 10-15.10 In addition, we verified a study submitted
by B.C., “Norcon Forestry Ltd. Survey of Primary Sawmills’ Arm’s Length Log Purchases in the
Province of British Columbia.” See the March 15, 2004, submission to the Department by Steptoe &
Johnson. This study, and our verification report show that the great majority of wood sold in B.C.
11 That is not to say that timber and log prices are rigidly linked and follow each other in lock-step at every
point in time. There are, of course, other factors such as input switching costs and capacity constraints that might
weaken or temporarily break the link, but as a general rule, there is linkage between timber and log prices sufficient to
make softwood lumber producers indifferent between timber and log purchases.
12 The LER questionnaire responses of the GOBC, and the verification report, have extensive information
showing that a hand full of large tenure holding firms account for the great majority of transaction on the VLM. See
e.g., the March 8, 2004, supplemental questionnaire response of the GOBC at BC-VIII-8.
(apart from allocated Crown wood) is purchased by large integrated tenure-holding producers who
purchase wood for their sawmills following standard purchase contracts; these contracts can and are
structured as log purchases or stumpage purchases. Thus, the record evidence indicates that these
producers are indifferent as to which form of wood, i.e., either timber or logs, they purchase for use in
softwood lumber production. Instead, the decision to purchase either timber or logs will ultimately
depend on price. The fact that these companies simultaneously purchase and use both forms of wood
means, in principle, that the prices for stumpage or logs are equivalent to the purchaser from a cost
standpoint, i.e., stumpage price plus the cost of harvesting is equivalent to paying for a log. The fact
that these producers used both timber and logs throughout the POR to produce softwood lumber
means that this price equivalence was maintained throughout the POR. This suggests that the timber
and log prices are linked, which, in turn, suggests that low (or high) timber prices means low (or high)
log prices.11 The Department therefore finds that there is sufficient record evidence to conclude that
subsidized prices in the Crown stumpage market would result in price suppression in the sales of
Crown logs.
Prices from the Vancouver Log Market (VLM) provide the only record evidence of published
log prices in B.C. While the GOBC argues that these prices reflect private market transactions, the
record evidence shows that the VLM is controlled by large tenure holders who obtain the majority of
their own needs from the Crown at low subsidized prices. For example, Dr. Pearse’s study for the
B.C. government on the Coastal forest industry, “Ready For Change,” finds that the Vancouver Log
Market is too dominated by a handful of large tenure-holding buyers and sellers (see, Pearse (2001) at
24). On the demand side of the VLM, Crown tenure holders would be unwilling to pay higher prices
for private logs than their own log costs as derived from a subsidized Crown stumpage price, since they
could always source additional logs from their own tenure (i.e., elastic supply). Further, on the supply
side, VLM prices are unsuitable benchmarks to the extent that they represent the sale of Crown logs,
the prices of which would reflect prices the Crown stumpage market.
The LER questionnaire response from B.C. contains ample evidence of the dominant presence
of the tenure-holders on the VLM.12 The government of B.C.’s (GOBC’s) own specialist hired to
evaluate their industry described the VLM, in its entirety, as:
an informal arrangement among the big supply departments of the major coastal licensees (i.e.,
the holders of long-term and large forest tenures), representatives of the larger market loggers,
the log buyers for smaller independent tenured or non-tenured mills or their agents and the
13 For the reasons stated in Comment 44 of this Decision Memorandum, we have rejected the GOBC’s claim
that we conduct a market principles analysis based on a cost methodology.
14 The provincial stumpage calculations acknowledge this principle by tracking either timber, log, or lumber
prices for different species (or species groups).
“traders” employed by log brokers - - all of whom, from their offices, buy and sell logs on a
routine basis.
Moreover, none of the published log prices for the VLM distinguish between Crown logs and
private logs; thus, even if we thought purely private prices were not affected by the Crown stumpage
prices, it would be impossible to isolate such prices to establish a benchmark. Finally, Dr. Pearse’s
study finds that many of the sales transactions recorded in the VLM data are not actually independent
purchases or sales, but trades of one type of logs for another. Log swaps were identified in the study
as an important factor limiting the operation of competitive forces in the market place (see, Pearse
(2001) at 24).
For these reasons, the record evidence supports the Department’s finding that the B.C. log
prices submitted by the GOBC are not market-determined prices independent from the effects of the
underlying Crown stumpage prices. Because of the linkage between B.C. log prices and Crown
stumpage, those B.C. log prices cannot be used to assess the adequacy of remuneration.
4. U.S. Log Prices are a More Appropriate Benchmark
An analysis of the record indicates that the information for potential benchmarks consists of
B.C. log prices, U.S. stumpage prices for species comparable to those in B.C., i.e., in the U.S. Pacific
Northwest, and U.S. log prices. As discussed above, B.C. log prices are not appropriate because we
find that they are not market-determined prices. Although we considered comparable U.S. stumpage
prices as an appropriate benchmark under our regulatory hierarchy, using these prices requires complex
adjustments to the available data.
We therefore turned our analysis to U.S. log prices. Under our regulatory hierarchy, U.S. log
prices constitute third tier benchmarks, i.e., a benchmark that is consistent with market principles. See
19 CFR 351.511(a)(2)(iii). The regulations do not specify how the Department is to conduct a market
principles analysis. By its nature such an analysis depends upon available information concerning the
market sector at issue and therefore must be developed on a case-by-case basis.13 It is generally
accepted that the market value of timber is derivative of the value of the downstream products. The
species of a tree largely determines the downstream products that can be produced from a tree; the
value of a standing tree is derived from the demand for logs produced from that tree and the demand
for logs is in turn derived from the demand for the type of lumber produced from these logs.14
As a result of the similarity of species between the timber harvested in the U.S. Pacific
Northwest and in B.C. (see discussion below), we have selected U.S. Pacific Northwest log prices as
the most appropriate benchmark on the record to evaluate whether Crown timber in B.C. is priced
15 State and Federal Timber is sold as stumpage. Some of the transactions in question may represent logs
harvested from these lands and resold in a separate private transaction. Private land accounts for the majority of
logs.
16 It is important to recognize that the species in B.C. and U.S. Pacific Northwest are sold into the same
markets; primarily high quality log exports to Japan, and finished lumber into the North American Market.
17 The November 12, 2003, GOBC’s LER Questionnaire Response at Exhibit LER-9 shows that each species
harvested in B.C. is also harvested in the U.S. Pacific Northwest.
consistent with market principles. We also find that the species in the U.S. Pacific Northwest are most
representative of the species in B.C., and therein most representative of the market value of the timber
harvested in B.C. Using these log prices is also consistent with a market principles analysis because the
prices are from private transactions between log sellers and sawmills for log harvested from private
lands and are thus market determined prices.15
Having selected an appropriate benchmark, we adjusted the benchmark to reflect prevailing
market conditions in B.C. We identified numerous factors affecting market conditions that needed to
be adjusted for, inter alia, costs associated with the tenure contract, costs associated with accessing
timber for harvesting, and costs of acquiring timber. In summary, the harvesting costs reported by
harvesters of Crown and private timber in B.C. were deducted from market-determined log prices
from the U.S. Pacific Northwest to calculate a “derived market stumpage price” to compare with
Crown stumpage. All of the factors we evaluated and/or made adjustments for to reflect market
conditions in the other provinces are included in the total harvesting costs that we deducted from the
U.S. log price to derive the market stumpage price, including both harvesting costs, and tenure related
costs. Thus, we adjusted for all market conditions in B.C.16
For purposes of these final results, therefore, we find that the U.S. log prices are a more
appropriate benchmark. U.S. log prices provide a reasonable means of assessing whether B.C.’s
provincial stumpage programs price stumpage consistent with market principles within the meaning of
the third tier of regulatory hierarchy. See 19 CFR 351.511(a)(2)(iii).
A key consideration in evaluating the market value of timber is the comparability of the species.
As described above, the record contains information on U.S. log prices for species that are
representative of the species for standing timber within B.C.17 Evidence on the record also
demonstrates that we can assess the adequacy of remuneration of B.C.’s provincial stumpage prices by
deriving market-determined stumpage benchmarks using the prices of logs in the U.S. Pacific
Northwest. Specifically, we can rely on the prices for U.S. logs for those same species that are located
in B.C.
First, we find that the same species of softwood timber are produced on the B.C. Coast as in
western Washington and Oregon. The dominant species on the Coast are western hemlock, Douglas
Fir, red cedar, balsam fir and cypress (yellow cedar). Western red cedar, hemlock and Douglas Fir
are also the major species in western Washington and Oregon. In the Interior, the dominant species
are SPF (spruce, lodgepole pine, balsam fir), Douglas Fir/larch and red cedar. Douglas Fir/larch,
18 See “A Regional Comparison of Stumpage, Taxation, and Other Factors in the Forest Industries of British
Columbia and the U.S. Pacific Northwest” British Columbia Lumber Trade Council, 3/15/2004 submission Volume 4,
Appendix 21, Folio 2. See also Id. at Folio 1, “Conditions of Competition Between Britsih Columbia and the U.S.
Pacific Northwest” United States International Trade Commission; “A regional Comparison of Stumpage Values in
British Colombia and in the United States Pacific Northwest,” Prof. David Haley, Forestry Chronicle, Petitioners’
3/5/04 submission of factual information, Volume 6, exhibit 77. See also “Comparing the Performance of Western
Region Sawmills,” Western Wood Products Association, British Columbia Lumber Trade Council, 3/15/2004
submission Volume 2, Appendix 2, Folio 2.
19 The March 15, 2004, BCTLC submission of factual information for the administrative review.
lodgepole pine/spruce, red cedar, and hemlock/true fir are the dominant species in Eastern Washington,
Idaho, and Montana. Ponderosa (yellow pine) is grown in B.C. Interior and eastern Washington,
Idaho and Montana.
The comparability of B.C. and the Pacific Northwest is attested to by the numerous studies
comparing the forest products industry in both places. While these studies have identified differences
between the regions, e.g., different corporate tax codes, the studies attest to the many underlying
similarities across the geographic region crucial to our analysis. For example, the Council of Forest
Industries study stated that the main differences in species harvest were that there was relatively more
Douglas Fir, and a slightly higher portion of larger logs, in the U.S. Pacific Northwest than in B.C.
Other than these differences, the commercially important species were highly comparable.18
Regarding log prices in the Pacific Northwest, both sides identified and submitted marketdetermined
prices for the species in question. The GOBC submitted Log Lines prices covering most of
the region and species over the entire POR. In commenting on the proper treatment of such prices, the
GOBC submitted articles from the Pacific Rim Wood Market Report. Petitioners, submitted two
additional sources covering these species in the region during the POR. We used all of these marketdetermined
prices for these species within the region.
5. Comparative Advantage
Finally, comments have been submitted addressing whether or not Canada has a “comparative
advantage” which should be accounted for in our analysis. However, the record does not demonstrate
either that Canada has a comparative advantage, or that any adjustment is appropriate. The submitted
studies are inconclusive and internally inconsistent on this matter. For example, “Response to Stoner et.
al. on Comparative Advantage” suggests that Canada has a comparative advantage as it has a greater
number of trees relative to its population, which in turn makes it easier to produce and export lumber to
the United States.19 The study tempers this advantage by noting that the Canadian trees are small,
comparatively less valuable, and in remote locations. An earlier GOC study, argues that the industry in
the Pacific Northwest has a comparative advantage over the B.C. industry. The study describes the
advantages as being based on, among other things, a preferential tax system and slightly higher quality
20 See “Who’s got the Competitive Advantage Now?” shows that Coastal B.C. is the highest cost log
producer (i.e., the least efficient) in the March 15, 2004, Memorandum entitled “Research Results and Potential
Sources for the Administrative Review.”
Douglas Fir harvest.20 Based on our review of the record evidence, we find no basis for finding that
comparative advantage affects our consideration of the degree of commonality between B.C. and the
Pacific Northwest.
C. Benefit - Calculations
Adjustments
As noted in the Preliminary Results, the provinces reported certain fees and associated charges
with their tenures (e.g., process facility license fees and ground rent). As the ultimate price paid for the
harvested timber reflects these fees and associated charges, we preliminarily included them in the
provincial stumpage price, where appropriate.
Having preliminarily found that the Maritimes’ prices are in-country, market-determined prices,
we determined to use the prices, inclusive of the C$3.00 per cubic meter paid into a Forest
Sustainability Fund by harvesters of private timber in Nova Scotia as the benchmark to measure the
adequacy of remuneration. See Preliminary Results, 69 FR at 33219. For the Preliminary Results, we
granted certain adjustments to provincial stumpage prices for those activities that evidence on the
record indicates: 1) were not incurred by Maritimes private stumpage holders; and 2) were legally
obligated costs associated with the tenure in the comparison province. Consistent with the
methodology explained in the Preliminary Results, we made adjustments to Crown stumpage prices in
Alberta for basic reforestation, forest management planning, holding and protection charges,
environmental protection costs, forest inventory costs, reforestation levy, and primary road construction
and maintenance cost. We made adjustments to Crown stumpage prices in B.C. for ground rent,
primary road and bridge building and maintenance costs, deactivation of primary road costs, basic
silviculture, and sustainable forest management costs. We made adjustments to Crown stumpage
prices in Manitoba for forest renewal charges, primary road costs, and obligated silviculture costs that
were not credited. We made adjustments to Crown stumpage prices in Ontario for road construction
and maintenance costs and forest management planning. We made adjustments to Crown stumpage
prices in Quebec for contributions to the Forestry Fund, administrative forest planning costs, and
obligated silviculture costs that were not credited. We also made a negative adjustment for silviculture
credits that were for voluntary activities in Quebec. For Saskatchewan, we made adjustments to
Crown stumpage prices for road costs, processing facilities license fees, Forest Product Permits (FPP)
application fees, and forest management.
After the Preliminary Results, we provided interested parties an opportunity to submit new
information relevant to the use of data from the Maritimes and the comparability of this data to similar
data in other Canadian provinces. We received such new information on August 31, 2004, and
September 10, 2004. As provided in section 782(i) of the Act, we conducted verification of the
information regarding New Brunswick and Nova Scotia from September 13 to September 16, 2004,
and from September 21 to September 24, 2004. We used standard verification procedures, including
meeting with government officials and examining relevant records and original source documents. Our
verification results are outlined in detail in the public versions of the verification reports, which are on file
in the CRU.
In addition, interested parties commented on the adjustments made in the Preliminary Results.
Based on our analysis of the information and arguments on the record, for purposes of these final results
we have revised the adjustments we granted. See Comment 39 and the Department’s position in
response thereto.
Calculation of the Benefit
As explained in the Preliminary Results, we preliminarily determined to measure the benefit from
the provincial stumpage programs by comparing the administered stumpage prices in each of the
provinces (after accounting for the species adjustment for western Alberta and B.C. and the provincespecific
cost-adjustments) to the private stumpage prices in the Maritime provinces of New Brunswick
and Nova Scotia. Because the benchmark prices were higher than the administered prices in each of
the provinces during the POR, we preliminarily found that the sale of timber in each of the provinces
was provided for less than adequate remuneration in accordance with 771(5)(E)(iv) of the Act.
For the purposes of these final results, we determined to continue to measure the benefit from
the provincial stumpage programs of Alberta, Manitoba, Ontario, Quebec, and Saskatchewan by
comparing the administered stumpage prices in each of the provinces (after accounting for the provincespecific
cost-adjustments) to the private stumpage prices in the Maritime provinces of New Brunswick
and Nova Scotia. To calculate the benefit under these programs, we first determined the per unit
benefit for each timber species by subtracting from the benchmark price the cost-adjusted weightaveraged
stumpage price per species. Next, we calculated the species-specific benefit by multiplying
the species-specific per unit benefit by the total species-specific softwood timber harvest in each
province during the POR. We then summed the species-specific benefits to calculate the total
stumpage benefit for the province.
For B.C., we calculated average market log prices for each species of logs harvested in B.C.
using published log prices from the U.S. Pacific Northwest. Because these are the prices paid by
sawmills to independent harvesters, we subtracted the harvesting costs (and profit) that would be
incurred by an independent harvester in order to calculate a “derived” market stumpage price (i.e. what
the independent harvester would pay a landowner for stumpage.) We compared this derived market
21 See December 13, 2004, B.C. Final Results Calculation Memo for details.
stumpage price with Crown stumpage charges to determine whether there was a benefit.21
For B.C., there were a number of questions raised by parties regarding these calculations.
Petitioners suggested the need make an adjustment for old growth, and to adjust for overstated
harvesting costs. Regarding old growth, the record is mixed on the need for an adjustment, old growth
trees can include more valuable logs but have higher incidences of rot and decay. Moreover, the U.S.
log prices include old growth logs. Thus no adjustment is warranted. Regarding the proposed
adjustment for overstated costs, the record does not contain substantial evidence to justify such an
adjustment. The GOBC proposed a number of adjustments involving comparisons between the private
stumpage calculations in the Maritimes and Crown stumpage charges in B.C. However, those
“adjustments” of the kind discussed for the other provinces, see, e.g. Comment 39 are not needed in
these calculations. This is because all costs incurred in by harvesters in B.C., including all of the
relevant factors in the GOBC’s proposed adjustments are included within the reported harvesting costs
which are deducted (and are therefore accounted for).
To calculate the province-specific subsidy rate, we divided the total stumpage benefit by each
province’s POR stumpage program denominator. For a discussion of the denominator used to derive
the provincial rate for stumpage programs, see the “Denominator” section, above. As explained in the
“Aggregate Subsidy Rate Calculation” section of the Preliminary Results, we weight-averaged the
benefit from this provincial subsidy program by each province’s relative share of total exports of
softwood lumber to the United States during the POR. The total countervailable subsidy for the
provincial stumpage programs can be found in the “Country-Wide Rate for Stumpage” section of these
final results.
Country-Wide Rate for Stumpage
The countervailable country-wide subsidy rate for the provincial stumpage programs is 16.80
percent ad valorem.
OTHER NON-STUMPAGE PROGRAMS
Other Programs Determined to Confer Subsidies
Programs Administered by the Government of Canada
1. Federal Economic Development Initiative in Northern Ontario ( FEDNOR )
In the Preliminary Results we determined that the FEDNOR program is specific within the
meaning of section 771(5A)(D)(iv) of the Act, because assistance under this program is limited to
certain regions in Ontario. Furthermore, we found that FEDNOR provides a financial contribution
within the meaning of section 771(5)(D)(i) of the Act, and confers a countervailable benefit as set forth
under 19 CFR 351.504, through a grant provided directly to a softwood lumber producer.
With regard to the Community Futures Development Corporations (CFDC) loans given since
the POI in Lumber IV, we determined that two loans were given at interest rates below the benchmark
rate and, therefore, confer a benefit within the meaning of section 771(5)(E)(ii) of the Act and 19 CFR
351.505(a).
Consistent with our treatment of FEDNOR grants in Lumber IV, we treated the grant received
during the POR as non-recurring. In accordance with 19 CFR 351.524(b)(2), we determined that the
approved amount of the grant is less than 0.5 percent of total sales of softwood lumber for Ontario
during the POR. Therefore, we expensed the benefit from this grant in the year of receipt.
To calculate the countervailable subsidy provided under this program, we summed the amount
of the grant disbursed during the POR and the interest savings on the loans, and divided the combined
amount by the f.o.b. value of total sales of softwood lumber (inclusive of in-scope lumber and other
softwood sawmill products) for Ontario during the POR. Next, we multiplied this amount by Ontario’s
relative share of total exports to the United States. Using this methodology, we preliminarily
determined the countervailable subsidy from this program to be less than 0.005 percent ad valorem.
We received comments on our Preliminary Results related to this program. See Comment 45.
Based on our analysis of the comments received, we have made no changes for these final results.
Thus, we determine the countervailable subsidy from this program to be less than 0.005 percent ad
valorem.
2. Western Economic Diversification Program Grants
and Conditionally Repayable Contributions (WDP)
In the Preliminary Results we determined that the WDP is specific under section
771(5A)(D)(iv) of the Act, because assistance under the program is limited to designated regions in
Canada. The provision of grants constitutes a financial contribution within the meaning of section
771(5)(D)(i) of the Act and confers a benefit as set forth under 19 CFR 351.504.
In accordance with 19 CFR 351.524(c), we treated the International Trade Personnel Program
(ITPP) grants as recurring benefits. Because the GOC expressly excluded grants supporting exports to
non-U.S. markets, we attributed the reported grants to U.S. exports of softwood lumber from the
regions eligible for assistance under this program, i.e., B.C., Alberta, Saskatchewan, and Manitoba.
Consistent with our treatment of “Other WDP Projects” in the investigation, we treated this
grant as non-recurring. In accordance with 19 CFR 351.524(b)(2), we determined that this grant is
less than 0.5 percent of total sales of softwood lumber from the regions eligible for assistance under this
program. Therefore, we expensed the benefit from this grant in the year of receipt.
To calculate the countervailable subsidy rate for this program, we summed the rates for the
ITPP and Other WDP sub-projects. Next, we multiplied this amount by the four provinces’ relative
share of total exports to the United States. Using this methodology, we preliminarily determined the
countervailable subsidy from this program to be less than 0.005 percent ad valorem.
Based on additional information received from the GOC in response to our supplemental
questionnaire of July 16, 2004, and comments on our Preliminary Results related to this program, we
have made changes to our calculations. See Comment 46. Specifically, the GOC has clarified the
responsibilities of the personnel supported by the ITPP grants. Consequently, where the employee’s
activities were directed towards exports to all markets, we attributed the subsidy to total exports.
Similarly, where the employee’s activities were directed towards exports to the United States, we
attributed the subsidy to U.S. exports. After these changes, we determine the countervailable subsidy
from this program to be less than 0.005 percent ad valorem.
3. Natural Resources Canada (NRCAN) Softwood Marketing
Subsidies
In the Preliminary Results we determined that any assistance provided under the Canada Wood
program would be tied to export markets other than the United States. Therefore, in accordance with
19 CFR 351.525(b)(4), we determined that the Canada Wood program does not confer a
countervailable subsidy.
With regard to Value to Wood Program (VWP), we found that certain of the projects funded
during the POR appear to be related to softwood lumber. We preliminarily determined that the grants
provided under the VWP constitute a financial contribution within the meaning of section 771(5)(D)(i)
of the Act and confer a benefit as set forth under 19 CFR 351.504. Because the VWP grants were
limited to Forintek Canada Corp. (Forintek), which conducted research related to softwood lumber
and manufactured wood products, we preliminarily determined that they are specific within the meaning
of section 771(5A)(D)(i) of the Act. Thus, we preliminarily determined that the VWP provided a
countervailable subsidy to the softwood lumber industry.
With regard to the National Research Institutes Initiative (NRII), because the Pulp & Paper
Research Institute of Canada’s (PAPRICAN’s) work is limited to pulp and paper, we preliminarily
determined that none of the funding PAPRICAN received conferred a countervailable subsidy on the
softwood lumber industry. However, based on our review of the record, we preliminarily determined
that research undertaken by the Forest Engineering Research Institute of Canada (FERIC) benefits
commercial users of Canada’s forests. Specifically, FERIC’s research covers harvesting, processing
and transportation of forest products, silviculture operations, and small-scale operations. Thus,
government-funded R&D by FERIC benefits, inter alia, producers of softwood lumber. Similarly, we
found that Forintek’s NRII operations, which pertain to resource utilization, tree and wood quality, and
wood physics, also benefit, inter alia, softwood lumber.
We preliminarily determined that NRII grants to FERIC and Forintek constitute financial
contributions within the meaning of section 771(5)(D)(i) of the Act and provide benefits as set forth
under 19 CFR 351.504. We also preliminarily determined that the grants are specific within the
meaning of section 771(5A)(D)(i) of the Act because they are limited to FERIC and Forintek, which
conduct research related to the forestry and logging industry, the wood products manufacturing
industry, and the paper manufacturing industry. Therefore, we preliminarily determined that FERIC’s
and Forintek’s NRII funding provided a countervailable subsidy to the softwood lumber industry.
To calculate the countervailable subsidy rate for this program, we first examined whether these
non-recurring grants should be expensed to the year of receipt. See 19 CFR 351.524(b)(2). We
summed the funding approved for Forintek during the POR under the VWP and NRII components,
and divided this sum by the total sales of the wood products manufacturing industry during the POR.
We also divided the funding approved for FERIC during the POR by the total sales of the wood
products manufacturing and paper industries during the POR. Combining these two amounts, we
determined that the benefit under the NRCAN softwood marketing subsidies program should be
expensed in the year of receipt.
We then calculated the countervailable subsidy rate during the POR by dividing the amounts
received by Forintek during the POR under the VWP and NRII components by the total sales of the
wood products manufacturing industry during the POR (net of excluded and zero rate company sales).
We also divided the funding received by FERIC during the POR by the total sales of the wood
products manufacturing and paper industries during the POR (net of excluded and zero rate company
sales). Combining these two amounts, we preliminarily determined the countervailable subsidy from the
NRCAN softwood marketing subsidies program to be 0.01 percent ad valorem.
We received comments on our Preliminary Results related to this program. See Comment 47.
Based on our analysis of the comments received, we have made no changes for these final results.
Thus, we determine the countervailable subsidy from this program to be 0.01 percent ad valorem.
4. Payments to the Canadian Lumber Trade Alliance
(CLTA) & Independent Lumber Remanufacturers Association (ILRA)
In the Preliminary Results we determined that this program provided a financial contribution in
the form of a grant within the meaning of section 771(5)(D)(i) of the Act and conferred a benefit as set
forth under 19 CFR 351.504. Because the program provided grants to two associations, CLTA and
ILRA, we determined that it is specific within the meaning of section 771(5A)(D)(i) of the Act.
Therefore, we determined that the GOC grants to CLTA and ILRA provide a countervailable subsidy
to the softwood lumber industry.
To calculate the countervailable subsidy rate for this program, we first examined whether this
non-recurring grant should be expensed to the year of receipt. See 19 CFR 351.524(b)(2). Because
these grants underwrote these associations’ costs related to the softwood lumber dispute, we
determined that the benefit is tied to anticipated exports to the United States. See 19 CFR 351.514(a).
Therefore, we divided the amount approved by total exports of softwood lumber to the United States
during the POR. See 19 CFR 351.525(b)(4). Because the resulting amount was less than 0.5 percent,
the benefit was expensed in the year of receipt.
We then calculated the countervailable subsidy rate during the POR by dividing the amount
received by CLTA and ILRA during the POR by total exports of softwood lumber to the United States
during the POR. On this basis, we preliminarily determined the countervailable subsidy from this
program to be 0.23 percent ad valorem.
We received comments on the Preliminary Results related to this program. See Comment 48.
Based on our analysis of the comments received, for the purposes of these final results we have revised
our specificity finding. In particular, we determine that the grants to the CLTA and ILRA are
contingent up export performance and, hence, specific within the meaning of section 771(5A)(B) of the
Act. We have continued to to calculate the countervailable subsidy rate during the POR by dividing the
amount received by CLTA and ILRA during the POR by total exports of softwood lumber to the
United States during the POR. However, in the final results, we have reduced the denominator to
account for excluded and zero rate company export sales of lumber to the United States. Therefore,
we determine the countervailable subsidy from this program to be 0.23 percent ad valorem.
Programs Administered by the Province of British Columbia
1. Forest Renewal British Columbia
(FRBC)
In the Preliminary Results, we determined that the FRBC program provided grants directly 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, in the Preliminary Results, the
Department determined that these grants are specific under section 771(5A)(D) of the Act. The
Department also preliminarily determined that provision of these grants constituted a financial
contribution within the meaning of section 771(5)(D)(i) of the Act.
The Forest Renewal B.C. program also provided funds to community groups and independent
financial institutions, which may in turn provide loans and loan guarantees to companies involved in
softwood lumber production. In the Preliminary Results, the Department found that the lumber
producers received no benefit, within the meaning of section 771(5)(E)(ii), from the loans without
guarantees and the guaranteed loans during the POI because the reported interest rates charged on
those loans were equal to or higher than the interest rate charged on comparable commercial loans.
Effective March 31, 2002, the B.C. legislature terminated the Forest Renewal B.C. program.
In the winding-up of operations of the Value-Added Business Unit under the Forest Renewal B.C.
program, certain disbursements and other “true-up” value-added commitments were made during the
POR. These disbursements were made pursuant to Contribution Agreements that had been entered
into prior to the termination of the program.
All grants provided under this program are expensed in the year of receipt. In the Preliminary
Results, to calculate the provincial rate provided under this program, we summed the amount of grants
provided to all producers/exporters of softwood lumber during the POR and divided that amount by the
f.o.b. value of total sales of B.C. softwood lumber for the POR. Next, as explained in the “Aggregate
Subsidy Rate Calculation” section of this memorandum, we weight-averaged the provincial rate from
this provincial subsidy program by the province’s relative share of total U.S. exports. We received
comments on our Preliminary Results related to this program. See Comment 49. Based on our
analysis of the comments received, we have made no changes for these final results. Thus, we have
determined the countervailable subsidy from this program to be 0.01 percent ad valorem.
2. Forestry Innovation Investment
Program (FIIP)
In the Preliminary Results we determined that the Forestry Innovation Investment Ltd. (FII)
grants provided to support product development and international marketing are countervailable
subsidies. The FII grants constitute financial contributions within the meaning of section 771(5)(D)(i) of
the Act and provide benefits as set forth in 19 CFR 351.504. The grants are specific because they are
limited to institutions and associations conducting projects related to wood products generally and
softwood lumber, in particular. See section 771(5A)(D)(i) of the Act.
Regarding the research sub-program, the GOBC reported that it funded approximately 141
research projects during the POR. The GOBC claimed that this research is not specific to softwood
lumber and, moreover, that it involves the government purchase of services.
According to information submitted in the response, investments made through the research
program “are expected to provide a positive contribution to the government goal of having a leading
edge forest industry that is globally recognized for its productivity, environmental stewardship and
sustainable forest management practices.” Given the focus of this research, we preliminarily determined
that this research benefits commercial users of B.C.’s forests and, inter alia, producers of softwood
lumber.
Therefore, we preliminarily determined that the FII grants provided to support research are
countervailable subsidies. These FII grants constitute financial contributions within the meaning of
771(5)(D)(i) of the Act and provide benefits as set forth in 19 CFR 351.504. The grants are specific
within the meaning of section 771(5A)(D)(i) of the Act because they are limited to institutions and
associations conducting research related to the forestry and logging industry, the wood products
manufacturing industry, and the paper manufacturing industry.
To calculate the benefit from this program, we first determined whether these non-recurring
subsidies should be expensed in the year of receipt. See 19 CFR 351.524(b)(2). For grants given to
support product development for softwood lumber, we divided the amounts approved by total sales of
softwood lumber for B.C. during the POR. For grants to support international marketing, we divided
the grants approved by exports of softwood lumber from B.C. to the United States during the POR.
(As explained above, the GOBC did not report grants tied to other export markets.) See 19 CFR
351.525(b)(4). For research grants, we divided the grants approved by total sales of the wood
products manufacturing and paper industries from B.C. during the POR. Combining these three
amounts, we preliminarily determined that the FII benefit should be expensed in the POR.
We then calculated the countervailable subsidy rate during the POR by dividing the amounts
disbursed during the POR. For grants given to support product development for softwood lumber, we
divided the amounts disbursed by total sales of softwood lumber for B.C. during the POR. For grants
to support international marketing, we divided the amounts disbursed by exports of softwood lumber
from B.C. to the United States during the POR. For research grants, we divided the amounts
disbursed by total sales of the wood products manufacturing and paper industries for B.C. during the
POR. We combined these three amounts and, as explained in the “Aggregate Subsidy Rate
Calculation” section of this memorandum, we multiplied this total by B.C.’s relative share of total
exports to the United States. On this basis, we preliminarily determined the countervailable subsidy
from the FIIP to be 0.13 percent ad valorem.
Based on our analysis of the comments received, we have made no changes for these final
results. Thus, we determine the countervailable subsidy from this program to be 0.13 percent ad
valorem. See Comment 51.
3. British Columbia Private Forest Property Tax
Program
B.C.’s property tax system has two classes of private forest land—Class 3, “unmanaged forest
land,” and Class 7, “managed forest land”—that incurred different tax rates in the 1990s through the
POR. Record evidence shows generally lower property tax rates for Class 7 than for Class 3 land at
all levels of tax authority for most, though not all, taxes. For example, at the provincial level, Class 7
land incurred rates of C$0.50 and C$2.30 per C$1,000 of assessed land value—or 0.05 and 0.23
percent—for the general rural tax and the school tax, respectively; while Class 3 land incurred rates of
C$4.50 and C$12.00 per C$1,000 of assessed land value, or 0.45 and 1.20 percent. Similarly, the
various municipal and district level authorities imposed generally lower rates for Class 7 than for Class 3
land. See the October 22, 2004, Memorandum to James J. Jochum, Assistant Secretary, Import
Administration, from Jesse Cortes, Case Analyst, concerning New Subsidy Allegation: British
Columbia Private Forest Land Tax Program, (B.C. Tax Preliminary Memorandum).
As discussed in the B.C. Tax Preliminary Memorandum, this differential tax program is
encoded in several laws, of which the most salient is the 1996 Assessment Act (and subsequent
amendments). Section 24(1) of the Assessment Act contains forest land classification language
expressly requiring that, inter alia, Class 7 land be “used for the production and harvesting of timber.”
Additionally, Section 24(3) or 24(4) of the Assessment Act, depending on the edition of the statute,
requires the assessor to declassify all or part of Class 7 land if “the assessor is not satisfied ... that the
land meets all requirements” for managed forest land classification. Amendments to the provision,
enacted from 1996 through 2003, retained the same language stating these two conditions. Thus, the
law as published during the POR required that, for private forest land to be classified—and remain
classified—as managed forest land, it had to be “used for the production and harvesting of timber.”
Section 771 of the Act sets forth various elements that must be present for the Department to
find a countervailable subsidy. Because the tax authorities impose two different tax rates on private
forest land, the governments are foregoing revenue when they collect taxes at the lower rate. Thus, the
program results in a financial contribution as defined in section 771(5)(D)(ii) of the Act. It also confers
a benefit in the form of tax savings within the meaning of section 771(5)(E) of the Act and 19 CFR
351.509(a)(1) of the Department’s regulations.
Further, we determine that the B.C. private forest land tax program is de jure specific within
the meaning of section 771(5A)(D)(i) of the Act. As noted above, and as discussed more fully in the
B.C. Tax Preliminary Memo, the Assessment Act expressly requires that Class 7 land be “used for the
production and harvesting of timber,” and additionally requires the assessor to declassify any Class 7
land not meeting all the Class 7 conditions, of which timber use was one. Hence, in accordance with
section 771(5A)(D)(i) of the Act, we find that the B.C. private forest land tax program is specific as a
matter of law, i.e., de jure specific, to private forest landowners who harvested or produced timber
during the POR.
The GOBC has argued that, in practice and notwithstanding the language of the law, timber
harvest or production is not a dispositive requirement for obtaining or retaining managed forest land
status, and that the Class 7 rolls included landowners who did not harvest or produce timber. A
determination that a subsidy is de jure specific concludes the Department’s analysis. Nevertheless, we
note that record evidence indicates that Class 7 landowners who own or operate a sawmill were the
majority users of the subsidy during the POR. However, having determined that the language of the
Assessment Act expressly limited access to the program to private forest landowners who harvested or
produced timber such that the B.C. tax program is de jure specific under section 771(5A)(D)(i) of the
Act, we are not required to undertake a factual analysis under section 771(5A)(D)(iii) of the Act.
The benefit received under this program is the sum of the tax savings enjoyed by Class 7
sawmill landowners at both the provincial and sub-provincial levels of tax authority in B.C. With regard
to the provincial tax, the assessed value is calculated as the sum of the land value and a formulaic
valuation of the timber harvested from the land in the prior year. The tax is levied by applying the tax
rate to this assessed value. The GOBC did not submit data on the timber value. Accordingly, the
Department calculated the tax benefit at the provincial level based solely on the land value.
We determined the tax benefit at the local level using the data submitted by the GOBC on local
tax rates, and on the value and acreage of Class 3 and Class 7 land in the various jurisdictions. Only
those jurisdictions with both Class 3 and Class 7 land in the assessment rolls for 2002 and 2003, and
whose tax differential resulted in a tax savings for Class 7 landowners, were included in the benefit
calculation. With regard to a number of regional and hospital district jurisdictions that are intermediate
between the provincial and local levels, the GOBC submitted data on their Class 3 and Class 7 tax
rates, but did not provide assessment data on land value and acreage. Consequently, to the extent that
any benefit may have accrued at that level, we have not included it in our calculation for the present
review; we will re-examine this aspect of the program in any subsequent review. The provincial and
local level benefit amounts were summed to produce an overall POR benefit amount. Using the POR
total value of B.C. sawmill wood product shipments as the denominator, and adjusting for B.C.’s share
of the total exports to the United States, we determined a tax benefit to the Class 7 landowners of 0.10
percent ad valorem during the POR. See the December 13, 2004, B.C. Tax Final Calculations for a
more detailed explanation.
We received comments from the parties on this issue. Based on our analysis of those
comments, we have amended our preliminary finding by including the benefit conferred by the tax
savings at the local level, as discussed above and in Comment 60 of the Decision Memorandum.
Programs Administered by the Province of Quebec
1. Private Forest Development Program
Consistent with Lumber IV, we preliminarily determined that the Private Forest Development
Program (PFDP) conferred a countervailable subsidy within the meaning of section 771(5) of the Act
and that assistance provided under this program is specific under section 771(5A)(D)(i) of the Act
because assistance is limited to private woodlot owners. In addition, we preliminarily determined that
payments by PFDP constitute a financial contribution under section 771(5)(D)(i) of the Act, providing
benefits as set forth in 19 CFR 351.504.
The GOQ argued that no benefit is provided under this program to sawmill operators because
they are required to make contributions to PFDP for lumber harvested on private land. The GOQ
states that the sawmill operators’ contributions were greater than the amount of silviculture
reimbursements the mills received under this program during the POR.
We did not accept this claim. Every holder of a wood processing plant operating permit must
pay the fee of C$1.20 for every cubic meter of timber acquired from a private forest. These fees fund,
in part, the PFDP. The recipients of payments under the PFDP are owners of private forest land.
Thus, the sawmill operators that received assistance under the PFDP received assistance because they
owned private forest land. Therefore, consistent with Lumber IV, we preliminarily determined that the
fees paid to harvest timber from private land do not qualify as an 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 fees paid
by processing facilities do not qualify as an offset against benefits received by private woodlot owners.
Consistent with Lumber IV, we preliminarily treated these payment as recurring. See 19 CFR
351.524(c). Thus, to calculate the countervailable subsidy provided under this program, we summed
the reported amount of grants provided to producers of softwood lumber during the POR and divided
that amount by total sales of softwood lumber from Quebec for the POR. Next, as explained in the
“Aggregate Subsidy Rate Calculation” section of this memorandum, we multiplied this amount by
Quebec’s relative share of exports to the United States. On this basis, we preliminarily determined the
countervailable subsidy from this program to be less than 0.005 percent ad valorem.
We received comments on the Preliminary Results related to this program. See Comment 53.
Based on our analysis of the comments received, for the purposes of these final results we calculated
the countervailable subsidy by summing the reported amount of grants provided to sawmills that
produce softwood lumber (and other products) during the POR and divided that amount by total sales
of softwood lumber, hardwood lumber, and softwood co-products. Next, as explained in the
“Aggregate Subsidy Rate Calculation” section of this memorandum, we multiplied this amount by
Quebec’s relative share of exports to the United States. On this basis, for these final results we have
determined the countervailable subsidy from this program to be less than 0.005 percent ad valorem.
Programs Determined Not to be Countervailable
Program Administered by the Government of Canada
1. Human Resources & Skills
Development Worker Assistance Programs (HRSD)
Pursuant to Canada’s Employment Insurance Act (EIA), the GOC provides “Part I”
unemployment compensation to workers and “Part II” retraining and rehiring assistance to workers,
employers and third parties. This support is administered by HRSD (formerly Human Resources
Development Canada), which delegates the delivery of Part II assistance to the regional authorities.
In the Preliminary Results, we determined that softwood lumber producers do not have an
obligation to retrain laid off workers and, consequently, that softwood lumber producers have not been
relieved of an obligation by virtue of the GOC’s retraining programs and, thus, was not countervailable.
We received comments on our Preliminary Results related to this program. See Comment 54.
Based on our analysis of the comments received, we have made no changes for these final results.
Thus, we determine no countervailable subsidy is conferred by this program.
2. Litigation-Related Payments to Forest Products
Association of Canada (FPAC)
In May 2002, the DFAIT allocated C$17 million in grant money to FPAC in support of
FPAC’s Canada-U.S. Awareness Campaign (CUSAC). CUSAC was a public relations campaign in
the United States regarding the softwood lumber dispute between the two nations. The program was
expanded in November 2002 to include advocacy activities such as lobbying of U.S. legislators. Of the
allotted sum, a total of C$14 million was disbursed during the POR.
We preliminarily determined that this program does not confer a countervailable subsidy on the
production, sale or exportation of softwood lumber from Canada. The nature of the public relations
campaign was to influence decision makers in the United States government, not to advertise Canadian
lumber or promote sales of Canadian lumber in the United States. This campaign was an extension of
the advocacy activities undertaken by the GOC on behalf of the industry.
We received comments on our Preliminary Results related to this program. See Comment 55.
Based on our analysis of the comments received, we have made no changes for these final results.
Thus, we determine no countervailable subsidy is conferred by this program.
Program Administered by the Province of Alberta
1. Timber Damage Compensation for Forest Management
Agreement (FMA) Holders
Under Alberta law, FMA holders have a right to compensation when trees within the FMA
holder’s territory are damaged or destroyed. Thus, when energy companies damage large quantities of
timber while drilling oil wells, engaging in exploration, or building pipelines, the FMA holders may seek
compensation. FMA holders are required to pay for all wood cut within their designated FMA area.
This requirement exists even if the timber is destroyed by industrial operators such as mining or oil and
gas operations.
We preliminarily determined that the industrial operators have not been entrusted or directed to
provide a financial contribution to FMA holders in Alberta and, therefore, that this program did not
confer a countervailable subsidy.
We received comments on our Preliminary Results related to this program. See Comment 56.
Based on our analysis of the comments received, we have made no changes for these final results.
Thus, we continue to determine that no countervailable subsidy is conferred by this program.
Programs Determined Not to Confer A Benefit During the POR
Program Administered by the Province of Manitoba
1. Timber Damage Compensation
for Timber Licensees
Section 20(2) of The Forest Act authorizes compensation to be paid to timber licensees for
damage to timber incurred as a consequence of boring or operating any salt, oil, or gas wells, or in
working any quarries or mines. The Government of Manitoba (GOM) reported that no compensation
has ever been paid for such damages to a timber licensee.
We preliminarily determined that this program did not confer a benefit because no timber
licensees received compensation during the POR.
We received comments on our Preliminary Results related to this program. See Comment 57.
Based on our analysis of the comments received, we have made no changes for these final results.
Thus, we determine no countervailable subsidy was conferred by this program during the POR.
Programs Administered by the Province of Quebec
1. Assistance from the Societe de Recuperation d’Exploitation
et de Developpement Forestiers du Quebec (Rexfor)
SGF Rexfor, Inc. (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. 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. In the Preliminary Results,
consistent with Lumber IV, we did not analyze equity investments by Rexfor. However, consistent with
Lumber IV, we examined whether Rexfor’s participative subordinated debentures, i.e., loans,
conferred a subsidy.
In the Preliminary Results, because assistance from Rexfor is limited to companies in the forest
products industry, we preliminarily found that this program is specific under section 771(5A)(D)(i) of
the Act. The long-term loans provided by Rexfor we found to qualify as a financial contribution under
section 771(5)(D)(i) of the Act. To determine whether the single loan outstanding to a softwood
lumber producer during the POR provided a benefit, we compared the interest rates on the loan from
Rexfor to the benchmark interest rates as described in the “Benchmarks for Loans and Discount Rates”
section of the Preliminary Results. See section 771(5)(E)(ii) of the Act. Using this methodology, we
preliminarily found that no benefit was provided by this loan because the interest rates charged under
this program were equal to or higher than the interest rates charged on comparable commercial loans.
Additionally, there was one company that had a Rexfor loan that had entered into bankruptcy
negotiations with Rexfor and other creditors during the period of investigation and settled with Rexfor
prior to the POR. We noted in the Preliminary Results that the record contains no information on
Canada’s bankruptcy proceeding involving the company in question. Therefore, we were not able to
determine from the information on the record whether the process followed in eliminating this debt
conferred a subsidy. Lacking this information, we examined whether the debt forgiveness would confer
a benefit during the POR. Using the POI denominator we find that the amount of debt forgiveness was
smaller than 0.5 percent of the value of sales of softwood lumber for Quebec in the POI, thus any
benefit would be expensed prior to the POR in accordance with 19 CFR 351.524(b)(2). On this
basis, we preliminarily found that the debt forgiveness by Rexfor did not confer a benefit in the POR
and, thus, provides no countervailable subsidy.
We received no comments on our Preliminary Results related to this program. For these final
results, we have continued to find that the one outstanding Rexfor loan and the debt forgiveness by
Rexfor did not confer a benefit in the POR, and, thus, provided no countervailable subsidy.
2. Assistance under Article 28 of Investissement
Quebec
Assistance under Article 28 is administered by Investissement Quebec, a government
corporation. In Lumber IV, the Department investigated assistance from the GOQ under Article 7,
which was administered by the Societe de Developpement Industriel du Quebec (“SDI”). Article 28
supplanted Article 7 in 1998. 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. The Article 28 program operates
fundamentally in the same manner as Article 7.
During the POR, there was one outstanding loan under Article 28. There were no outstanding
loans under Article 7. No other assistance was provided to softwood lumber companies under Article
7 or Article 28.
We preliminarily determined that no benefit was provided by this loan because the interest rates
and fees charged under this program were equal to or higher than the interest rates charged on
comparable commercial loans.
We received comments on our Preliminary Results related to this program. See Comment 58.
For these final results, we have continued to find that the Article 28 loan did not confer a benefit in the
POR, and, thus, provided no countervailable subsidy.
Other Programs
Program Administered by the Province of British Columbia
1. “Allowances” for Harvesting Beetle-Infested Timber
We preliminarily determined that any “allowances” provided in regard to harvesting beetleinfested
timber were included in the Department’s stumpage subsidy rate calculations.
We received no comments on our Preliminary Results related to this program. For these final
results, we have continued to find that any allowances provided in regard to beetle-infested timber were
included in the Department’s stumpage subsidy rate calculations.
Program Administered by the Province of British Columbia
2. Land Base Investment Program (LBIP)
We preliminarily determined not to include this program in this administrative review because
the focus of the land-base activities under this program are materially identical to the land-base activities
of Forest Renewal B.C., activities which the Department determined not to investigate in Lumber IV.
We received comments on our Preliminary Results related to this program. See Comment 50.
For these final results, we are not revising the Department’s determination in the Preliminary Results.
Programs Determined Not to Be Used
Program Administered by the Government of Canada
1. Canadian Forest Service Industry,
Trade & Economics Program ( CFS-ITE )
We received comments on this program. See Comment 59. For these final results, we are not
revising the Department’s determination in the Preliminary Results.
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,
other than those producers that have been excluded from this order. This rate is summarized in the
table below:
Producer/Exporter Net Subsidy Rate
All Producers/Exporters 17.18 percent ad valorem
ANALYSIS OF COMMENTS
A. Company-Specific Review Issues
Comment 1: Legal and International Obligations to Conduct Company Reviews
The Canadian parties argue that the Department’s failure to provide company-specific
assessment rates is a violation of section 751 of the Act and the Agreement on Subsidies and
Countervailing Duty Measures (SCM Agreement). They assert that the Department is not limited, in its
review of individual companies, to those that qualify for zero or de minimis rates. Rather, the
Department is required to calculate individual subsidy rates for all companies that request a review. A
number of companies take issue with the fact that the final results of this administrative review will
supercede expedited review cash deposit rates. Specifically, the parties argue that if the aggregate rate
calculated in these final results is higher than the individual cash deposit rate calculated in the expedited
review proceeding, they will be required to pay countervailing duties in excess of any subsidy found to
exist.
Canadian parties claim that the Department’s regulations provide for a two-step expedited
review process, referring to the Preamble which states: “The objective is to provide a noninvestigated
exporter with its own cash deposit rate prior to the arrival of the first anniversary month of the order, at
which point the exporter may request an administrative review.” See Antidumping Duties;
Countervailing Duties; Final Rule, 62 FR 27296, 27321 (May 19, 1997) (Final Rule).
In addition, Canfor Corporation and its affiliates Lakeland Mills Ltd. and The Pas Lumber
Company Ltd., and Terminal Forest Products, Ltd. (Canfor and Terminal) argue that the Department
inaccurately characterized their requests for company-specific reviews as simply requests to be
“voluntary” respondents. See Company Selection Memorandum. Canfor and Terminal argue that they
too are entitled to company-specific reviews and assessment rates because of their status as companies
that participated in the expedited reviews and received company-specific cash deposit rates. Because
the expedited reviews only established cash deposit rates for estimated CVD duties, the companies had
no alternative but to request administrative reviews under section 751(a)(1) of the Act, to obtain their
own company-specific assessment rates. As such, they submitted voluntary responses to the
questionnaire which the Department issued to the zero/de minimis review requesters; however, they
were not selected for review because, they contend, the Department improperly limited the number of
companies eligible for review.
Petitioners counter stating that the Department is not required to provide a company-specific
administrative review for any company that requested an expedited review under any U.S. statute or
regulation, U.S. judicial precedent, or prior administrative decision-making. Petitioners contend that
U.S. law, in fact, forbids company-specific reviews when the Department has properly elected to
conduct a country-wide review. According to petitioners, the statute authorizes the Department to
calculate a country-wide rate if it would be impracticable to calculate company-specific rates. As such,
the Department’s decision to limit the number of individually-reviewed producers and exporters to four
companies during this review is reasonable and in accordance with the law and comports with long-
established and consistent practice. Petitioners also rebut respondents’ arguments that the United
States has an international obligation to provide them with company-specific treatment.
Department’s Position
When conducting an administrative review on an aggregate basis pursuant to section
777A(e)(2)(B), the Department is not required to conduct any company-specific reviews. Rather, the
Department’s regulations require only that the Department “consider” company-specific requests in an
aggregate case, and conduct the reviews “to the extent practicable.” Determining whether or to what
extent it is practicable to conduct individual reviews is entirely within the Department’s discretion (see
section 351.213(k)(1) of the Department’s Regulations). Accordingly, the Department stated in its
Review Methodology Memorandum that in the event it determined to conduct the review on an
aggregate basis, it “intends to also review the maximum number of company-specific requests that do
not impose an extraordinary administrative burden upon the Department.” See Review Methodology
Memorandum at 4. Based on the complexity of the issues involved, and the resources necessary to
conduct the reviews, the Department determined that it was administratively practicable for it to
conduct reviews of four individual companies claiming zero rates. The decision to limit the companyspecific
reviews to those four companies was within the Department’s discretion to determine what is
and what is not practicable in a given case.
The respondents’ claim ignores the plain language of section 777A(e)(2) of the Act, which
recognizes that in certain cases in which the number of producers and exporters is too large to allow for
company specific reviews, the Department has the discretion to conduct the review on an aggregate
basis. See section 777A(e)(2) of the Act. Moreover, it is plainly evident in the language of the
regulations, that, in an aggregate review, the Department need only “consider” individual requests and
conduct individual reviews only “to the extent practicable.” 19 CFR 351.213(k). Respondents’
argument that Commerce is required in an aggregate review to grant all requests for company-specific
reviews would render these statutory and regulatory provisions meaningless. Indeed, under the
respondents’ analysis, the Department would be required to conduct individual reviews of the
approximately 296 companies that requested a review. Such a requirement would nullify the discretion
Congress accorded the Department to conduct aggregate reviews.
With regard to Canfor and Terminal’s arguments, given that it is entirely within the
Department’s discretion to conduct company-specific reviews in aggregate cases, it is also entirely
within the Department’s discretion to determine whether or how to select companies for individual
review. Neither Canfor nor Terminal met the criteria used by the Department to select companies
potentially eligible for a company-specific review and, therefore, we determined not to conduct a
review for either company. See Company Selection Memorandum at 2.
The claim by certain respondents that the Department should treat the cash deposit rates they
received in the expedited review proceedings as assessment rates is also inconsistent with the statute
and regulations. Expedited reviews are based on information from the period of investigation and, like
the investigation, only establish a cash deposit rate for the exporter/producer. There is absolutely no
basis in the statute or the regulations for respondents’ assumption that the cash deposit rates in
22 Bois Daaquam Inc., Bois Omega, Limitee, Fontaine Inc. (a.k.a., J.A. Fontaine et fils incorporee), Maibec
Industries Inc., Materiaux Blanchet Inc. (St. Pamphile Mill), and Scierie West Brome Inc. (collectively, Quebec Border
Mills)
expedited reviews are to be treated any differently than other company-specific cash deposit rates. To
the contrary, expedited review rates, like any other cash deposit rate, may be superceded by the final
results of a subsequent administrative review. If a review is requested, section 751(a)(2)(C) of the Act
requires that the final results of the review be the basis for the assessment of countervailing duties on
entries during the period of review and future cash deposits. A cash deposit rate becomes an
assessment rate and continues for future entries only if no review is requested. See 19 CFR
351.212(c).
Both the GOC and petitioners requested that the Department conduct this review on an
aggregate basis. Moreover, as discussed above, the number of individual requests for review was
extremely large. We therefore conducted an aggregate review and, in accordance with section
777A(e)(2) of the Act, calculated “a single country-wide subsidy rate to be applied to all exporters and
producers,” and some company-specific rates, to the extent practicable. In accordance with section
751(a)(2)(C) of the Act, therefore, those final results must be the basis for both the assessment of
duties on entries during the POR and future cash deposits. Finally, with respect to respondent’s WTOspecific
arguments, we note that U.S. law, as implemented through the URAA, is fully consistent with
our WTO obligations.
Comment 2: Rescission of Company-Specific Reviews Was Unlawful and Unreasonable
Section 351.213(k) of the Department’s regulations states that “where the Secretary conducts
an administrative review of a countervailing duty order on an aggregate basis ... the Secretary will
consider and review requests for individual assessment and cash deposit rates of zero to the extent
practicable.” The Quebec Border Mills22 argue that the plain meaning of this regulation is that in
addition to an aggregate review, the Department is to conduct some number of individual reviews and
reviewing only four companies does not come close to meeting the practicability standard. They note
that the Department cited internal administrative resource limitations for its decision to rescind certain
company administrative reviews. See Company-Specific Preliminary Memorandum at 4. The Quebec
Border Mills and other Canadian parties argue, however, that administrative convenience is not a valid
basis to rescind a review – rather it is a discretionary predicate to initiate a review, citing to section
351.213(k)(1) of the Department’s regulations. They further assert that the Department’s authority to
rescind is found in section 351.213(d), and that none of the situations provided for in section
351.213(d) applies to the company-specific reviews. It is also the Department’s responsibility, they
argue, to ensure that staffing is sufficient to carry out statutory obligations and commitments. Further,
the Canadian parties discuss the significant investment of time, money, and human capital the companies
made to comply with the Department’s requests for information. They assert that it is unreasonable for
the Department to terminate the individual reviews on the grounds of inconvenience after having put
these companies with limited resources through the expense and trouble of responding to multiple
questionnaires.
Department’s Position
As discussed above in response to Comment 1, the Department’s decision to conduct
individual reviews in the context of an aggregate review is discretionary. The Department properly
exercised its discretion and found that although it could review four of the 11 companies that originally
satisfied the selection criteria, it was not administratively practicable to conduct reviews of the remaining
six companies that satisfied the criteria. See “Company-Specific Reviews” section of this Decision
Memorandum. Moreover, the regulations provide that the Department will “consider and review”
individual companies to the extent practicable. Thus, contrary to respondents’ arguments, the
regulation on its face does not limit the Department’s discretion to determine what is practicable to the
point of initiation. If its is not practicable to do some or all of the individual reviews, the Department
has the discretion not to do so.
When the Department exercises that discretion, it may vary based on the facts of the case. In
some cases, the Department may be able to determine at the point of initiation the extent to which it is
practicable to “consider and review” individual companies. In other cases, however, the complexity
and administrative resource allocation required for the company-specific reviews and the aggregate
review may not be fully known until the review is well under way. In those cases, if during the conduct
of the review, the Department finds that it is not practicable to continue some or all of the companyspecific
reviews, it is within the Department’s discretion to discontinue those reviews. Respondent’s
argument to the contrary is premised on the view that section 251.213(d) limits the Department’s
discretion to determine whether it is practicable to do the company-specific review. That is not the
case. First, the regulation states that the Department will rescind a review if the request is withdrawn
within 90 days. Thus, rather than limiting the Department’s discretion to rescind, the regulation is
limiting the Department’s discretion not to rescind a review if the request is withdrawn. In the other
situations addressed in the regulation, the decision whether to rescind is within the Department’s
discretion. Nothing in the regulation suggests that it in any way limits the Department’s discretion to
determine whether and to what extent company-specific reviews are practicable in an aggregate case.
Comment 3: Burden and Difficulty of Company-Specific Reviews Was Exaggerated
The Canadian parties argue that the Department’s decision to limit company-specific reviews in
this administrative review, from 148 to 11, and then to four companies, by postulating methodologies
that are so complex as to prohibit company reviews is unreasonable. They contend that the
Department improperly invoked methodological hurdles as the final arbiter of its company selection
process and framed its approach based on what it claimed was practicable. The Department also,
without any notice or explanation to the parties, decided not to use the methodology developed in the
exclusion and expedited review process for the company-specific reviews. Instead, it chose a more
complicated methodology, requiring it to investigate and determine company-specific benchmarks.
Respondents contend that if the Department returned to the methodology used for company
exclusions and expedited reviews for these final results, it would be administratively practicable to
conduct the company-specific reviews. Further, the Canadian parties note that the Canadian
companies have fully cooperated with the Department at every stage of the review, and therefore, the
Department has all data necessary to calculate company-specific assessment rates using the
methodology employed in the exclusions and expedited reviews.
Petitioners counter the Canadian parties’ conclusion that the Department could easily have
provided company-specific assessments simply by using the same methodologies employed during the
investigation exclusion process and the expedited reviews. In not employing any of those
methodologies, petitioners contend, the Department recognized the necessity that there be full offset of
the subsidy as mandated by section 701(a) of the Act, and that assessment rates be calculated as
accurately as possible.
Department’s Position
As discussed in the “Company-Specific Review” section of this Decision Memorandum, the
Department continues to find for these final results that it is not administratively practicable to review six
of the 11 companies originally selected for individual review and that one company did not fit the
selection criteria. Therefore, the Department has rescinded the individual reviews of these companies.
With the exception of the company that did not satisfy the selection criteria, the basis for the
Department’s decision to rescind the remaining six company specific reviews is administrative
impracticability. See Company-Specific Preliminary Memorandum. As the Department stated, “The
ability to review individual companies is inversely related to the commitment of time and resources
required by the statutorily mandated administrative review. In an aggregate case, the Department can
only conduct those company-specific reviews which its limited resources will permit.” See Id. at 2. As
evidenced by the voluminous number of issues and comments addressed in this Decision Memorandum,
the Department has devoted considerable effort and resources to this aggregate administrative review.
Although the Department initially believed that it might be practicable to review the 11
companies that originally satisfied its selection criteria, it subsequently determined that reviewing all of
these companies would require more data and analysis than originally anticipated. To identify viable
benchmark options, we would have had to issue additional questionnaires and examine all information
on the record to ensure that appropriate benchmarks are being used.
Moreover, administrative resources were not available to resolve certain data deficiencies concerning
the six companies. Thus, these company-specific reviews would require additional administrative
resources and divert administrative resources from this aggregate administrative review. Consequently,
the Department determined that it was impracticable for the Department to continue with those
company-specific reviews. That decision was well within the Department’s discretion.
Moreover, contrary to respondents’ arguments, the Department could not employ the
expedited review methodology in the individual reviews as that methodology is not a company-specific
methodology. In the expedited reviews, we calculated company cash deposit rates by multiplying the
company’s quantity of Crown logs and the quantity of lumber inputs by the appropriate provincespecific
stumpage benefit calculated in the underlying investigation (i.e., the average per-unit differential
between the calculated adjusted stumpage fee for the relevant province and the appropriate benchmark
for that province.) We then divided the stumpage benefit by the appropriate value of the company’s
sales to determine the company’s estimated subsidy rate from stumpage and added any benefit from
other programs to obtain the cash deposit rate for the company. See Final Results and Partial
Rescission of Countervailing Duty Expedited Reviews: Certain Softwood Lumber Products From
Canada, 67 FR 67388, 67391(November 5, 2002). Although that methodology was reasonable in the
context of the expedited reviews when we were calculating estimated cash deposit rates, it is not
appropriate for use in this administrative review in which we are calculating assessment rates.
Specifically, for assessment purposes, the Department needs to calculate CVD rates based on
company-specific data and can not apply a provincial-wide benefit, which the expedited review
methodology does.
Comment 4: Review of Bois Daaquam Inc.
The Quebec Border Mills argue that by its own failure to investigate, the Department penalized
Bois Daaquam Inc. (Daaquam) by rescinding its company-specific review. They assert that Daaquam
provided every item of information that the Department requested, and the first notice that the
Department needed more information was in the October 8, 2004, decision memorandum. See
Company-Specific Preliminary Memorandum at 3. Of the three items concerning private Canadian log
purchases the Department claimed were missing, Daaquam provided two in its May 11, 2004,
questionnaire response (top diameter and length of log) and explained that its records did not permit
retrieval of the third (log diameter). See the May 11, 2004, Questionnaire Response of Daaquam at
11 and Appendix 3. As such, the Department should reverse its preliminary determination and conduct
a company-specific review for Daaquam.
Department’s Position
Daaquam, in its May 11, 2004, questionnaire response, did provide top diameter and length
for its log purchases; the company, however, did not supply such information for the tree lengths
purchased from private and arm’s-length suppliers. When discussing Daaquam’s data in the Company-
Specific Preliminary Memorandum, we should have been more precise in describing the “wood type”
for which there were incomplete details. This fact, however, does not change the Department’s
ultimate decision to rescind Daaquam’s company-specific review. Without top diameter and length for
the tree lengths purchased, we cannot determine whether a comparison of the private tree length prices
to the alleged arm’s-length Crown-origin tree length prices is appropriate. Further, as discussed in the
Company-Specific Preliminary Memorandum, to identify a viable benchmark option, we would need to
issue additional questionnaires and rigorously examine all information on the record to ensure that the
most accurate benchmark is applied. However, the Department’s efforts and resources have been
focused on analyzing the various and complex issues of this aggregate administrative review and,
therefore, it is not administratively practicable to conduct a company-specific review of Daaquam.
Comment 5: Reconsideration of Midway Lumber’s Company-Specific Review is Not Supported
Respondents contend that in the Company-Specific Preliminary Memorandum, the Department
implies that unforeseen events caused it to rescind individual reviews. For example, respondents state
that in that memorandum, the Department states that Midway Lumber’s (Midway) log purchases
directly from the Crown were, contrary to initial reporting, actually significant. Respondents argue that
there is no basis to rescind Midway’s review. They state that whether a company purchased one
percent or 99 percent of its logs from the Crown, the calculation methodology remains the same and,
therefore, the Department should reverse its preliminary decision and conduct a company-specific
review for Midway.
Department’s Position
As evidenced by the information submitted in Midway’s May 7, 2004, questionnaire
response, contrary to the company’s earlier statements, it does not meet the selection criteria for a
company-specific review. As enunciated in the March 15, 2004, Company Selection Memorandum,
companies with insignificant purchases (i.e., three percent or less) of Crown logs might be eligible for
company-specific reviews. The Department specifically stated “we also reviewed the responses to
determine whether there were any potential respondents that had quantities of either lumber inputs or
Crown stumpage that could be considered insignificant when compared to overall volume and,
therefore, ignored in any analysis.” See Company Selection Memorandum at 5. In its September 29,
2003, submission, Midway Lumber reported that it did not purchase a significant amount of logs
directly from the Crown. However, in its May 7, 2004, questionnaire response to the April 22, 2004,
company-specific review questionnaire, Midway reported substantial purchases of logs from the
Crown, i.e., Crown log purchases which were significantly greater than three percent of total logs
purchased during the review period. See the May 7, 2004, Questionnaire Response of Midway at
Table 3. Because Midway does not meet the eligibility criteria for a company-specific review, the
Department is rescinding its review.
Comment 6: Zero/De Minimis Rate Companies Should be Verified
Petitioners argue that the Department should verify the information upon which it preliminarily
determined zero and de minimis rates for Fontaine Inc., Les Produits Forestiers Dube Inc., Scierie
West Brome Inc., and Scierie Lapointe & Roy Ltee. They argue that the Department’s practice of
conducting verifications during the company exclusion proceedings and expedited review process
should be continued in this administrative review.
The Canadian parties disagree with petitioners, asserting that, unlike the companies that
received zero or de minimis rates in the exclusion and expedited review process, these four companies
are not eligible for exclusion from the order. Further, according to section 782(i)(3)(B) of the Act, the
Department is not required to verify any individual company in this review. They argue that the more
fundamental issue is the disparate treatment of the companies that requested individual reviews.
Department’s Position
Sections 782(i)(3)(A) and (B) of the Act provide that in an administrative review, the
Department shall verify information relied upon if “verification is timely requested by an interested party
. . . and no verification was made . . . during the 2 immediately preceding reviews. . .” The statute
contains a good cause exception to these requirements. The Department’s regulation, 19 CFR
351.307 mirrors the statutory provision. No party timely requested verification of Fontaine Inc., Les
Produits Forestiers Dube Inc., Scierie West Brome Inc., and Scierie Lapointe & Roy Ltee. Moreover,
considering that the Department verified Fontaine Inc. (a.k.a., J.S. Fontaine & Fils Inc.), Les Produits
Forestiers Dube Inc., and Scierie West Brome Inc. in the underlying investigation, and verified Sceirie
Lapointe & Roy Ltee during the company’s new shipper review, good cause did not exist for verifying
these four companies in this review.
Comment 7: Decision Not to Review Leggett & Platt was Based on a Factual Error
Leggett & Platt Ltd., Leggett & Platt (BC) Ltd., and Leggett & Platt, Inc. (collectively, Leggett
& Platt) argue that the Department failed to select it for a company-specific review. See Company
Selection Memorandum at 5-6. The company contends the Department determined that it was
ineligible for a review on the grounds that it was a U.S. importer that did not identify the Canadian
exporters. Leggett & Platt state that was a factual error, noting that at the onset of the administrative
review it identified itself as a “remanufacturer, exporter, and U.S. importer of the subject merchandise
during the review period, and thus is an interested party,” and that in numerous documents identified the
Canadian exporters for whom a review was requested. Therefore, the Department must correct its
error and immediately initiate a zero rate review for Leggett & Platt.
Petitioners rebut Leggett & Platt’s claim that the Department is obligated to conduct a zero-rate
review of its affiliated Canadian producers and exporters. Petitioners discuss that the Department
determined that reviews of companies that acquired lumber could be exceptionally complex and,
because of the large number of companies that reported lumber inputs in their questionnaire response,
such analyses would not be practicable. See Company Selection Memorandum at 5. Petitioners note
that Leggett & Platt acquired only lumber during the POR and did not harvest, buy, or otherwise
acquire logs; as such, the company is not eligible for a zero rate review under the criteria established by
the Department.
Department’s Position
Initially, the Department did mistakenly find Leggett & Platt to be a U.S.-origin company.
However, the reason that Leggett & Platt was not selected for a company-specific review concerns the
company’s lumber purchases. In its September 26, 2003, questionnaire response, Leggett & Platt
reported lumber purchases and, therefore, it did not fit the selection criteria for a review. As enunciated
in the March 15, 2004, Company Selection Memorandum, the Department specifically excluded from
consideration of a company-specific review those companies whose sole inputs were lumber.
Comment 8: Quebec Border Mills’ Wood Sourcing is Unique and Warrants Individual Reviews
The Quebec Border Mills argue that their situation is unique in that the vast majority of their
wood is sourced from the United States or private Canadian lands, or from excluded mills. For
example, four of the non-reviewed Quebec Border Mills sourced between 62 percent and 80 percent
of their wood from U.S. lands and between 76 percent and 93 percent of their wood from a
combination of U.S. and Canadian private lands, and from excluded mills. The use of U.S. wood stems
in large part from the geographic proximity of the border mills to the United States, and their
longstanding business relationships with Maine an other U.S. landowners. They contend that this
sourcing pattern is pivotal, because this case is not about U.S. stumpage, but Crown land stumpage.
They discuss that the Department has pointed to U.S. wood procurement as an example of nonsubsidized,
market-driven procurement, and has considered wood obtained from private Canadian
lands and from mills excluded from the countervailing order to be unsubsidized. Subjecting the Quebec
mills to the country-wide rate would rest on the opposite assumption of “subsidized” sourcing. They
assert that this assumption is inconsistent with other findings, in particular low rates for the Quebec
Border Mills confirmed in the expedited reviews, and is factually incorrect. Therefore, they argue that
the Quebec Border Mills are eligible for exclusion from the order based on their “non-subsidized”
sourcing.
Department’s Position
During the exclusion process of the investigation, we excluded from the order 26 companies,
(22 of which are located in Quebec), which demonstrated sourcing the majority of their inputs from the
United States, Maritimes, and/or private Canadian lands, and which received either zero or de minimis
subsidies. The Department also, to date, has issued two remands in response to the NAFTA Panel’s
directives with regard to six Quebec companies. These remand determinations, if and when affirmed
by the Panel, will result in these companies also being excluded from the order.
The Department, however, cannot exclude Quebec Border Mills from the countervailing
duty order based simply on close business relationships with U.S. companies. The scope of the order
covers the merchandise produced by these companies. The complexity of issues and fact patterns of
this case require that the Department thoroughly review each company, subject to the order, to examine
whether any countervailable subsidies were received.
In this review, to the extent practicable, the Department has conducted company-specific
reviews of certain Quebec Border Mills, and other Canadian companies. Specifically, in these final
results, the Department has completed company-specific reviews for four Quebec Border Mills, finding
that these companies have either a zero or de minimis net subsidy rate.
Comment 9: Individual Calculations for Blanchet and Maibec
The Quebec Border Mills assert that if the Department calculates individual rates for all mills,
several observations will become relevant: First, for Materiaux Blanchet Inc., the individual calculation
should be for the St. Pamphile border mill. Second, for Maibec Industries Inc., the individual
calculation should involve only the wood processed in the lumber sawmill operations.
Department’s Position
In these final results, the Department is not calculating mill-specific rates.
B. Subsidies Valuation Issues
1. Numerator Issues
a. Pass-through
Comment 10: Record Evidence Demonstrates the Existence of Arm’s-Length Purchases of Logs
The Canadian parties argue that the Department’s preliminary determination that a pass-through
analysis in not warranted in any province is both illegal and not supported by substantial evidence.
They argue that record evidence demonstrates the existence of a large number of arm’s-length
purchases in each province.
Respondents state that the Department acknowledged in the Preliminary Results that log input
purchases took place in Alberta, British Columbia, Manitoba, Ontario, and Saskatchewan during the
POR. They argue that the Department mistakenly concluded that none of the transactions were at
arm’s length. According to respondents, the Department erroneously and illegally presumed that all
transactions are non-arm’s-length sales, unless it can be shown otherwise.
Respondents contend that the Department cannot legally presume that all sales between
producers of logs and producers of subject merchandise are not at arm’s length. They argue that, in
accordance with recent WTO Appellate Body and Panel findings, the Department should conduct a
pass-through analysis of logs purchased at arm’s length by lumber producers to determine whether the
alleged subsidy to timber harvesters from provincial stumpage benefitted those lumber producers.
Further, the Government of Ontario (GOO) claims that pursuant to the upstream subsidy provision of
the Act, a subsidy to an input product (i.e., timber or logs) cannot be attributed to an unrelated
purchaser of the product absent a finding that all of the elements of the upstream subsidy provision of
the statute are met. More specifically, an alleged subsidy is countervailable only to the extent it has
been demonstrated to provide a “competitive benefit” to the subject merchandise. Therefore, the GOO
argues that the Department is required to exclude logs sold to unrelated third parties in arm’s-length
transactions from the subsidy calculation where there is no showing that the benefit to the independent
harvesters “passed through” to the lumber producers. Nonetheless, the respondents argue that the
petitioners neither requested nor substantiated allegations of upstream subsidies passing through to
downstream producers of the subject merchandise.
Respondents also argue that they provided all available information regarding sales of Crown
logs from independent harvesters without sawmills to sawmills in arm’s-length transactions and, if the
Department found that the data submitted was insufficient to conduct a pass-through analysis, then the
Department should have issued a supplemental questionnaire. Respondents contend that for the
Department’s decision not to conduct an analysis because the data is allegedly insufficient, without
providing notice, does not accord with the Department’s statutory and regulatory obligations.
Petitioners contend that although respondents allege that certain volumes of logs are transferred
between unrelated parties in purportedly arm's-length transactions in all of the provinces subject to
review except Quebec, respondents did not identify any specific evidence that would enable the
Department to conclude that the subsidy benefit in these transactions is not passed through to the log
buyers. Instead, respondents simply assert that the mere fact of a sale between unrelated parties is
sufficient to establish the existence of arm's-length transactions.
Petitioners contend that transactions in Crown logs in the subject provinces are likely not to be
at arm’s length because of the structure of the provincial stumpage programs, which restrict the ability
of tenure holders to obtain full value for the Crown logs they harvest. Petitioners argue that the “web of
conditions” imposed on all provincial tenure holders - appurtenancy requirements, local processing
requirements, log export restrictions, mandatory contracts with local mills as a condition of obtaining
tenure – operate to force tenure holders to provide logs for local lumber production even if they could
obtain higher log prices elsewhere. These restrictions imposed by the provincial governments on tenure
holders demonstrate that the parties to such log transfers are unable to freely negotiate a truly arm'slength
price. While the specifics of such restrictions vary by province, it is manifest that all of the
provincial governments have structured the tenure systems so as to benefit lumber producers, not the
logging industry. Petitioners also contend that record evidence confirms that, in B.C., the major tenure
holders effectively control the market for logs provided to independent loggers through the SBFEP.
Therefore, as a result of these and other provincial policies, there is no effective log market for
independently-traded logs in B.C.
Petitioners argue that no commercial timber or log sellers would encumber log sales with the
types of price-depressing restrictions that the provincial governments require of allegedly independent
loggers. However, if respondents claim the existence of arm’s-length sales, then the burden is on them
to demonstrate the existence of arm’s-length transactions in logs harvested from provincial tenures to
make lumber. Thus, petitioners assert that the Department correctly determined that respondents bear
the burden of production of evidence demonstrating that specific transactions took place during the
POR in which subsidy benefits did not pass through to the lumber producer.
Respondents counter that petitioners’ argument that no sales of logs harvested from Crown
lands can be arm’s-length transactions rests on two related and equally misguided propositions: (1) that
an arm’s-length transaction can occur only in a market that is devoid of government restrictions; and (2)
that an arm’s-length transaction is one that results in the price that the parties would negotiate if no
exogenous factors affected prices. According to respondents, this definition of “arm’s length” has no
legal or economic foundation, and, were it adopted, it would ensure that no arm’s-length transaction
could ever be found. The concept of arm’s-length transactions in a pass-through analysis does not
incorporate the absence of governmental restrictions because these restrictions do not affect whether,
or the extent to which, any alleged benefit is passed through in sales of logs between unrelated parties.
Rather, respondents point to the language of the SAA which states that “the term ‘arm’s-length
transaction’ means a transaction negotiated between unrelated parties, each acting in its own interest, or
between related parties such that the terms of the transaction are those that would exist if the
transaction had been negotiated between unrelated parties.” SAA at 928. Respondents contend that
nothing in this definition suggests that an arm’s-length transaction must take place in a marketplace free
of government involvement or that it must result in the highest price that the seller could theoretically
obtain if there were no governmental limitations on how it could sell its product.
Respondents contend that they have demonstrated that log export restraints have no effect on
the price of logs in B.C., but even if petitioners could establish that there is such a price effect, that
effect would be a result of the export restriction itself, and not evidence of any pass-through of alleged
subsidies to timber. Respondents assert that petitioners’ contention that log export restraints are a
countervailable subsidy has long been discredited, and is contradicted by substantial evidence and
unsupported by prior decisions. Further, the GOBC argues that the Department should reject this
backdoor attempt to overcome the clear holding of the panel on Export Restraints. Likewise, the
Department must reject any other attempt to import into the definition of “arm’s length” the alleged
effects of other government measures that do not independently satisfy the statutory requirements of a
financial contribution, benefit, and specificity.
Respondents also contend that petitioners are claiming, in essence, that any law or regulation
that has an effect on the price of logs results in a pass through of the alleged benefit to stumpage and
that this price effect should be included in countervailing duties. This claim confuses the putative effects
of a particular government action with the nature of that action. The laws and regulations alleged by
petitioners to affect the price of logs do not satisfy the statutory requirements of financial contribution,
benefit, and specificity. Therefore, the Department cannot legally countervail the effects of those
measures under the guise of a pass-through analysis that pertains only to an alleged subsidy to
stumpage.
Finally, respondents counter that contrary to petitioners’ characterization, Creswell Trading
Co. v. United States, 15 F.3d 1054, 1059 (1994), does not hold that respondents have the burden of
proof in cases such as this review. Respondents contend furthermore that they have presented ample
evidence to demonstrate that independent loggers and sawmills sell logs to lumber producers in arm’slength
transactions. As a result, according to respondents, the burden has shifted back to the
Department to prove that this evidence was either inaccurate or insufficient, which it has failed to do.
Department’s Position
In response to numerous requests by the Department, certain provinces submitted information
on the record of this proceeding concerning the volume of provincial Crown logs harvested during the
POR that they allege were sold in arm’s-length transactions, and for which they claim a pass-through
analysis must be performed. We evaluated that information in the Preliminary Results, and found that
respondents failed to provide the necessary evidence to support their claims that the reported log sales
were in fact conducted at arm’s length. Preliminary Results, 69 FR at 33208 - 33209. In reaching this
conclusion, the Department did not merely presume that all transactions are non-arm’s-length sales, as
the Canadian parties suggest. Rather, as described in more detail below, we considered all of the
information provided by the parties and determined that these were not arm’s-length sales. None of the
comments received by the parties since issuing the Preliminary Results have altered our finding that the
parties failed to substantiate their claims. Moreover, if respondents had any additional information
evidencing arm’s-length transactions in which subsidies did not pass through to the sawmills, it was up
to the party in control of that information to submit it to the Department for review.
Our finding that the log sales at issue can not be considered arm’s-length transactions is based
on limitations on log sales that are contained in Crown tenure contracts, such as (1) appurtenancy and
local processing requirements; (2) government-mandated wood supply agreements; (3) the payment of
Crown stumpage fees by sawmills for logs purchased from independent harvesters; (4) the structure of
certain log purchase agreements; and (5) fiber exchanges between Crown tenure holders, buyers and
sellers cannot negotiate freely. Buyers and sellers of logs are not free to bargain with whomever they
chose or to bargain on terms not encumbered by government mandates. Where sales are affected by
one or several of these factors, we find that the transaction is not an arm’s-length transaction.
The limitations, such as appurtenancy and local processing requirements, dictate to the
harvester those entities to whom it may sell, severely restricting the ability of the harvesters to bargain
freely with willing purchasers in the marketplace. The most egregious example of this is an
appurtenancy clause that requires that all or a specified amount of a tenure holder’s timber be
processed in a specified mill.
Similarly, wood supply agreements also restrict harvesters’ choices in disposing of Crown
timber. Under these agreements, the provincial government requires that an applicant, as a condition of
obtaining a Crown tenure, negotiate a contract with another party regarding the disposition of the timber
harvested from the tenure. Unlike in an open market transaction where sellers can chose freely among
potential buyers, log sales made pursuant to mandated wood supply agreements cannot be considered
arm’s-length transactions because the sale is a function of the government’s mandate.
Furthermore, many of the transactions reported by the Canadian provinces are based on log
purchase agreements which, in many instances, more closely resemble contracts for harvesting and
hauling of logs than arm’s-length log sales thereof. These include transactions in which the purchasing
sawmill takes an active role in managing all aspects of harvest and delivery of the Crown timber. For
example, the sawmill may make separate payments to a harvesting company, the unaffiliated “tenure
holder,” and log hauler. In other instances, the sawmill finances or otherwise provides goods or
services to the tenure holder as part of the transactions. In these transactions, the tenure holder is not
merely selling the log for a negotiated arm’s length price. Rather, the sawmill controls many elements of
the transaction so that the transaction cannot be considered to have been conducted at arm’s-length.
In addition to the structure of these contracts, we found that in a great many transactions the
sawmills pays the Crown directly for the stumpage due for logs purchased from independent harvesters,
rather than paying the harvesters the price of a log. Under this arrangement, it appears that the
stumpage benefit goes directly to the sawmill paying the stumpage fee, just as if the sawmill were
drawing from its own tenure and contracting out for harvesting and hauling services.
Finally, fiber exchange agreements are transactions in which tenure holders with processing
facilities exchange Crown logs with other tenure holders. For example, a tenure holder with a mill that
is set up to process only SPF timber species may end up with a harvest including some species other
than SPF, e.g., Douglas fir. Fiber exchange agreements allow the SPF mill to exchange the Douglas fir
for SPF with another tenure holder. Fiber exchange agreements can be entirely volume based, i.e., on
a “equivalent volume” basis, although, in some instances, the parties attach a nominal price to the
exchanged logs. Such agreements are often based on government-mandated appurtenancy or other
processing requirements, which require that all Crown harvest, or an equivalent volume, be processed
in a certain mill. The mills exchange wood precisely because they are not allowed to sell the logs on the
open market. Moreover, the mills are required to harvest certain volumes from their own tenure,
including logs they do not need for their own mills. These exchange agreements therefore are a
mechanism for these tenured sawmills to deal with the various government restrictions on the disposition
of the timber they harvest, not arm’s-length log sales. When buyers and sellers are not free to
negotiate, the transactions cannot be considered to be at arm's length. Such a determination fully
accords with the arm's-length definition set forth in the SAA.
We do not disagree with respondents’ contention that an arm’s-length transaction need not take
place in a marketplace free of government involvement or result in the highest price that the seller could
theoretically obtain if there were no governmental limitations on how it could sell its product. However,
respondents neglect to distinguish between government actions that generally regulate the marketplace
and those that mandate particular outcomes. The government mandates at issue here are conditions
that are placed on the tenure licenses that have a direct impact on the disposition of Crown logs sold by
independent harvesters.
Additionally, contrary to respondents’ assertion, an upstream subsidy allegation is not required.
In this proceeding we are examining subsidies that directly benefit the lumber manufacturing process in
Canada on an aggregate basis. This involves identifying all subsidies that benefit lumber manufacturers,
including subsidies arising from the provision of Crown timber for less than adequate remuneration.
To calculate the benefit from the provincial Crown stumpage programs, we requested that each
Canadian province report the value and volume of all Crown timber used in the lumber manufacturing
process during the POR. Each of the Canadian provinces subject to this proceeding reported this data.
By comparing the prices paid for the Crown harvested timber with market-determined benchmark
prices, we have determined that Crown timber is provided for less than adequate remuneration.
The issue concerning a pass-though analysis arises only because the respondents have claimed
that the Department has overstated the total subsidy by not properly adjusting the benefit calculation to
account for allegedly arm’s-length sales of Crown logs by independent harvesters to downstream
lumber producing sawmills. In this proceeding, the Department has properly addressed this claim by
requesting detailed information from respondents to evaluate whether such an adjustment is
appropriate. We continue to find that the log sales transactions reported by respondents were not
conducted at arm’s length and therefore no adjustment to the calculations is warranted.
With respect to log export restrictions, we find that the existence of these restrictions does not
necessarily preclude the existence of arm’s-length transactions in Canada. The log export restrictions
primarily limit commercial interchange between individual Canadian companies and companies outside
of Canada. In contrast, the factors that we identified as imposing restrictions on the log sales
transactions between independent harvesters and sawmills do have a direct effect on those transactions.
Comment 11: Definition of a Log Sale Transaction
The Canadian parties argue that the Department erroneously found that certain log sales are not
in fact log sales where the purchaser agrees to pay the seller’s stumpage obligation as part of the terms
of the transaction.
The Government of Alberta (GOA) contends that the Department incorrectly claimed that the
existence of submission authority arrangements in Alberta confirmed the correctness of its decision not
to make an adjustment for any arm’s-length sales. According to the GOA, the existence of submission
authority does not mean that sale are occurring at non-arm’s-length prices, and use of such authority
does not undermine the legitimacy of the arm’s- length sales in Alberta. Thus, there is no reasonable
basis for rejecting the GOA’s request to classify these arm’s-length sales volumes as non-subsidized
lumber.
The Canadian parties also contend that in an arm’s-length sale of logs for which a government
stumpage charge must be paid, both parties take that payment into account when establishing the
arm’s-length value of the logs. They further argue that it doesn’t matter which party actually writes the
check to the government, and it is irrelevant to whether the transaction occurred at arm’s-length or to
whether any of the alleged stumpage subsidy benefit passed through to the purchaser. Respondents
argue that the fact that the arm’s-length purchaser of a log pays the stumpage fee to the provincial
government does not transform that transaction into the same thing as a sawmill that harvests from its
own tenure and hires loggers to perform the harvesting service. In the first case, the purchaser pays the
stumpage fee in addition to the purchase price it pays to the logger, instead of paying to the logger a
purchase price that includes the stumpage fee, but whichever party pays the stumpage fee to the
province, the total cost to the log purchaser is the same. The logger is still selling logs, not services.
Any alleged pass through of a benefit to the log purchaser in this private transaction to which the
province is not a party must be established before that benefit can lawfully be countervailed. In the
second case, by contrast, the tenure-holding sawmill is obligated by its provincial tenure agreement to
pay stumpage fees and meet a variety of other provincial tenure obligations in exchange for the right to
harvest the log. If the log is used by that sawmill in its own lumber production, the issue of pass through
does not arise.
Further, the Canadian parties contend that the same principles apply to transactions that involve
additional payments and services incurred by the sawmill purchasing the logs. According to
respondents, such provisions to the harvester are merely transactions where the value is exchanged by a
method other than a direct cash payment. The means by which value was exchanged did not affect the
amount of value transferred or the arm’s-length character of the transaction. Hence, these alternative
methods of structuring the transaction do not reduce the amount of value transferred for the log or
eliminate the need for a pass-through analysis.
The GOBC asserts that, in fact, transactions in which the purchasing mill pay third-party
contractors directly are no different from transactions that the Department observed in Nova Scotia and
that form part of the Maritimes benchmark. Because the Department incorporated these transactions
into the Maritimes’ benchmark, these are clearly arm’s-length transactions. Thus, the GOBC argues
that the Department should conduct a pass-through analysis and conclude that no alleged stumpage
subsidies passed through with respect to 25.7 percent of the Crown logs purchased by the B.C.
sawmills that participated in the Norcon survey.
Petitioners agree with the Department’s finding in the Preliminary Results that, where the buyer
of a log allegedly transferred at arm’s-length is the party that pays stumpage to the provincial
government, the log buyer receives the financial contribution and any benefit directly and no passthrough
analysis is required. Petitioners contend that even if it could be shown that some portion of the
subsidy benefit is passed back to the harvester, the Department must still countervail the full benefit, as
the countervailing duty law is not concerned with how the subsidy recipient spends the benefit
conferred.
Department’s Position
Contrary to respondents’ argument, the Department determines that the stumpage fee is the
vehicle by which the Crown bestows the subsidy through its administered stumpage programs. When
this fee is paid directly to the Crown by the sawmill purchasing the subsidized logs from the tenure
holding independent harvester, that stumpage benefit also goes directly to the sawmill paying the fee,
just as if the sawmill were drawing from its own tenure and contracting out for harvesting and hauling
services. Therefore, in effect, the subsidy is bestowed directly to the purchasing sawmill.
As stated in the Preliminary Results, there is no material difference between the situation of a
sawmill that “buys” a log harvested by a tenure holder and is then obligated to pay the province for the
timber and the case of a sawmill that harvests from its own tenure and hires loggers to perform the
harvesting service. In both cases the sawmill receives the wood fiber and is legally obligated to
remunerate the government for it; in both cases any benefit conferred by the government's willingness to
accept less than adequate remuneration inures to the sawmill. See Preliminary Results, 69 FR at
33208.
We disagree with the GOBC’s assertion that transactions in which the purchasing mill pay
third-party contractors directly are no different from transactions that the Department observed in Nova
Scotia and that form part of the Maritimes’ benchmark. Record evidence does not demonstrate that
timber transactions in the Maritimes are subject to the same constraints as in B.C., e.g., there are no
appurtenancy or domestic processing requirements on private stumpage in the Maritimes.
b. Alberta
Comment 12: Timber Going to Non-Sawmills
The GOA asserts that the Alberta stumpage classification system does not allow the province to
isolate the wood volumes going strictly to sawmills, because Alberta uses a single basket category
(reported as "Section 80/81" timber) for much of its timber which covers wood going to make either
pulp or lumber products or roundwood products. The GOA claims that, because the Section 80/81
timber goes to multiple production facilities, it is necessary to net down the gross volume of this wood
to get to the proper numerator which is the net volume entering sawmills. In order to properly identify
the volume entering sawmills, the GOA provided a PricewaterhouseCoopers (PwC) survey at
verification which covered mills representing more than 90 percent of Alberta’s softwood billed
volumes for the POR.
In the Preliminary Results, the Department calculated the volume of softwood logs entering
sawmills in Alberta based, in part, on the information provided at verification. Specifically, the
Department adapted the results from the PwC survey which relied on companies’ actual mill records
used to track material allocations and production costs to determine the percentage of all softwood logs
used to produce each of the products manufactured by that particular tenure holder. The PwC survey
aggregated the reported company-specific volume percentages for lumber, chips, shavings, sawdust
and hog fuel to determine an aggregate percentage called “lumber.” Similarly, the PwC survey
aggregated the other categories (oriented stand board (OSB), pulp, plywood, firewood, newsprint,
etc.) to derive an aggregate percentage called “non-lumber.” Alberta applied these percentages (81.63
percent for lumber and co-products, and 18.33 percent for non-lumber products) to the total billed
volumes of Crown timber for the POR to determine the volume of the Alberta Crown wood going to
sawmills. See the June 2, 2004, Memorandum to Melissa G. Skinner, Director, from Robert Copyak
and George McMahon, Case Analysts, concerning Verification of the Questionnaire Responses
Submitted by the Government of Alberta (GOA Verification Report) at Exhibits 8-15.
The GOA argues that the Department erroneously adapted the PwC methodology in its
calculations for the Preliminary Results, creating an inadequate net down of Alberta timber volumes. In
calculating the numerator for Alberta, the Department deducted from the total volume in the PwC
report certain timber “to reflect non-lumber categories that do not utilize whole logs as an input.” See
the June 2, 2004, Preliminary Calculations for the Province of Alberta Memorandum at ALB-3. The
GOA objects to the Department’s deductions to the total volume in the PwC report on the grounds that
Alberta mills do, in fact, use whole logs to produce OSB and pulp products and claim that the
Department was incorrect in finding otherwise. See pages 32-36 of the GOA’s case brief. Therefore,
the GOA asserts that the Department should use the PwC report results without the adjustments made
by the Department in the Preliminary Results.
Petitioners counter, stating that the Department verified the PwC report and the methodology
used. Petitioners argue that if the Department concluded, based on its verification, that the PwC report
reflected the amount of wood fiber used to make lumber and pulp products for certain mills, rather than
the volume of logs entering sawmills and pulpmills, respectively, for certain integrated companies, this
conclusion must be maintained in the final results. Furthermore, petitioners assert that the GOA
concedes that the PwC report does not include the actual billed volume that entered sawmills and pulp
mills for the surveyed tenureholders, but was calculated by aggregating “all the percentages for the
products made in a sawmill, i.e., lumber, chips, shaving, sawdust, and hog fuel” and attributing these
“percentages” to lumber and the “percentages for all the other products” to non-lumber. Thus,
petitioners argue the Department should correctly conclude, based on its verification of the PwC report,
that the OSB and pulp categories represented products “made in a sawmill” from logs that entered
sawmills. See pages 84-85 of petitioners’ rebuttal brief.
23 In the Preliminary Results, the Department stated that according to information submitted by the GOQ,
the softwood stumpage harvested under TSFMAs is equal to the total timber harvested for tenure holding lumber
processing plants (i.e., processing plants that produce the subject merchandise). On this basis, the Department did
not incorporated the stumpage fees paid by FMC permit holders into the province-wide administered stumpage rate.
Department’s Position
In the Preliminary Results, the Department stated that the “OSB,” “Chemical Wood Pulp,” and
“Newsprint” categories reported in the PwC survey do not utilize whole logs as an input. However, the
Department has determined that record evidence shows company purchases of Alberta stumpage being
used to produce “OSB” and “Chemical Wood Pulp” products. See GOA Verification Report at 208-
211. Therefore, we have corrected our calculations to properly account for the “OSB” and “Chemical
Wood Pulp” categories, as stated in the PwC survey results. As to “Newsprint,” the GOA explained
the lack of any billed volume associated with the “Newsprint” category was “because production of this
product in Alberta during the period of review in fact did not use whole Crown logs.” See footnote 10
at page 34 of the GOA’s case brief. Therefore, the Department was correct in its finding that
“Newsprint” did not utilize Crown logs during the POR. Accordingly, the Department determines that
it is appropriate to accept the PwC survey results collected at verification and apply the reported
percentages stated therein to Alberta’s numerator calculations for these final results.
c. Quebec
Comment 13: Numerator of the Subsidy Benefit Calculation Should be Recalculated
Petitioners argue that the volume of timber provided by the GOQ to holders of Forest
Management Contracts (FMCs) was used to make lumber, thus it should be included in the numerator
of the subsidy benefit calculation for Quebec. They disagree with the Department’s explanation for
why stumpage fees paid by FMC permit holders should not be incorporated into the province-wide
administered stumpage rate. See Preliminary Results, 69 FR at 33225-26.23 Petitioners assert that the
questionnaire response provided by the GOQ clarifies that the volume of timber reported by type of
mill is provided for in Timber Supply and Forest Management Agreements (TSFMAs) only. As a
result, they claim that the figure used by the Department for the volume of Quebec provincial timber
entering sawmills during the POR only represents the volume of timber that the GOQ provided directly
to sawmills, and it does not include the total volume of timber that the GOQ provided to non-sawmillowning
entities through FMCs. Therefore, petitioners contend that Quebec FMC holders are similar to
SBFEP tenureholders or other similar “independent logger” tenureholders in other provinces, as they
acquire provincial logs which are subsequently processed into lumber in a Quebec sawmill.
Petitioners further argue that even though the GOQ does not sell the timber to a lumber
producer itself, lumber producers still derive a benefit. They provide an example of one Quebec
lumber producer applying for a zero/de minimis rate review who explains that neither the FMC holder
nor the affiliated sawmill has control over (1) purchasers of the logs of the FMC holder, (2) the log
volume allocated to each purchaser, or (3) the log price. See the May 12, 2004, Questionnaire
Response of Bois Daaquam at 2-4. Thus, petitioners argue that this cannot meet the definition of an
arms-length transaction because the FMC holder does not “negotiate” the selling price, the identity of
the purchasers, or the volume to be sold to each purchaser. Citing SAA at 928. For these reasons,
petitioners believe the Department should include the softwood timber volumes attributable to FMC
license holders in the Quebec benefit calculation.
The GOQ refutes petitioners’ claims stating that it does not control to whom an FMC holder
sells timber harvested under its FMC agreement, nor does it set the price of any sale of timber
harvested under an FMC agreement. The GOQ asserts that all of the fiber sourced by FMC holders
from Crown lands and then sold to sawmills were sold under open and competitive market conditions.
Therefore, these transactions would require an arm’s-length analysis if the Department chooses to
include that volume in the numerator of Quebec’s benefit calculation.
Department’s Position
Record evidence demonstrates that timber harvested under FMCs was sold to sawmills during
the POR, as indicated in section 102 of the Quebec Forest Act. However, the transactions through
which this lumber was sold would require the Department to undertake a pass-through analysis, as
recognized by the GOQ. During the course of this administrative review, the Department did not
examine or request any information concerning the nature of these timber sale transactions. Specifically,
we did not examine the relationship between the harvesters and sawmills or the terms and conditions of
the timber sales to determine whether they were conducted at arm’s-length. We are therefore unable
to reach a determination as to whether the volume of timber harvested under FMCs during the POR
should be included in the numerator of Quebec’s benefit calculation and will reconsider this issue during
the course of the on-going second administrative review.
Comment 14: Whether the Calculation of Numerator is Sufficient to Produce the Volume in the
Denominator
Petitioners argue that the volume of provincial timber included in the Department’s Quebec
numerator is insufficient to produce the volume of lumber represented in Quebec’s portion of the
denominator. Petitioners calculate that at the standard conversion factor for lumber, the log volumes
provided by the GOQ for use in the numerator would result in 17,847,737 cubic meters of lumber
produced in Quebec sawmills during the POR. Petitioners state, however, that the GOC certified that
20,747,000 cubic meters of softwood lumber was produced in Quebec during the POR. Petitioners
claim that this is more than 16 percent greater than the volume that the log input into Quebec sawmills
could have produced. Petitioners argue that regardless of whether the numerator figure is too small or
the denominator figure too large, the Department cannot use both figures if it knows that both of them
cannot be correct simultaneously. They further state that to produce 20,747,000 cubic meters of
softwood lumber in mills with an average efficiency factor of 4.34 cubic meter/MBF24 would require a
volume 38,157,585 cubic meters of softwood logs, not the 32,825,303 cubic meters claimed by the
GOQ. Therefore, petitioners argue that the difference of 5,332,282 cubic meters should be added to
the Quebec numerator.
Department’s Position
At verification, the Department traced the 25,197,962 cubic meters of provincial softwood log
harvest that entered and was processed in Quebec’s sawmills during the POR, as reported by the
GOQ’s billing system. See the June 2, 2004, Memorandum to Melissa G. Skinner, Director, from
Brian Ledgerwood, Maura Jeffords, Case Analysts, concerning Verification of the Questionnaire
Responses Submitted by the Government of Quebec (GOQ Verification Report) at 14. The
Department also traced the volume and value of lumber used in Quebec’s portion of the denominator
calculation to STATCAN’s databases. The verifiers found no discrepancies regarding these data. See
the June 2, 2004, Memorandum to Eric B. Greynolds, Program Manager, from Margaret Ward, Case
Analyst, concerning Verification of the Questionnaire Responses Submitted by the Government of
Canada and Statistics Canada (GOC and STATCAN Verification Report) at 6.
As the Department found no discrepancy with either the harvest volumes reported by the GOQ
or the volume and value data reported by STATCAN, no adjustment, as claimed by petitioners, to the
numerator is required. Moreover, as explained in this Decision Memorandum, the numerator used for
Quebec (and all other provinces whose stumpage programs are being reviewed for that matter)
includes only Crown-origin logs while, the denominator includes all lumber produced by non-excluded
companies in Canada. As a result, there will not be a direct relationship between logs in the numerator
and lumber sales in the denominator.
d. Excluded Companies
24 MBF is thousand board feet.
Comment 15: Benefits to Excluded Companies Should be Deducted in the Calculations
The GOC explains that in the Preliminary Results, the Department deducted the sales of
companies excluded from the CVD order from the denominator of the net subsidy rate calculations.
The GOC argues that for the numerator and denominator to match, the Department must also deduct
the benefits to those excluded companies from the numerator of the net subsidy rate calculations. While
many of the excluded companies received de minimis subsidies rates, the GOC claims that the total
amount received by the companies has an impact on the country-wide rate and, therefore, must be
accounted for in the net subsidy rate calculations.
Department Position
The numerator and denominator should be compatible. In the Preliminary Results, we removed
from the country-wide denominator the sales attributable to companies that have been excluded from
the countervailing duty order, but we did not remove the corresponding de minimis benefit amounts
from the country-wide numerator. In the final results, we have removed from the numerators the benefit
amounts received by all companies excluded from the countervailing duty order as well as any
stumpage benefits received by companies receiving a company-specific rate in the final results of this
review. Specifically, we have calculated POR benefits by applying the province-specific benefits
calculated in these final results to the appropriate logs/lumber volumes reported in the investigation or
expedited review. See the December 13, 2004, Final Results Calculation Memorandum. In making
this correction to our country-wide rate calculations, it was necessary to place on to the record of the
administrative review the exclusion calculations from the underlying investigation and expedited reviews.
These proprietary calculations are included in the Final Results Calculation Memorandum.
2. Denominator Issues
a. Attribution of Stumpage Benefit
Comment 16: Attribution of Stumpage Subsidies to All Products from Subsidized Logs
In the Preliminary Results, the Department included in the numerator of the calculation, only the
benefit from those softwood Crown logs that entered and were processed by sawmills during the POR
(i.e., logs used in the lumber production process). Accordingly, the denominator used for the net
subsidy rate calculation in the Preliminary Results included only those products that result from the
softwood lumber manufacturing process. Specifically, the Department included the following in the
denominator: softwood lumber, including softwood lumber that undergoes some further processing (socalled
“remanufactured” lumber), softwood co-products (e.g., wood chips) that resulted from lumber
production at sawmills, and residual products produced by sawmills that were the result of the
softwood lumber manufacturing process, specifically, softwood fuelwood and untreated softwood ties.
The GOC takes issue with the Department’s approach to the denominator in the Preliminary
Results. The GOC contends that some of the lumber produced from the logs included in the numerator
was sold by sawmills to downstream value-added producers (a.k.a., remanufacturers). The GOC
argues that these remanufacturers used the lumber acquired from the sawmills to produce both in- and
out-of-scope softwood products. The GOC claims that, just as with in-scope remanufactured lumber,
the non-scope remanufactured products are produced from the same wood fiber that initially entered
sawmills. The GOC adds that softwood chips were similarly produced by Sawmills from the logs
included in the numerator and were subsequently sold to pulp mills and used to produce pulp products.
The GOC argues that all products produced by remanufacturers as well as all pulp produced
by pulp mills were manufactured from the allegedly subsidized lumber and/or chips created at the
primary sawmills. In support of this contention, the GOC points out that the Department is applying the
countervailing duty in this segment of the proceeding to in-scope lumber produced by remanufacturers
on the ground that the subsidy does not remain with the primary mill, but passes on to the downstream
remanufacturer. The GOC asserts that the Department must therefore include in the denominator all
products produced from the subsidized logs.
The GOC further argues that the Department’s approach in the Preliminary Results disregards
section 19 CFR 351.525(b) which states that
(I). In general. If a subsidy is tied to the production or sale of a particular product, the
Secretary will attribute the subsidy only to that product.
(ii). Exception. If a subsidy is tied to production of an input product, then the Secretary will
attribute the subsidy to both the input and downstream products produced by a
corporation.
The GOC notes that the Department has applied this regulation in past cases. See Industrial
Phosphoric Acid From Israel: Final Results of Countervailing Duty Administrative Review, 63 FR
13626 at 13630 (March 20, 1998) (IPA from Israel) where the GOC claims that the Department
attributed grants for the production of inputs to subject merchandise over sales of the input and all
downstream products that could be produced from the input.
The GOC argues that the Department has ignored its past practice and instead has created a
lumber-specific methodology in which it bases the numerator on the volume of “those softwood Crown
logs that entered and were processed by sawmills during the POR” and therefore limits the denominator
to those products it believes are the direct result of the softwood lumber manufacturing process. The
GOC claims that whether the lumber is the direct result of the softwood lumber manufacturing process
or has been further processed by remanufacturers is irrelevant to the calculation methodology required
by the statute and the regulations. Rather, the Department should determine whether the downstream
products are produced from allegedly subsidized inputs. The GOC claims that the Department has
previously confirmed the applicability of such an approach before the NAFTA panel reviewing the
underlying investigation. See Certain Softwood Products from Canada, USA-CDA-2002-1904-03,
Brief of the U.S. Department of Commerce in Opposition (November 15, 2001) at I-7, where the
Department stated that, “. . .it must include in the numerator the entire value of the logs provided, and
include in the denominator the entire value of all sales, both subject and non-subject merchandise, for
which logs were used.”
Petitioners contend that the Department properly limited the denominator to the value of
products produced from logs included in the subsidy numerator (i.e., softwood lumber (including inscope
lumber produced by remanufacturers), softwood co-products, and other softwood products
produced directly in sawmills from logs included in the numerator (i.e., ties, fuelwood, etc.). Petitioners
also assert that the Department properly excluded further downstream products (e.g., pulp and paper)
from the denominator. Petitioners dispute the GOC’s claim that by including in-scope lumber produced
by remanufacturers in the denominator the Department is implicitly assuming that the subsidy benefit is
attributable to all downstream products produced from softwood lumber. Petitioners assert that the
denominator includes in-scope remanufactured products because all subject merchandise are covered
by the scope of the order. Under this approach, all subject merchandise whether or not subsidized are
included in the denominator such that the average countervailing duty assesses on softwood lumber
(subsidized and not subsidized) is equal to the net countervailable subsidy. Petitioners add that whether
the subsidy benefit is attributable to the primary lumber product or the remanufactured lumber product,
or is shared between the them, the aggregate countervailing duty rate is the same and the proper duty is
assessed by using all sales of subject merchandise. Citing to the WTO Appellate Body’s decision,
petitioners argue that no finding of passthrough of benefit is implicit in the Department’s inclusion of inscope
remanufactured lumber in the denominator. See United States - Final Countervailing Duty
Determination with Respect to Softwood Lumber from Canada, WT/DS257 at paragraph 164.
Petitioners also take issue with the GOC’s characterization of IPA from Israel. Petitioners
claim that in IPA from Israel, the Department determined that grants tied to particular products should
be attributed to sales of those products and to the downstream products manufactured by that same
company from the products to which the grants were tied. See IPA from Israel, 62 FR at 47648. In
contrast, petitioners argue that the Department has found stumpage subsidies to be tied to a production
process, and not to a particular product. See Lumber III, 57 FR at 22576.
Department’s Position
The attribution arguments put forth by the Canadian Parties misconstrue the Department’s net
subsidy rate calculation for provincially-administered Crown stumpage programs. Moreover, the
administrative precedent to which the Canadian Parties cite reflects the facts of a company-specific
proceeding involving subsidies found to be tied to certain inputs. In contrast, this proceeding is being
conducted on an aggregate basis, and here we have not found the subsidy to be tied to an input
product.
In all net subsidy rate calculations, the denominator is determined by what is captured in the
numerator or the subsidy benefit. To determine the numerator in this proceeding, the Department
examined whether the Canadian provinces subsidized the production of softwood lumber in Canada by
selling timber (stumpage) for less than adequate remuneration in accordance with 19 CFR 351.511.
As such, the Department used only the volume of Crown logs that entered and were actually processed
in lumber producing sawmills during the POR. We did not also examine whether Canada’s various
stumpage programs confer countervailable benefits on other wood products. Thus, for example, the
Department has not included in the numerator calculation volumes of Crown logs harvested and
processed in pulp mills, Crown logs that were harvested but never processed during the POR, or the
volume of Crown logs processed by whole log chippers during the POR.
By calculating the numerator in the manner described above, we selected a denominator that
corresponded to all products produced during the softwood lumber manufacturing process from logs
that entered and were processed by sawmills during the POR. The selection of the denominator is thus
a logical result of the numerator calculation, as it must be in order to properly calculate the subsidy rate.
We disagree with the Canadian Parties’ claims, which they also made in the investigation, that
limiting our numerator calculation to subsidized products used in the lumber manufacturing process is
not permitted by the regulations because the regulations do not permit subsidies to be “tied” in such a
manner. As we have explained previously, we have not reached a determination that the subsidy is
“tied” to an input product, within the meaning of the regulations. Rather, because this is a review being
conducted on an aggregate basis, we have merely limited our numerator calculation to subsidized
products that are used to produce the subject merchandise and then selected a corresponding
denominator, i.e., the output of the lumber manufacturing process. This “matching” of the numerator
and denominator is essential in order to calculate an accurate country-wide ad valorem countervailing
duty rate on Canadian lumber exported to the United States.
Therefore, based on the approach described above, we have included in our denominator all
softwood products produced by sawmills during the softwood lumber manufacturing process from logs
that entered and were processed by sawmills during the POR. In addition, because we are collecting
duties based on the ad valorem value of subject merchandise at the final-mill stage and because we do
not want to use a denominator that would result in the over collection of duties, we have also included
in our denominator all in-scope merchandise produced by remanufacturers. As explained in the
Preliminary Results, we would have included any co-products produced by remanufacturers during the
softwood lumber production process. The GOC, however, did not provide breakouts of the softwood
co-products produced by remanufacturers.
The GOC asserts that there are also remanufacturers that use in-scope lumber in their
production processes to make other non-scope softwood products. However, these items (e.g.,
chemically treated wood in the rough, fiberboard, and mobile homes) are not products that are
produced during the production of softwood lumber, and thus do not correspond to our numerator
calculation. Thus, consistent with our methodology in the investigation, we are not including these
additional remanufactured products in the denominator of the net subsidy calculation.
b. Use of Adverse Facts Available for Manitoba and Saskatchewan
Comment 17: Use of Adverse Facts Available to Derive Lumber and Co-Product Shipment Data
To derive the lumber shipment values for Saskatchewan that the GOC reported in its
questionnaire response, the GOC used data from the underlying investigation to calculate average unit
values that they projected to the POR using softwood lumber price indices. The GOC multiplied the
indexed average lumber unit values by actual POR volume data for Saskatchewan to arrive at an
estimated POR lumber shipment value. In the case of softwood co-product shipment values for
Saskatchewan and Manitoba, the GOC adopted a similar approach and estimated values for the two
provinces using data from the underlying investigation. See, e.g., the March 15, 2004, GOC
submission at GOC-GEN-46. In this manner, the GOC derived estimated POR shipment values for
Saskatchewan and Manitoba.
In the Preliminary Results, the Department resorted to the use of Adverse Facts Available
(AFA) to derive the softwood lumber shipments values for Saskatchewan and to derive the softwood
co-product shipment values for Manitoba and Saskatchewan on the grounds that the GOC failed to act
to the best of its ability to obtain unit values based on available data from the POR. For further
discussion of the Department’s decision to use AFA (see 69 FR at 33209). In its case briefs, the GOC
objects to the Department’s application of AFA.
The GOC claims that in the Preliminary Results, the Department refers to its efforts to collect
“actual” sales data for Manitoba and Saskatchewan, as opposed to “estimated” data. Given that the
denominator data utilizes national accounts data, the GOC claims the use of the terms “actual” and
“estimate” are misleading as all of the GOC’s denominator data are accurate estimates in one form or
another. The GOC contends that it tested the validity of the Manitoba and Saskatchewan denominator
data it submitted by comparing a Canada-wide sales figure (which included the confidential sales data
from the two provinces) to the Canada-wide sales figure comprised of its submitted sales figures for
Manitoba and Saskatchewan. The GOC claims that the two Canada-wide figures are virtually identical
and, thus, demonstrate the accuracy of the shipment data it submitted for Manitoba and Saskatchewan.
The GOC further claims that the average unit values from the underlying investigation were previously
verified by the Department and, therefore, should be accepted in the administrative review.
The GOC further argues that it, in fact, inadvertently provided much of the confidential data
requested by the Department. In spite of this inadvertent disclosure, the GOC explains that it did not
seek to remove from the record the confidential data that was inadvertently submitted.
The GOC also contests the Department’s claim in the Preliminary Results that the GOC failed
to cooperate to the best of its ability. The GOC claims that the Department based its AFA finding on
the fact that the GOC failed to seek waivers from softwood lumber producers in Manitoba and
Saskatchewan that would theoretically have permitted confidential data for those provinces to be
disclosed. The GOC claims that the Department never asked it to seek such waivers in the
questionnaires or in meetings it held with the Department.
The GOC argues that the Department erroneously involves the actions of the Canadian Border
Services Agency (CBSA) as justification for resorting to AFA for portions of Manitoba’s and
Saskatchewan’s denominator data that was submitted by STATCAN. It further asserts that the
Department exaggerates the success of the CBSA in obtaining confidentiality waivers from individual
companies. The GOC contends that contrary to the Department’s statements in the Preliminary
Results, the GOC did not obtain waivers from 50 companies in a 10 to 15 day period. Rather, the
GOC asserts that it successfully obtained waivers from 50 companies during a six-week period.
The GOC also argues that the Department’s AFA finding failed to appreciate the dramatic
differences between the confidentiality regulations of the CBSA and STATCAN. The GOC claims
that, unlike the CBSA, STATCAN’s waiver regulations are more stringent and often require the
consent of all affected producers to reveal any of the data in question.
The GOC claims that the CIT has not allowed the Department to resort to use of AFA where
“respondents submitted the necessary information required to make a proper determination, and
Commerce verified the responses as accurate and reliable.” See, e.g., Coalition for the Preservation of
American Brake Drum and Rotor Aftermarket Mfrs. v. United States, 44 F. Supp. 2d 229, 236 (CIT
1999). The GOC further asserts that the Department’s AFA finding does not accord with the CAFC’s
decision in Nippon Steel v. United States, 337 F. 3d 1373, 1379-84 (Fed. Cir. 2003) (Nippon Steel)
and that the facts of the instant proceeding are clearly distinct from those addressed by the CAFC.
Petitioners argue that the Department’s application of AFA was warranted because the GOC
did not act to the best of its ability. Citing to Branco Peres Citrus, S.A. v. United States, 173 F. Supp.
2d 1363, 1372 (CIT 2001) (Branco Peres Citrus), they argue that the CIT has authorized the
Department to resort to the application of AFA when the data exist but the party fails to take the
needed steps to obtain them. As in Branco Peres Citrus, petitioners claim that the GOC failed to take
the necessary steps to obtain data that was requested by the Department. Specifically, petitioners
argue that the GOC failed to request waivers from the companies that accounted for softwood lumber
and co-product sales in Manitoba and Saskatchewan.
Further, petitioners disagree with the GOC that Nippon Steel, which involved a false statement
by the respondent regarding the implausibility of obtaining the requested records, can be distinguished
from the facts of the instant review. According to petitioners, as in Nippon Steel, the GOC falsely
claimed that denominator data for Manitoba and Saskatchewan could not be disclosed. However,
petitioners argue that the GOC failed to mention in its questionnaire response that such information
could, in fact, be disclosed pursuant to a waiver. Petitioners assert that the GOC’s omission of this
important fact was just as misleading as a false affirmative statement and they note that Nippon Steel,
establishes that “inadequate inquiries” on the part of respondent may warrant the application of AFA.
Petitioners contend that the GOC’s failure to seek the waivers from the handful of companies
whose data comprises the sales data for Manitoba and Saskatchewan is particularly glaring in light of
the fact that the GOC requested multiple waivers from individuals/companies when the purported
evidence was favorable to it. In support of their contention, petitioners cite to several submissions in
which GOC agencies and the provincial governments (including the GOM and the Government of
Saskatchewan (GOS) have provided company-specific information. Petitioners argue that the GOC
therefore cannot complain that obtaining company-specific information is unnecessarily burdensome.
Petitioners disagree with the GOC’s contention that the Department did not instruct the GOC
to seek waivers. Petitioners cite to the Department’s March 15, 2004, questionnaire in which the
Department stated in its cover letter, “Moreover, we request that the relevant governments seek
appropriate waivers from the private parties that would permit the submission of this information as
business proprietary information to the Department.”
Petitioners further argue that the GOC’s claim that the Department overstated the number of
waivers sought by the CBSA, misses the point that the GOC attempted to secure waivers in one aspect
of the instant review and refused to do so in an other and, thus, its actions warrant the application of
AFA.
Concerning the GOC’s arguments that its “estimated” denominator data is a suitable substitute,
petitioners argue that such an approach requires the Department to rely upon the good word of the
GOC that its estimations are accurate. Petitioners argue that it is a respondent’s burden to produce
data and the Department’s responsibility to assess and scrutinize that data. Petitioners also contend
that the Department has no legal obligation to rely on such estimates.
Department’s Position
As explained in the Preliminary Results, the Department repeatedly requested that the GOC
provide the POR unit values for lumber shipments from Saskatchewan and POR unit values for co-
25 The Preliminary Results contain the chronology of the Department’s requests for this data. See 69 FR at
33209-33212.
26 The GOC’s March 15, 2004 filing purports to show that log import data from STATCAN and the CBSA
are inaccurate and, therefore, are unuseable for benchmark purposes.
product shipments from Saskatchewan and Manitoba.25 In response to the Department’s requests, the
GOC claimed that the unit values requested for Saskatchewan and Manitoba could not be disclosed
pursuant to STATCAN’s confidentiality regulations. See, e.g., the November 12, 2003,
Questionnaire Response of the GOC at 9-10 and the March 8, 2004, Questionnaire Response of the
GOC at 3. Contrary to the GOC’s claims, the Department then instructed the GOC to seek waivers
for the denominator data it claimed was confidential. See the March 15, 2004, cover letter to the
Department’s Questionnaire in which the Department stated:
“In certain other instances, the governments have declined to provide requested information
claiming that provincial and/or Canadian law prohibits them from providing such data. To the
extent not submitted, we request copies of all such laws referenced by the governments.
Moreover, we request that the relevant governments seek appropriate waivers from the private
parties that would permit the submission of this information as business proprietary information
to the Department.”
The GOC did not seek such waivers for the denominator data as requested by the Department and
instead claimed that the revelation of any of the confidential information would result in a criminal
violation. See the April 1, 2004, Questionnaire Response of the GOC at 2.
Meanwhile, the GOC, working in conjunction with STATCAN and the CBSA sought and
obtained waivers from individual producers and importers of lumber and included their confidential data
in a three volume submission that it voluntarily filed with the Department on March 15, 2004, the last
day in which parties could file new factual information.26 The fact that the GOC filed a submission in
which waivers were used to obtain confidential information from individual companies on the same day
that the Department requested that the GOC seek waivers to obtain the requested denominator data
belies the GOC’s claim that waiver requests were unduly burdensome or administratively impossible.
Furthermore, during verification, we learned that STATCAN’s confidentiality regulations allow
for the release of confidential data provided that the administering authority seek waivers from parties
that submitted confidential information to the Canadian Government. For example, under section 17(2)
of the Statistics Act, STATCAN may conduct a discretionary disclosure in which certain confidential
information is released by order of the Chief Statistician provided that the originators of the data give
written consent. See GOC and STATCAN Verification Report at 2. Moreover, officials from
STATCAN admitted that in the past they sought consent from companies to release their confidential
information to the public. See Id. Thus, contrary to the GOC’s claims, STATCAN’s confidentiality
regulations did not make it impossible for the requested denominator data to be released. Moreover,
the record evidence indicates that STATCAN has, in fact, sought waivers to release similar types of
confidential data in the past.
Section 776(a) of the Act requires the use of facts available when necessary information is not
available on the record, an interested party withholds information that has been requested by the
Department, or when an interested party fails to provide the information requested in a timely manner
and in the form required. As discussed above and as previously explained in the Preliminary Results,
there can be no doubt but that respondents are aware that full and accurate lumber value shipment data
and co-products data are necessary for the Department’s subsidy calculation. Indeed, obtaining
accurate data to calculate the denominator is central to the Department’s subsidy rate calculation and
was an issue throughout the underlying investigation and the Department’s subsequent remand
redetermination. Notwithstanding the specific provision in the law that permits the government to seek
such waivers, the GOC failed and refused to provide the denominator data requested by the
Department in spite of the Department’s repeated requests and in spite of the GOC’s demonstrated
ability to seek and obtain waivers for the release of confidential data in other aspects of the
administrative review. Therefore, we find that the GOC withheld the denominator data requested by
the Department and, thus, the use of facts available, as permitted by Section 776(a) of the Act, is
warranted.
Section 776(b) of the Act provides that in selecting from among the facts available, the
Department may use an inference that is adverse to the interests of a party if it determines that a party
has failed to cooperate to the best of its ability. The Federal Circuit has addressed the issue of adverse
facts available in Nippon Steel. In interpreting Section 776(b) of the Act, the Federal Circuit held that
“the statutory mandate that a respondent act to the best of its ability requires the respondent to do the
maximum it is able to do” (see 337 F.3d at 1382). As we have discussed above and in the Preliminary
Results, the GOC claimed that, pursuant to its confidentiality regulations, it was impossible for
STATCAN to release of the requested denominator data. However, contrary to the GOC’s claims,
evidence collected at verification demonstrates that STATCAN may release confidential data when the
originators of the information waive their rights to confidentiality. Evidence collected at verification
indicates that the GOC STATCAN has sought waivers for similar data in the past.
As the record makes clear, in spite of the Department’s request, the GOC never sought any
such waivers for the requested denominator data. With respect to the GOC’s claim that release of the
data would constitute a criminal act, the Department has not asked the GOC to violate any laws.
Rather, the Department requested that the GOC seek appropriate waivers under the provisions in its
own law. The GOC made no effort to seek such waivers. The GOC failed to put forth its maximum
efforts to obtain the requested information. Thus, because the GOC claimed the release of the
requested denominator data was impossible when, in fact, it could have sought waivers to release the
confidential denominator data, we continue to find that the GOC failed to act to the best of its ability
and that the application of AFA is warranted.
We also disagree with the GOC’s contention that it provided much of the confidential data that
we requested. As explained in the Preliminary Results, the GOC inadvertently disclosed confidential
information concerning Saskatchewan’s lumber shipment volume. This data was submitted to the
Department and served on all parties on the public service list. The Department incorporated this data
into its AFA calculations. However, in spite of the use of this data, the Department still lacks the unitvalue
information it repeatedly requested for Saskatchewan and Manitoba.
We also disagree with the GOC’s contention that their estimations should be accepted because
the GOC purportedly tested the validity of the Manitoba and Saskatchewan denominator data it
submitted by comparing a Canada-wide sales figure (which included the confidential sales data from the
two provinces) to the Canada-wide sales figure comprised of its submitted sales figures for Manitoba
and Saskatchewan. It is the GOC’s responsibility to produce the requested data and the Department’s
responsibility to assess the reasonableness and validity of that data.
On this basis, we continue to find that the application of adverse inferences when calculating the
denominator for Saskatchewan and Manitoba is warranted.
C. Provincial Stumpage Program Issues
1. Specificity
Comment 18: Stumpage Program is Not Specific
The Ontario Forest Industries Association (OFIA) and the Ontario Lumber Manufacturers
Association (OLMA) argue that the evidence on the record of this review does not support the
Department’s preliminary finding that stumpage programs were used by a single group of industries.
Rather, the surveys placed on the record of this review demonstrates that innumerable industries use
stumpage. Further, the OFIA/OLMA argue that if the Department were to properly apply the de facto
specificity factors enumerated in the statute, the Department would find that stumpage is not specific to
an industry or group of industries.
The petitioners argue that stumpage subsidies are de jure specific to producers of subject
timber. Furthermore, petitioners argue that the Department’s determination from its original
investigation, that stumpage subsidy programs were specific because a limited number of certain
industries utilized the subsidies, has been upheld by NAFTA and WTO. As no new evidence to
challenge the Department’s determination from the investigation has been offered, the Department
should disregard the OFIA/OLMA’s claims about specificity.
Department’s Position
In the Preliminary Results and in Lumber IV, the Department determined that provincial
stumpage subsidy programs were used by a “limited number of certain enterprises” and, thus, were
specific in accordance with section 771(5A)(D)(iii)(I) of the Act. More particularly, the Department
found that stumpage subsidy programs were used by a single group of industries, comprised of pulp and
paper mills, and the saw mills and remanufacturers that produce the subject merchandise. Although the
OFIA/OLMA cite to two surveys placed on the record of this review that were not presented in the
underlying investigation, we continue to determine that no information in the record of this review
warrants a change to our finding that stumpage subsidy programs were used by a single group of
industries and are, therefore, specific within the meaning of section 771(5A)(D)(iii)(I) of the Act.
Contrary to the OFIA/OLMA’s claim, the language of the statute is clear. Section
771(5A)(D)(iii) of the Act (as well as the SAA and the CVD Regulations) clearly states 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. Therefore, the
Department is not required to address the other factors listed in section 771(5A)(D)(iii) of the Act. For
these final results, we continue to find that the stumpage programs are specific within the meaning of
section 771(5A)(D)(iii)(I) of the Act.
2. Benchmark: In-Province Stumpage Prices
a. Alberta
Comment 19: Timber Damage Assessment Data as a Provincial Benchmark
The GOA argues that the Department incorrectly concluded that timber damage assessment
(TDA) values cannot serve as an adequate benchmark. The GOA describes TDA as an arm’s-length
determination of the value of standing timber in Alberta developed by private parties with opposing
interests. The GOA takes issue with the Department’s reasons for rejecting the use of TDA in the
Preliminary Results (see 69 FR at 32112). Specifically, the GOA contends that, in describing TDA,
the Department inaccurately stated that (1) TDA was established by the government, (2) parties subject
to TDA were mandated by the GOA to compensate tenureholders for damaged timber, (3) TDA is
administratively set by the GOA, and (4) that damaged timber compensated under TDA is not
harvested for commercial purposes. See pages 26-27 of the GOA’s case brief. The GOA argues that
the record demonstrates that TDA was created by private parties, is voluntary, the TDA prices are not
administratively set, and that the intentions of the harvester are irrelevant as to whether or not TDA
represents a market value. In sum, the GOA asserts that TDA is a private sector effort to calculate
guidelines used to assess the market value of standing timber in Alberta, and is reliable because it is
based on actual market transactions.
Petitioners state that the Department was correct to conclude in the Preliminary Results that
TDA prices do not reflect a market price for timber in Alberta. Petitioners contend that TDA prices
are not market-determined and are not used as a benchmark to price actual sales of timber used for
lumber production. Furthermore, petitioners assert that the TDA values are inherently part of the
Alberta stumpage program itself; therefore, they cannot measure whether the program confers a benefit.
Petitioners argue that the TDA values are not informative of whether the prices amount to adequate
remuneration because the TDA values are simply a reflection of the internal prices that are depressed
by the government subsidies at issue. Petitioners argue that TDA is not strictly a timber benchmark
because the data is based primarily on log sales, obtained exclusively from tenureholders. Moreover,
petitioners object to TDA because it reflects purchases by mills who hold tenure in Alberta. See pages
242-243 of petitioners’ case brief.
The GOA rebuts petitioners’ assertion that TDA is not strictly a timber benchmark because the
data used to calculate standing timber values are based mostly on log sales. Specifically, the GOA
argues that TDA is representative of private commercial interests in Alberta and is used to calculate the
market value of Alberta stumpage; therefore, TDA is usable as a stumpage benchmark, either under
Tier 1 of the Department’s regulatory hierarchy, or even if it were not an actual value used in the
province, under Tier 3. The GOA also takes issue with petitioners’ objection to TDA on the basis that
it reflects purchases by mills who hold tenure in Alberta. The GOA argues that purchases by
tenureholders have no impact on the validity of the prices paid for the logs in what Alberta describes as
an active private log market.
Department’s Position
The Department inadvertently made several factual misstatements in the Preliminary Results.
Notwithstanding these inaccurate statements, TDA values cannot serve as an appropriate benchmark.
We have examined the TDA values provided by Alberta and have found that they do not reflect
market-determined prices as required by the CVD Regulations. Several factual statements
made by the Department in the Preliminary Results require correction. First, the Department indicated
that the TDA survey process was established by the GOA. The Department should have stated that
the GOA facilitated the development of the TDA, with the aim of creating guidelines for compensation
in disputes over timber felled during gas or oil exploration, drilling, or mining activities. Although GOA
representatives attend TDA committee meetings, the GOA is not ultimately responsible for negotiating
the details of the TDA. Second, the Department stated that the utilization of the TDA was mandatory
for parties. However, factual information from verification shows that TDA is a voluntary effort at
dispute resolution which is not mandated by the government. See GOA Verification Report at 9.
Finally, the Department indicated that the TDA values were administratively set. However, the
Preliminary Results should have indicated that the TDA compensation values were negotiated using a
residual value calculation based on Bearing Point’s survey described below.
These factual corrections notwithstanding, the Department continues to find that the TDA prices
cannot serve as benchmarks. The prices underlying the TDA value calculations are effected by the
GOA’s involvement in the market, which could lead to a distortion in the TDA values. As the GOA
acknowledges, the TDA values are set by reference to the stumpage values. Specifically, as the GOA
states the “value on the {TDA} table are derived by consultants from a two year average of
competitive CTP sales values, as well as the value of arm’s length log purchases, adjusted to stumpage
values by backing out harvesting and haul costs.” See the November 12, 2003, Questionnaire
Response of the GOA at Volume 1, pages 1-6.
The Coniferous Timber Permit (CTP) sales do not represent prices for transactions between
private parties, but are prices for transactions between private parties and the Crown for Crown
stumpage. While the GOA argues that these transactions are a result of competitive bidding which
would negate the effect of Crown involvement in the transaction, the record evidence demonstrates that
the extent of competition in the CTP sales is both limited and declining. The BearingPoint TDA 2003
Update indicates that “{c}ompetitive permits decreased quite noticeably since 1997, as the system of
allocating permits changed to one where most permits are directly allocated at the general rate of
Crown dues. Approximately, 20 percent of the permits are now competitively auctioned – a much
smaller portion than in previous years.” See Id. at Volume 5, page 3. This trend is evident in the
BearingPoint survey results which show that the CTP competitive volume sold has declined significantly,
decreasing from 526,000 m3 in 1993 to 114,000 m3 in 2002. See Id. at 2. In addition, the reported
CTP volume sold in 2002 (114,000 m3), represents less than one percent of Alberta’s billed volume for
the POR (11,932,017 m3). Hence, the vast majority of the CTP prices do not reflect competition for
the right to harvest timber. The record, therefore, demonstrates that the CTP prices underlying the
TDA calculations do not reflect market determined prices.
The GOA asserts that the remaining values collected for the purposes of the TDA, i.e., timber
sales by FMA and Timber Quota Certificates (CTQ) holders adjusted to stumpage values, are arm’slength
transactions between private parties. However, as the GOA indicates, the TDA survey does not
differentiate between “private” and Crown transactions. See Id. at Volume 1, pages 1-6. There is,
therefore, no method for the Department to identify the potentially private transactions captured by the
TDA survey.
For these reasons, the record evidence supports the Department’s finding that the TDA prices
are not actual market-determined prices and, thus, cannot be used as a benchmark. See 19 CFR
351.511(a)(2). In light of this decision we have not addressed petitioners’ comments regarding
whether record evidence confirms that timber and log prices in Alberta are distorted and, therefore,
cannot serve as an appropriate benchmark
b. Ontario
Comment 20: DGM Survey Prices are Useable Private Prices under the First Tier of the
Benchmark Hierarchy
The GOO argues that the Department should determine the “adequacy of remuneration” of
Ontario’s softwood timber sales by “comparing the stumpage charge for Ontario Crown softwood
timber with a market-determined price resulting from actual transactions reflecting prevailing market
conditions in Ontario.” See pages 6-7 of the GOO’s case brief. The GOO contends that the
Department should apply the first tier of the benchmark hierarchy by using the stumpage prices for
timber harvested from private lands in Ontario. The GOO states that, because the stumpage fees for
Crown softwood timber do not include the costs of significant obligations that harvesters of Crown
timber are required to incur, the Crown timber prices must be adjusted upward to reflect such
additional costs.
27 The OFIA and OLMA argue that, “[a]lternatively, the Department may resort to one of its established
third tier benchmarks” and either derive stumpage from domestic log prices in Ontario, or apply a cost revenue test.
See page 24 of OFIA/OLMA’s case brief. These comments are addressed in Comment 44 of this Decision
Memorandum.
The GOO argues that Ontario “has provided the Department with extensive verifiable evidence
establishing the viability of Ontario’s private market and the prices of actual private market transactions
in Ontario.” See Id. at 7. Specifically, the GOO contends that prices provided by the GOO in the
Demers Gobeil Mercier (DGM) Survey should be used for benchmark purposes and that the record
demonstrates that Ontario has a thriving and competitive private timber market reflective of “existing
prevailing market conditions.”
The GOO argues that if access to Crown timber could be used as a bargaining lever to drive
down the price of private timber, this would be evident in the prices, i.e., FRL holders would pay
significantly lower prices than non-FRL holders. The GOO contends that the DGM Survey
demonstrates the viability of Ontario’s private timber market, observing that, according to the survey,
the average price of private SPF timber paid by loggers who hold FRLs during the POR differed by
only C$0.20 per cubic meter from the average price paid by loggers who do not hold FRLs. The
GOO further notes that the DGM Survey indicates that prices for SPF timber harvested from private
land in different regions of Ontario do not differ greatly from each other, e.g., the weighted-average
price of SPF timber delivered to sawmills and harvested from private land in the northern and central
regions differs by C$0.09. The GOO contends that this price distribution is consistent with a wellfunctioning
competitive market in which arbitrage serves to limit the ability of private market prices to
vary.
The GOO also argues that, “[s]hould the Department impermissibly disregard the first tier
benchmark provided by Ontario’s private market for softwood timber,” the Department cannot apply
the second tier of the hierarchy because there are no world market prices. The GOO contends that the
Department is “prohibited by law, and the record evidence does not support, the use of U.S. timber or
log prices” because “[s]uch comparisons do not reflect prevailing market conditions in Ontario.” See
Id. at 7-8. The GOO argues that, if the Department chooses to use a benchmark under the third tier of
the hierarchy, “it should apply its standard cost-revenue test to determine whether the Ontario
stumpage program produced a sufficient rate of return.” See Id. Finally, the GOO states that, should
the Department construct a log price benchmark under the third tier, it should rely only upon Ontario
domestic log prices and not import or export data.
The OFIA and OLMA argue consistently with the GOO’s position that the Department should
use private stumpage prices in Ontario under the first tier of the benchmark hierarchy.27 See Id. at 14.
Petitioners’ remarks primarily argue for the Department’s discretion to reject the DGM Survey.
They argue that, because Crown timber makes up 93 percent of the market, there is no possibility that
private prices are not suppressed by Crown timber prices. Petitioners argue that, as in the
investigation, the Department should use timber prices from the U.S. portion of the boreal forest in the
adjacent counties of northeast Minnesota to measure the benefit from Ontario’s provincial stumpage
program. In the alternative, petitioners argue that the Department should use published U.S. log prices,
net of Canadian harvesting costs, as a measure of the subsidy benefit under tier three of the benchmark
hierarchy or as a check for systematic bias in a timber price benchmark. Petitioners argue that there
are no useable prices in Ontario for use as benchmarks under the first tier of the regulatory hierarchy.
Petitioners contend that “regardless of the extent to which the DGM Survey was verified, Ontario
private prices are far too distorted by government involvement in the market to form the basis of any
benchmark.” See pages 4-5 of petitioners’ rebuttal brief.
Petitioners also argue that the similarity between private timber prices in the DGM Survey and
prices for public timber shows that they compete with each other and thus private prices are distorted.
They further argue that the uniformity of private prices throughout Ontario is evidence of competition
between the public and private market which holds private timber prices down.
Department’s Position
As noted in this Decision Memorandum, section 771(5)(E)(iv) of the Act governs the
Department’s benefit analysis when a good has been provided. Specifically, section 771(5)(E)(iv)
provides that “[a] benefit shall normally be treated as conferred where there is a benefit to the recipient,
including – . . . in the case where goods or services are provided, if such goods or services are
provided for less than adequate remuneration.” The statute further provides 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 . . . review.”
The decision of which data to use for benchmark purposes is guided by our regulations
and a reasoned analysis of the facts on the record. In accordance with our benchmark hierarchy, 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. See
19 CFR 351.511.
We determine that the private prices placed on the record by the GOO are not suitable
benchmarks. As explained below, the private prices reported in the DGM Survey cannot be used as
benchmarks because the prices paid by these mills for private timber are effectively determined by the
price they pay for public timber.
The DGM Survey is a survey of loggers that supplied the 25 largest Crown softwood
consumers. The DGM Survey identified its survey population by contacting various parties and
requesting that they provide names of loggers who harvest timber from private lands. DGM contacted
government agencies, the 25 largest consumers of Crown timber in Ontario, and 12 small mills in
southern Ontario to identify these loggers. Presumably the mills that were contacted provided names of
their suppliers to DGM. The DGM surveyors also identified a small number of loggers through
telephone contacts; however, the record does not indicate how many of these actually participated in
the survey.
The price that loggers are willing to bid on private stumpage is dictated by the difference of the
expected sale price of the log and their harvesting costs plus profit. Loggers who sell to tenure holding
mills cannot expect to charge more for their private logs than the cost of the logs that the mills can
source from their public tenure. These large softwood sawmills, producing 94 percent of the lumber in
Ontario, have Crown tenure for which they pay government-set stumpage prices. As discussed below
in Comment 21, because the AAC in Ontario is not binding, mills with public tenure can always harvest
more timber from their tenure and are not driven to the private market by demand that cannot be met
from their tenure holdings. Their willingness to pay for logs from other sources will be limited by their
costs for obtaining timber from their own tenures. Therefore, the prices loggers bid for private stumpage
is limited to match the public stumpage prices paid by these mills. For these reasons , the Department
finds that the transactions recorded in the DGM Survey are effectively determined by the Crown
stumpage prices and are, hence, not suitable benchmarks for assessing adequacy of remuneration.
We also disagree with the GOO’s contention that the similarity between Crown stumpage
prices and private prices in the DGM Survey demonstrates that the private prices are not distorted.
The GOO’s argument begins with an assumption that Ontario Crown stumpage prices are not
distorted, i.e., that if Crown prices are not distorted and they are the same as private prices then private
prices must be undistorted. Ontario assumes the answer to the inquiry, i.e., whether Crown stumpage
is sold for less than adequate remuneration. The similarity between these prices more likely reflects that
fact that private prices are effectively determined by Crown prices. As discussed above with respect
to B.C., the linkage between Crown timber prices and private timber prices would lead to price
suppression in the private market, as harvesters of timber from private land would be forced to meet
the Crown stumpage price. Our analysis cannot utilize a benchmark that would reflect any underlying
subsidy to determine whether and to what extent that very subsidy exists. For these reasons, the prices
in the DGM Survey are not useable under tier one of our regulatory hierarchy.
As explained above in the “Benchmark” section of this Decision Memorandum, consistent with
the statute and the CVD regulations, we are using the Maritimes’ stumpage prices on the record to
assess the adequacy of remuneration for purchases of Crown timber in Ontario. The Maritimes’ prices
are in-country, market-determined prices and, thus, unlike the DGM Survey prices, are useable
benchmarks under tier one of our regulatory hierarchy.
Comment 21: Whether Ontario Crown Supply is Inelastic and Whether Marginal Demand is Met
by the Private Market
The GOO argues that the price of Crown timber will not distort private prices if Crown timber
is inelastically supplied, i.e., if Crown supply does not change due to changes in price, it cannot satisfy
all demand, and private suppliers are available to meet demand. The GOO states the price charged for
“marginal timber” determines the market price for timber in Ontario irrespective of whether the timber
from Crown lands is subsidized. This conclusion is based on two economic characteristics of Ontario’s
softwood timber market: (1) supply of Crown timber is price inelastic in the short run, and (2) there are
private suppliers who are willing to supply timber at a price above that charged by the Crown. The
GOO contends that under these two characteristics, the price observed for “marginal” private timber
will be unaffected by the price charged for Crown timber. If the volume does not change, then Crown
lands cannot supply the marginal demand for timber; such demand will be met by private suppliers who
are not forced to compete with Crown supply and thus the price of Crown timber cannot distort private
prices.
The GOO argues that the only economically valid basis for a conclusion that Crown timber is
elastically supplied would be evidence showing that the volume of timber harvested from Crown land
has responded to price variations. Mere changes in Crown volume supplied, which is affected by a
variety of exogenous reasons unrelated to price (e.g., weather) are not sufficient to show
elasticity–there must be evidence that volume changes are in response to price. Rather, empirical
evidence supports the conclusion that changes in Crown production are unrelated to changes in the
price of Crown timber, specifically events such as weather (blowdowns) and inadequate road
infrastructure.
The GOO contends that marginal demand for timber will and must be met by private supply,
not Crown supply. Unlike Crown land, the harvesting of which is approved by the Ontario Ministry of
Natural Resources (OMNR), privately-held land is regulated by market forces, meaning that the
amount of private land available for harvest can adjust flexibly to current and future timber pricing in
relation to the returns associated with alternate land uses. For this reason, the GOO concludes, private
sellers who supply that marginal demand do not compete with Crown timber, and can sell for prices
that are not influenced by Crown rates. The OFIA and OLMA concur with the GOO stating that
demand for timber in Ontario is unsatisfied by timber harvested from Crown lands and that private
timber and log sales in Ontario satisfy the excess demand for wood fiber when the government supply
has been exhausted. Consequently prices in the private market are unconstrained by Crown stumpage
prices.
Further, the GOO explains that the AAC is a theoretical harvest rate used as a planning tool to
ensure that the productive capacity of Crown land is not eroded by excessive production. Planned
harvest volume does not measure full economic production and typically overstates true production
capacity because it cannot account for some significant non-price factors (e.g., fish and wildlife
management) that tend to limit the ability to harvest. Accordingly, the GOO argues, the inability of
Crown tenureholders to meet the AAC or planned harvest volumes does not demonstrate that there is
excess Crown production capacity in the Ontario timber market that would affect prices for private
timber.
Petitioners rebut respondents’ argument that Ontario Crown timber is inelastically supplied,
asserting that the economic studies on the record all agree that “the elasticity of supply in the
administered sector is zero.” See Stoner Log Distortion Study at 11. They contend that respondents
err when they state the inflexibility of the Ontario stumpage program is the very feature that prevents it
from distorting private prices. Respondents fail to explain how government timber sales do not distort
the private market if the volume of public timber is fixed arbitrarily without reference to the market while
arguing government timber sales could distort the private market if the volume of public timber
responded to price. Similarly, they argue that respondents’ contention that price distortion can only be
shown if the volume of subject timber harvested varies from year to year based on price is flawed.
Petitioners assert that if the price of administered timber is set so low that sawmills buy as much of it as
they can before turning to the private forest, private prices will be depressed at least as much as they
would be if public prices were set just high enough to compete with private supply.
28 There is also record evidence that the large tenure holding mills own their own private land from which
they source timber.
Department’s Position
Information on the record does not support the GOO’s claims. Because the AAC is set so
high, it does not matter whether its level changes based on price. Whether the AAC changes only
matters if it forces mills to buy from the private timber market. Evidence on the record shows that is
not the case in Ontario.
Even if the GOO is arguing that the actual volume of timber harvested does not change based
on the price of Crown stumpage, this only suggests that the volume harvested or quantity demanded for
timber is dependent on other factors. This does not change the fact that the private stumpage prices are
limited by prices for Crown stumpage. It is irrelevant whether the volume of timber harvested from
Crown lands changes based on price changes. The Department therefore finds that changes in the
volume of timber harvested is not reflective of a residual demand.
The primary effect of an AAC should be to force tenure mills to turn to private timber for any
demand beyond the AAC’s set harvest volume. Two ways this market effect can be frustrated are 1) if
the AAC is not binding in that tenure holders can harvest more timber than the limit or 2) if the AAC is
set so high that the limit is not usually reached. This situation does not force tenure holding mills to
source from private land and so any sourcing from private lands is not a true marginal demand. If the
AAC is too high a private land-owner could not charge more than the Crown stumpage price for a
similar stand of trees. If it did, the mill would simply source more from its Crown tenure. Evidence on
the record shows that Ontario is this type of stumpage market.
Every five years, the province allocates a volume of AAC which is supposed to limit the amount
of the timber a tenure holder can harvest and purchase at the administratively-set rate over that time
period. The record shows that the AAC in Ontario is so high that it does not force tenure holding mills
to turn to the private forest and thus causes the private timber market to be effectively determined by
the Crown timber market. On average, tenure holders’ actual harvest levels from Ontario public lands
were about 80 percent of their planned levels during the POR. The difference between the AAC and
the amount actually harvested from public lands is larger than the entire private timber market.
The GOO’s assertion that marginal demand is being met by private suppliers again relates to
the AAC. The fact that mills do not harvest up to their AAC seems to be ignored by the GOO. Mills
in Ontario do not need to source from the private timber market, they can simply harvest more from
their Crown tenure. There is no true residual or marginal demand for tenured mills if all demand can be
met below the AAC. The large sawmills would only purchase from the private market if private timber
sellers match public timber prices for similar wood.28 The private timber market exists because private
land owners have no alternative market that would bring them a better price. The U.S. market might be
the only better alternative for private land owners selling saw logs except that there is no market for
Ontario saw logs in the bordering U.S. states. As argued by respondents in the investigation of the
immediate case (see 67 FR at 15545), softwood timber harvested in Ontario is smaller and lower
29 The GOQ’s use of the term dual-source mill refers to a mill that obtains its supply of standing timber from
the public and private forests.
30 In its questionnaires, the Department repeatedly requested that the GOQ provide actual consumption
data and sourcing patterns for the 1042 mills that were in operation during the POR. Citing confidentiality
restrictions, the GOQ claimed it was unable to provide the data in the manner requested by the Department. Instead,
the GOQ provided actual consumption/sourcing data for mills, in groups of five, that fell into the following sourcing
categories: (1) mills obtaining logs exclusively from Quebec’s public forest (purely public category), (2) mills
obtaining a combination of logs from Quebec’s public and private forest (public/private category), (3) mills obtaining
a combination of logs from Quebec’s public and private forests as well as from imported sources
(public/private/other category), and (4) mills obtaining logs exclusively from private forests (purely private category).
See, e.g., Exhibit 119. However, in Exhibit 102 of its November 12, 2003 questionnaire response, the GOQ provided
actual consumption data for mills that consumed softwood from private and from Crown public forests during 2002.
Also, in Exhibit 171 of its April 15, 2004 submission, the GOQ provided consumption and sourcing data for the
largest 20 mills in the purely public category, the largest 10 mills in the public/private category, and the largest five
mills in the purely purely private and public/private/other categories. As explained in the Preliminary Results, in
Quebec, there are 52 mills in the purely public category, 818 mills in the purely private category, 94 mills in the
public/private category, and 76 mills in the public/private/other category.
quality than timber in U.S. bordering states and is more comparable to pulp logs in the U.S. While the
GOO reports that there are no restrictions on exporting logs, it also reported that there were virtually
no exports of softwood timber to the U.S. during the POR. The DGM Survey did indicate that some
logs were exported to the United States, but it did not indicate whether the logs were exported to pulp
mills or to saw mills. Even so, the small amount of exports suggests that the demand for Ontario logs is
limited.
c. Quebec
Comment 22: Effect That Mills Sourcing Exclusively from the Private Forest Have on the Price
of Standing Timber in Quebec’s Private Forest
The GOQ argues that in its Preliminary Results the Department attributed an inordinate amount
of market power to dual-source mills. The GOQ claims that dual-source mills do not effect the market
price of private standing timber to the extent claimed by the Department.29 Specifically, the GOQ
contends that the Department improperly discounted the impact that mills sourcing exclusively from
Quebec’s private lands have on standing timber prices.30 The GOQ asserts that the Department’s
claim in the Preliminary Results that the purely private mills consume, on average, 705 cubic meters of
logs is misleading, as evidenced by the breakdown of actual consumption that it provided. See the
March 8, 2004, Supplemental Questionnaire Response of the GOQ at Exhibit 119. It claims that the
data in Exhibit 119 indicates that many mills in the purely private category process large volumes of
softwood timber.
31 Petitioners did not specifically rebut each of issues raised by the GOQ regarding the issue of whether
Quebec’s private stumpage prices may serve as a viable benchmark.. However, suffice it to say, petitioners support
the Department’s preliminary finding that prices for private standing timber in Quebec are effectively determined by
standing timber prices in the public forests. See pages 54 through 63 of petitioners’ rebuttal brief.
The GOQ further argues that rather than examine the mills’ individual consumption, it is more
relevant to consider the total consumption of mills in the purely private category, in the aggregate, from
the private forest. Because the private forest is the sole source of supply for these mills they must
compete vigorously to ensure supply and, therefore, their collective demand will push prices upward. It
also points out that mills in the purely private category consume 13 percent of Quebec’s private
standing timber and that, contrary to the Department’s findings, this share of consumption is substantial
and serves as yet more proof that the purely private mills have the ability to influence prices for private
standing timber. The GOQ further contends that if dual-source mills were to reduce their demand for
private standing timber or attempt to en- mass bid down prices for private standing timber, then the
mills sourcing exclusively from the private forest would have significant economic incentive to expand
their production to take advantage of the newly available supply.31
Department’s Position
Contrary to the GOQ’s contentions, the GOQ did not provide the Department with a
breakdown of the consumption of each of the 818 mills in the purely private category. However, while
we lack actual consumption data for all mills in the purely private category, data provided by the GOQ
demonstrate that such mills have minuscule operations when compared to mills operating in the purely
public, public/private, and public/private/other categories.
In Exhibit 119, the GOQ grouped mills in each of the four categories into groups of five. The
GOQ listed these groups in descending order according to the groups’ total consumption. If mills in
each group consumed equal amounts of logs, the average consumption of logs by mills in the purely
public, public/private, and public/private/other categories were 140,370, 173,467, and 117,044 cubic
meters, respectively in 2002. See Quebec Private Market Analysis Memorandum. In contrast, the
average consumption by mills in the purely private category was 705. Id. Our analysis indicates that
673 of the 818 mills (approximately 75 percent of the number of mills in the category) in the purely
private category consumed, on average, less than 705 cubic meters, indicating that the average for the
group would be even smaller but for the fact that the consumption of the five largest mills in the category
skew the mean. Thus, the data demonstrate that mills in the purely private category are, on average,
dwarfed in terms of consumption when compared to mills in the purely public, public/private, and
public/private/other categories.
This average consumption figure alone makes it unlikely that mills in the purely private category
are able to operate on equal footing (in terms of negotiating leverage) with large, corporately-owned
tenure holding sawmills. Instead, the small production volumes of these mills suggest that they operate
on the fringe of a market dominated by industrial-sized, dual-source mills.
Further, we do not agree with the GOQ’s contention that preliminary findings concerning dualsource
mills would merely result in mills from the purely private category consuming larger quantities of
Quebec’s private logs. First, as explained below in Comment 23, mills in Quebec, regardless of their
sourcing patterns, can only increase their log consumption with the express permission of the GOQ.
Second, even if a typical mill in the purely private category were able to obtain permission to increase
its consumption, due to its small size, it would not have the ability to absorb the available log inputs
absent significant retooling. For these reasons, we continue to conclude that the mills that harvest solely
from Quebec’s private forest lack the negotiating leverage to have any meaningful effect on prices of
private standing timber in Quebec.
Comment 23: Effect That Mills Sourcing from Both the Public and Private Forests Have on the
Price of Standing Timber in Quebec’s Private Forest
The GOQ argues that the record does not support the Department’s finding that the Quebec
forest is dominated by dual source mills when examined at the corporate level or the regional level.
Specifically, it claims that in the Preliminary Results, the Department does not indicate the extent to
which these corporately-owned mills compete for private timber.
With respect to its regional level argument, the GOQ contends that in regions where the private
forest harvest is abundant, logs from the private forest will comprise the majority of companies’ input
mix operating in that region. Thus, the GOQ argues that mills in those regions are forced to compete
vigorously for private origin logs and the price these mills pay may serve as a viable benchmark.
The GOQ claims that the regions selected for review by the Department at verification were
areas where the public harvest happened to predominate over the private harvest. In particular, the
GOQ points to Region 2 where, it claims, approximately 96 percent of the log harvest is public and
only 4 percent is private and, thus, the overall consumption of private forest logs by dual-source mills in
that region is small compared to the overall consumption of private logs across the province. The GOQ
contends that a more informative analysis would focus on regions where private supply is dominant
because in such regions tenure holders’ access to public land is far less than their needs, and thus, the
mills’ consumption from the private forest is larger.
The GOQ further argues that regions containing private forest lands have the greatest impact on
establishing the private price that is used in the parity technique because the average prices for standing
timber in each of the regions, as determined by the Private Forest Survey, are weight-averaged
according to the volume of private harvest in each region.
Department’s Position
The GOC’s argument fails because the regions where the price feedback effect may be weak
collectively are not large enough from a private timber harvest volume standpoint to make the overall
32 As explained in the Preliminary Results, 69 FR 33216, the term “feedback effect” refers to the fact that,
under the GOQ’s parity technique, prices for public standing timber are a partial function of the prices paid for
private standing timber.
33 The GOQ only provided company-specific information at verification for mills that were specifically
listed in Exhibit 171 of the GOQ’s April 15, 2004 submission. See, e.g., GOQ Verification Report at 4 and 30. Thus,
the regions for which the Department’s verifiers could review company-specific information pertaining to dualsource
mills were limited to regions 1 through 11.
34 Indeed, in the White Paper that was submitted on behalf of Quebec’s private forest landowners (White
Paper) by the Federation of Quebec’s Wood Producers (FPBQ), the authors address the negative impact that the
feedback effect has on prices of private standing timber:
. . .the forest industry has an interest in maintaining a low value of standing trees in private forests, as the
determination of this value provides the basis for calculating forest user fees.
See GOQ Verification Report at Exhibit 16, page 174.
weighted-average price (across all regions) meaningful for benchmark purposes.32 Although the
Department requested consumption data for all regions (i.e., regions 1 through 17) and for all mills in
the four consumption categories, the GOQ only provided complete mill-specific consumption data for
mills in the public/private category. According to the GOQ’s data, mills in the public/private category
only operate in regions 1 through 11.33 The data submitted by the GOC indicate that in only two
regions, 3 and 5, did public/private category mills source a significant share of timber requirements from
the private forest (44 and 75 percent, respectively). In the other nine regions for which the GOC
submitted data, public timber is the primary source of supply and reliance on the private standing timber
market is considerably lower, less than 28 percent. Thus, in only two regions, 3 and 5, is the private
share of timber consumption large enough that mills in these regions likely bid on private timber with
some amount of consideration of meeting their timber needs than about the price feedback on their
public timber costs. In the other nine regions, the private share of timber consumption is so small that
we conclude that the mills bid on private standing timber thinking more about the price feedback on
their public lumber costs than on meeting their timber requirements.34 Moreover, regions 3 and 5
account for slightly more than 20 percent of the total private timber purchased by all public/private
category mills in all eleven regions, not nearly enough to make the weighted-average price across all
eleven regions a meaningful benchmark.
Public/private category mills are, of course, not the only source of demand for private timber.
Mills in the public/private/other and purely private categories also purchase private timber in these
regions. Although the GOQ did not provide the Department with a regional breakdown of the timber
purchases (by source) for mills in the public/private/other category, the record evidence indicates that
private timber accounted for only 18.35 percent of the province-wide purchases of these mills during the
POR. The small private share of timber consumption of these mills suggest that they, too, bid on private
timber motivated more by the price feedback on their public lumber costs than on meeting their timber
need. Mills in the public/private/other and public/private categories together account for 86.13 percent
of all private timber consumed in the province, which leaves little room for the type of demand (mills
thinking about their timber requirements and bidding accordingly) that would be sufficient to overcome
the influence of public/private and public/private/other category mills. Given that dual-source mills, via
the feedback effect, have the incentive to bid private standing timber prices down and given that the
dual-source mills dominate the market for private standing timber, we find that the small amount of
remaining demand is not sufficient to boost private timber prices enough to make the weighted-average
price a meaningful benchmark. Private category mills represent just such a demand type, but account
for only 577,096 cubic meters of the more than 4,160,355 cubic meters of the private timber that was
consumed in Quebec during the POR. The GOC did not submit a regional breakdown of this 577,096
cubic meters figure, but this total is so small that any distribution of it across the regions would make the
weighted-average price not a meaningful benchmark.
Comment 24: Whether Quebec’s Public Forests Are Residual to Private Forests
The GOQ argues that Quebec’s public forests are residual to private forests. In support of its
contention it argues that dual-source mills maximize their revenues by sourcing high quality fiber from
private lands in Quebec and outside Quebec and mix it with lower quality wood from Quebec’s public
forest.
The GOQ also asserts that the Department’s preliminary findings regarding the price of
Quebec’s private standing timber incorrectly assumes that delivered log costs of harvested standing
timber remain constant. The GOQ argues that with increased harvest volumes of public lands,
harvesting costs, haul distances and silviculture obligations would increase total marginal and incremental
costs to the tenure holder. Thus, the GOQ contends that rather than incur these marginal costs, dualsource
mills first seek supplies from the private forest.
Department’s Position
Regarding the GOQ’s contention that dual-source mills maximize their revenues by sourcing high
quality fiber from private lands in Quebec and outside Quebec and mix it with lower quality wood from
Quebec’s public forest, even if a stand of trees in Quebec’s private forest were superior to those in the
public forest, it would not eliminate the imbalance in negotiating leverage that exists in Quebec. See,
e.g., Stoner Price Distortion Study (2002) at 4-5, which was included as part of petitioners’ March 15,
2004 of expert studies, which states that an administratively set volume at an administratively determined
price will necessarily shift the supply curve for private timber values, unless the volume and price set by
the government somehow manages to equal what would normally obtain on the market. Thus, while
sellers of trees from private stands might be able to charge more to account for certain product
differences, they still must compete with logs from Crown lands. Therefore, the starting price for trees in
those private stands will be based on the price first set in the public forest, thereby rendering the private
forests residual to the public forests.
We also disagree with the GOQ’s argument that a mill with tenure that attempts to manipulate
private stumpage prices by increasing its harvest on its tenure and reducing private purchases faces the
35 See also page 61 of Exhibit 16 of the Quebec Verification Report. Specifically, the FPBQ complained
during the parliamentary hearing that such “unjustified credits” as the “mill-to-market” adjustment, “. . .cancel all
potential competition between Quebec industries in relation to wood in private forests.” The FPBQ’s complaints of
“unjustified credits” provide yet another example of how sellers of standing timber in the private forest compete on
an unequal playing field against the supply of standing timber in the Crown forests of Quebec.
36 AAC describes the amount of Crown tenure allocated to tenure holders during the year.
additional penalty of increased harvest costs on its tenure and, thus, instead will first seek timber volumes
from the private forests. As the record demonstrates, the GOQ’s parity technique offers a wide range of
offsets to the administrative stumpage price to assist tenure holders who harvest trees in remote regions
of Quebec. For example, the GOQ has a detailed system in place to measure and continually update
such costs as road building/maintenance, harvest, silviculture, logging camps, etc. that are incurred by
tenure holders. As tenure holders’ unit costs for these activities increase, the price they pay for Crown
stumpage decreases. See, e.g., GOQ Verification Report at 4. It is this aspect of the parity technique
that was specifically criticized by the FPBQ in its White Paper and testimony before the Quebec
Parliament. Take for example, the FPBQ’s complaint of what it refers to as “unjustified credits,” in
particular its request that the GOQ remove the “mill-to-market” credit currently in place that offsets
tenure holders’ stumpage fees to account for their distance from the market place. See page 177 of the
White Paper.35 Thus, while the tenure holders’ costs of obtaining the timber might increase with each
purchase of Crown logs, the GOQ, through its parity technique, offsets those costs by lowering the unit
cost for the logs themselves.
Further undermining the GOQ’s contention that Quebec’s public forests are a residual or
secondary sources of supply is the simple fact that the GOQ does not allocate public standing timber in a
manner that resembles any generally accepted definition of “residual.” If public standing timber supplies
were, in fact, residual as the term “residual” is typically used, it would mean that tenure-holding mills in
Quebec are required first to exhaust all available supply on private lands and only then resort to public
lands to satisfy their unmet timber requirements. However, as the Department explained in the
Preliminary Results, under Quebec’s parity technique, public and private standing timber need not be
consumed by dual-source mills/corporations in any particular order. See 69 FR at 33217. In fact, dualsource
mills are not even required to purchase stumpage from the private market at any time during the
year.
Comment 25: Annual Allowable Cut in Quebec is Binding
The GOQ argues that, contrary to the Department’s finding, the AAC in Quebec is legally
binding.36 According to the GOQ, the Department’s conclusion that the AAC is not binding is based on
three factors: the ability of TSFMAs to (1) rollover unused tenure allocations; (2) to exceed their tenure
allocation in a given year; and (3) to shift their tenure allocations within the same corporate family. The
GOQ argues these conclusions are factually inaccurate and that, the prices of standing timber on
Quebec’s private lands may serve as a viable benchmark when determining whether the GOQ sells
Crown timber for less than adequate remuneration.
First, the GOQ argues that the ability of tenure holders to rollover unused portions of its AAC is
limited to 15 percent per year thereby limiting the affects of the rollover feature to the short term. It also
asserts that the rollover feature merely enables “market reactions” on the part of tenure holders and does
not grant them any undue market power over sellers of private standing timber. Citing to the NAFTA
Remand, the GOQ further contends that it was the rollover feature that demonstrated that the GOQ
does not enforce minimum cut requirements on Crown lands, which it claims illustrates that tenure
holders’ harvest decisions are market determined.
Second, the GOQ claims that the Department erred in concluding that mills can freely adjust
their tenure allocations if a mill is able to persuade the GOQ to change the mill’s AAC allocation. Citing
to verification exhibits collected concerning Tembec, a corporation with multiple sawmills operating in
Quebec, the GOQ asserts that there is no record evidence indicating that the GOQ expands the AAC
upon request by tenure holding mills. The GOQ argues that the record evidence instead clearly indicates
that it strictly adheres to the principal of the AAC. In addition, the GOQ argues that the record
evidence indicates that the GOQ does not shift mill volume allocations from one corporate sibling to
another on an ad-hoc basis.
The GOQ also claims that the Department relied on limited public stumpage data, i.e., provincewide
averages, to demonstrate that dual-source mills were able to obtain sufficient or even excess timber
supplies from their public tenures. The GOQ argues that such data are misleading because they do not
reveal tenure allocation utilization rates on a dual-use mill-specific basis.
The GOQ further argues that one-third of the logs consumed by mills in the public/private/other
category came from either the private forest or imports and that these non-Crown sources are needed in
order for the mills to fulfill their production needs. As further evidence that the private forest is a heavily
harvested source of supply, the GOQ claims that from 1999 to 2001, the harvest in private forests
exceeded the annual sustainable harvest level. See page 105 of the Private Standing Timber Market in
Quebec included in Exhibit QC-11 of the GOQ’s March 11, 2004 submission (Quebec Private Forest
Study). The GOQ argues that, for the Department’s Preliminary Results to be accurate, tenure holders
would be harvesting 100 percent of the AAC while the amount of softwood timber harvested from the
private forest would fall below the annual sustainable level reflecting dual-source mills attempts to bid
down prices. See page 41of GOQ’s case brief.
Department’s Position
The GOQ’s arguments on this matter are not persuasive. Regarding the rollover issue, the fact
that tenure holders can rollover up to 15 percent of their public timber allocation to the next year is not
disputed by the GOQ. The flexibility of the rollover feature grants tenure holders considerable
negotiating leverage over private forest owners. For example, if, in a given year the demand for lumber
is low or production of lumber constrained, a dual-source mill can decide to reduce its production and
37 The GOQ has waived the proprietary status that protected the identity of Tembec and the
correspondence between it and the MRN. Additional documents exist that demonstrate how corporations are able
to manipulate their softwood timber allocations by redistributing their softwood allocations among mills under their
control. See e.g., GOQ Verification Report at 3and Exhibit 20 at 34A.
roll the unused Crown allocation over to the following year, when lumber demand may be greater or
larger production more feasible. In such a situation, in both the current year and the following year,
dual-source mills have the power to divert their demand for log inputs towards Crown sources and away
from the private forest.
Record evidence also disproves the GOQ’s contention that the AAC cannot be expanded
during the 5-year period. However, even if the harvest of tenure holders were to remain fixed over the
5-year period covered by the AAC, the rollover feature would nonetheless afford the tenure holders
negotiating leverage in the short-term (i.e., in a given year) regarding the price they pay sellers of private
standing timber. The importance of short-term pricing considerations to private woodlot owners, and
the overhang effect that a non-binding AAC has on price, is reflected in the White Paper. In the White
Paper, the FPBQ requests that “all volumes available from the private forests and other sources such as
chips, recycling, and timber from outside Quebec, should find a taker prior to allocating volumes from
public forests.” (Emphasis added). The FPBQ goes on to request that:
. . .the volumes allocated to annual allowable use be granted annually in two portions in
adherence to the public forest residuality principle. The volume of the first portion will be
determined as a function of historical user rates of the mill in the preceding five years. The
volume of the second portion will be granted on a semi-annual basis, only when the facility has
demonstrated an inability to fulfill its need as well as other supply sources on the market.
(Emphasis added).
Id. The FBBQ is, thus, requesting that the AAC be tightened up and allocated on an as-needed basis,
to eliminate the overhang. The FPBQ further requests that “the needs of the mills be evaluated annually
on the basis of volumes actually consumed by the plant over the past five years. (Emphasis added). Id.
at 180. The FPBQ’s emphasis on annual evaluations of tenure holders’ mill needs and on annual
revisions to tenure holders’ AAC illustrates how demand from tenure holders in the short-term is
paramount to sellers of private standing timber. Moreover, the FPBQ’s specific requests for short-term
monitoring and analysis of tenure holders’ Crown allocation reveal the imbalance of market dominance
that exists in the GOQ’s administered stumpage system.
Record evidence also refutes the GOQ’s claim we incorrectly concluded that tenure holders
have the ability to alter their tenure allocations pending approval from the GOQ. Although the Ministere
des Ressources naturelles de la Faune et des Parcs (Ministry of Natural Resources (MRN)) was initially
reluctant to fulfill Tembec’s request for additional tenure allocation for one of its mills, the MRN did
come to Tembec’s assistance. The MRN’s December 17, 1999, letter to Tembec37 noted that, “in
order to ensure the long-term viability” of the mill in question, it would permit Tembec to shift a portion
38 Article 43.2 of the Forestry Act states that the MRN,
may, as an exceptional measure, allow that part of the round timber harvested by the agreement holder, in
the course of a year, be intended for a processing plant other than the plant specified in the agreement, in
particular, where the Minister considers it necessary to avoid a deterioration or loss of timber or to ensure
the optimal use of the timber.
See the November 12, 2003, Questionnaire Response of the GOQ at Exhibit 19.
of tenure allocation from one of its other corporate mills to the mill that needed additional logs. See page
72a of Exhibit 20 of the Quebec Verification Report. Similarly, after Tembec repeatedly complained to
the MRN that it would have to temporarily shut down one of its other mills because of its “difficulty
obtaining an affordable price on round timber from Ontario,” the MRN, in June 2000, again allowed
Tembec to shift a sizeable amount of allocation from two of its mills to the mill in question. See pages
70A and 74A of Exhibit 20 of the Quebec Verification Report.38
We disagree with the claim that the dearth of “affordable” non-Crown origin supplies simply
demonstrates that private forest and imported log prices are not effectively determined by prices charged
for standing trees on Crown land. The correspondence between the MNR and Tembec leads to the
opposite conclusion. Rather than permitting free market forces to resolve tenure holders’ sourcing
concerns (i.e., having the corporate tenure holders pay higher prices for the non-Crown origin logs), the
GOQ enables tenure holders to redistribute their softwood Crown volume allocations among their
corporately-owned sawmills, thereby granting them the power to lessen the need of any given mill for
non-Crown wood supplies.
Furthermore, the fact that Tembec claimed that non-Crown origin logs were more expensive
than Crown logs does not indicate that non-Crown sources are free from the effects of the GOQ’s
Crown timber pricing policies. Rather, sellers of private-origin logs take into consideration the market
dominance of the tenure holding sawmills (e.g., the ability of large tenure holding sawmills to shift their
demand away from non-Crown sources of supply) when setting their prices.
The GOQ also contests the Department’s preliminary finding that the MRN can increase
mills’/corporations’ tenure allocations when requests and/or evidence is provided to effect such changes.
Although some of the evidence we collected at verification indicates that companies (e.g., Tembec) were
unsuccessful in their attempts to convince the MRN to increase the tenure allocations, the record also
demonstrates that the MRN has the ability to revise the amount of tenure allotted to sawmills. See GOQ
Verification Report at Exhibit 20. Section 81.2 of the Forestry Act confirms that the GOQ has the
ability to revise tenure allocations:
The Minister may, after reaching an agreement with the agreement holder concerned, revise the
volume allocated under or the area covered by an agreement...where the production of the
processing plant changes, or where the enterprise undergoes restructuring.
Further, the MRN stated at verification that, “. . .an allocation could increase because of increased
production needs, but in such a case, the mill would have to make a formal request to the MRN.” See
39 The information in Exhibit 19 is business proprietary in its entirety and, thus, cannot be summarized on
the public record.
40 The degree to which tenure holding mills dominate Quebec’s softwood industry is evidenced by the fact
that the top six corporations account for approximately 60 percent of Quebec’s authorized consumption. See
Preliminary Results, 69 FR at 33215.
GOQ Verification Report at 2. Moreover, information collected during verification indicates that the
MRN did indeed grant certain mills’ requests for increases in their tenure allocations. See Id. at item 3
of page 3 within Exhibit 19.39
We also disagree with the GOQ’s claims that the harvest data referenced in the Department’s
Preliminary Results were inherently limited and that the Department’s interpretation of such data was
conjectural. On this point, the GOQ focuses on sawmills and does not take into consideration the
evidence indicating that corporately affiliated sawmills regardless of their mill category (i.e., dual-source
or purely public source mills) work together to ensure a steady supply of Crown logs by redistributing
unused Crown allocation from one sawmill to another.40 In light of this fact, we find that our reliance on
the province-wide averages is appropriate.
Comment 26: Incentive Structure of Dual-Source Mills
The GOQ argues that the Department’s Preliminary Results regarding dual-source mills ignores
the fact that such mills vary in the degree to which they rely on standing timber from the public forest
and, therefore, their alleged incentives to drive down private prices will differ. For example, it claims
that 123 such mills in the public/private and public/private/other categories obtain relatively small
amounts of Crown logs and large amounts of their logs from imported sources. The GOQ argues that
for there is a negative incentive to reduce the prices for standing timber in the private forest, as any such
reduction would provide a competitive benefit to mills primarily sourcing from Crown lands, while
providing no equivalent reduction on their imported logs.
The GOQ further argues that mills in the public/private and public/private/other categories, as a
group, have a disincentive to participate in the pricing scheme described in the Preliminary Results. It
explains that there is a not a dollar-for-dollar correlation between private and public standing timber
prices and that a dollar reduction in the price of private trees will result in a reduction of less than one
dollar in the public forest.
In sum, the GOQ asserts that the Preliminary Results, fail to discuss why dual-source mills would
attempt to suppress prices in the private forests when the largest benefactors of such a scheme would be
the 818 mills in the purely private category, followed by the 53 mills in the purely public category via the
feedback to public stumpage prices.
Department Position
41 See footnote 18, page 24 of the GOQ’s case brief.
The Department agrees that private category mills benefit from the prices that dual-use mills pay
for private timber. We disagree, however, that dual-use mills would forego any price reduction on the
vast majority of their wood purchases because of a competitive fear of market displacement by (much
smaller) private category mills that collectively account for 13.87 percent of all private standing
consumed and 1.73 percent of Quebec’s total consumption. The Department also agrees that dual-use
mills would certainly keep the benefit of the price feedback effect to themselves if they could, but
certainly would not deny themselves that benefit just because another group of mills (which accounts for
a much smaller share of the market) also benefits.
Comment 27: Relevance of Collusion Concerning the Analysis of Quebec’s Private Forest
The GOQ asserts that the feedback element of the Preliminary Results cannot be a mechanism
through which dual source mills can pressure private prices down because there is no record evidence to
suggest that dual source mills either formally collude or unilaterally decide as part of simultaneous effort
by a number of mills to reduce the amount paid for logs. The GOQ, presumes that the Department
intended to describe the market for private standing timber in Quebec as an oligopsony or monopsony.
The GOQ defines an oligopsony as market dominance in the hands of a “group of buyers acting in
concert”41
Department’s Position
Collusion is required when market competitors can increase their collective profits by acting in
concert to raise output prices or lower input prices, but where each competitor is not individually
motivated to do the same, out of fear of a loss of competitiveness. That is, collusion is needed to make
firms collectively do what they would not do independently. For example, a single fresh pork producer
would commit economic suicide by gouging its pig supplier vis a vis other fresh pork producers and
therefore would never do so on its own. Collusion or collective action by all fresh pork producers
(wherein all producer agree to take the same action on price) is therefore required to lower the price of
pigs.
This is, however, not true in the case of dual-use mills that bid down the price of private standing
timber. These mills benefit from a non-binding AAC and know that the price they pay for public timber
depends directly on the price of private timber. These mills have no need and therefore no incentive to
bid for private timber as a mill would bid to meet timber requirements because dual-use mills can satisfy
all of their wood requirements with public timber. Instead, each of these dual-use mills has an incentive
to bid down the price of private timber, regardless of what other mills do, because every little bit of
downward pressure on the price of private timber contributes to the reduction of the dual-use mill’s cost
of public timber. This cost reduction is significant to each of these dual-use mills because of the large
share in total wood consumption for which public timber accounts. There is, therefore, no need for
collusion or collective action to bid down private timber prices because each of these dual-use mills are
individually motivated to do so on its own.
Comment 28: Barriers to Entry in Quebec’s Private Forests
The GOQ argues that if private prices for standing timber were below what would normally
obtain in a free market, one would observe high profits followed by a dramatic increase in the
construction and operation of mills sourcing private timber. New entrants would then bid up the price of
private standing timber to market levels. They therefore conclude that, in such a situation, the only thing
that would prevent private standing timber prices from reaching market levels would be barriers
preventing new entrants from acquiring private standing timber as well as barriers prevent existing mills
from expanding their production. The GOQ contends that the Preliminary Results fail to cite any record
evidence that would demonstrate the existence of such barriers but these barriers must exist if the
Department’s model is correct.
Department’s Position
Through the Forestry Act, the GOQ controls every aspect of softwood lumber production from
the construction of the sawmill to the production capacity of the mill. This control by the GOQ erects
barriers to entry. One cannot construct a sawmill in Quebec without the consent of the GOQ. Section
162 of the Forestry Act specifically states:
No person may construct a wood processing plant of a class prescribed by regulations of the
Government, increase the timber consumption capacity of such a plant or change its class or
location without prior authorization from the Minister.
Further, the granting of an operating permit is contingent upon the GOQ’s determination that adequate
supply exists:
The Minister shall grant the authorization referred to in section 162 if he considers that timber
supply sources are sufficient and forest production respected.
See section 163. In addition, section 164 prohibits a person from operating a wood processing plant
without a permit. Id. Further, assuming aspiring producers successfully obtain permission to operate a
sawmill, one is still subject to a fee:
A wood processing plant operating permit shall be issued upon payment of the duties and on the
condition determined by regulation of the Government. . .
See section 165.
42 Exhibit 155 of the GOQ’s April 5, 2004 submission contains an example of the data that sawmills must
submit to the GOQ. The particular form in Exhibit 155 happens to pertain to a tenure holding mill. However, as the
Forestry Act Makes provides, all holders of operating permits must submit such data to the GOQ’s MRN.
The GOQ also controls the production of existing mills including the mills’ location and
production capacity. See section 162. In addition, section 165 states that the wood processing plant
permit, “. . .shall indicate the class of plant and the class of annual timber consumption authorized for the
various species or groups of species, as established by regulation, as well as the authorized volumes for
those species or groups of species...” Also, pursuant to section 168, the GOQ has the authority to
continuously monitor sawmills’ operations by requiring them to submit detailed information about their
source and consumption of logs.42 In addition, the GOQ is charged with supervising the sale and
transfer of existing sawmills:
a permit holder shall give the Minister a written notice of any act or transaction of such a nature
as to effect a change in the control of a wood processing plant or, where such is the case, of the
legal person which operates it.
Id. at Section 166. Section 170 states that the GOQ has the authority to cancel producers’ operating
permits if it finds that they have failed to comply with provisions set forth in the Forestry Act. Id. Thus,
contrary to the GOQ’s claims, numerous government regulatory measures limit entry into the market.
Comment 29: Relevance of Log Exports Concerning the Analysis of Quebec’s Private Forest
The GOQ argues that a factor necessary but missing in the Department’s finding is evidence
indicating that no alternative markets for wood from the private forests. The GOQ claims that the
absence of restrictions on export of logs from the private forest and a high degree of mobility of private
market logs within Quebec preclude any price collusion.
Department’s Position
The GOQ has claimed that if private prices for standing timber were effectively determined by
prices in the public forest, private land owners would seek out an alternate market, namely export
markets. However, as the GOQ has itself noted, there is no viable export market for Quebec logs. See
the November 12, 2003, LER Questionnaire Response of the GOQ at 3, 6. The GOQ’s own evidence
demonstrates that considering the lower quality and transportation costs of Quebec logs there is no
export demand for Quebec’s logs. Indeed, the GOQ’s evidence indicates that log exports in 2002 were
a very small portion, 0.03 percent, of the private forest harvest. Thus, private land owners do not have
a viable alternative to selling to dual source mills.
43 While all 15 Marketing Boards/Syndicates are required to develop joint marketing plans, they vary by
Marketing Board/Syndicate. See the November 12, 2003. Questionnaire Response of the GOQ at Volume 1, 139. Five
marketing boards participate and manage a regional joint plan, while four have joint marketing plans for their areas
and specific agreements with mills where the board collects payment and still the remaining six only negotiate prices
with no active role in the day to day sales of logs to sawmills. See Id. The GOQ claims that Marketing
Boards/Syndicates negotiate prices on an annual basis in some cases, and where a mill has projected a purchase
volume, the Syndicate/Marketing Board will allocate purchase volumes among its members. See the March 8, 2004,
submission of the GOQ at QC-2nd Supp-61 (March 8, 2004).
44 A map detailing the location of each of the 15 Syndicate/Marketing Boards can be found at Exhibit 100 of
the GOQ’s November 12, 2003 Submission. We note that of the 15 listed, all but 2 entities are designated as
Syndicates.
Comment 30: Whether Quebec’s Forest Marketing Boards and Syndicates Mitigates the Market
Power Held by Tenure Holding Mills
The GOQ argues that the Department’s findings regarding the price of standing timber in
Quebec’s private forest fails to consider the role and power of the Marketing Boards and Syndicates in
Quebec. The GOQ argues that because the Marketing Boards and Syndicates possess the power to
negotiate prices on behalf of private woodlot owners with mills; address grievances between private
woodlot owners and mills, and theoretically protect woodlot owners from dual source mills attempting to
suppress prices, it would be impossible for dual source mills to suppress prices without any
counteracting response from the Marketing Boards and Syndicates.
Department’s Position
Record evidence supports the Department’s conclusion that Syndicates/Marketing Boards lack
the negotiating leverage to challenge prices offered by the mills. The GOQ has presented no evidence
demonstrating that the Syndicates actually can challenge prices offered by the mills.
At verification, officials from the Syndicates/Marketing Boards explained the distinction between
the terms “Marketing Board” and “Syndicate.” A Marketing Board can either be managed by an
administrative office or a syndicate both of which can market logs.43 However, only a Syndicate can
perform tasks other than marketing logs such as payment collection, scaling expertise and publication of
regional newspapers where log prices are advertised. See page 15 of the Quebec Verification Report.
While the GOQ’s claims portray the Marketing Boards/Syndicates as one entity that is able to exert
power on behalf of all private woodlot owners in Quebec, the Syndicates/Marketing Boards are regional
entities with defined geographic territory and negotiate only on behalf of landowners within their
jurisdiction.44 Operational differences also exist among the 15 Marketing Boards. See the November
12, 2003, Questionnaire Response of the GOQ at Volume 1, 138.
45 See the March 5, 2004, submission by petitioners at Volume 5.
46 The Department has placed the calculations for the excluded companies on the record of this
proceeding. These data are included in the Department’s Calculation Memorandum.
The record evidence demonstrates that private wood lot owners do not have any negotiating
power that they can exercise directly or through the syndicates/marketing boards. The record contains
testimony before the Quebec Assembly, a letter sent to the MNR, as well as a White Paper presented to
the GOQ in which landowners complained about the impact of the Crown stumpage system on private
prices. See GOQ Verification Report at Exhibit 16 and Exhibit 150 of the GOQ’s April 8, 2004,
submission. Other record evidence contain statements by the FPBQ and private landowners which
criticize the impact Crown policies have on private prices and complaint about the inability of the
landowners to obtain market price.45
The letter sent to the MNR from the FPBQ in March 2002 addresses the effect, resulting from
calculating tenure holders dues, of a downward pressure on private woodlot markets. See Id.
Comment 31: The Significance of Log Imports Into Quebec
The GOQ contends that an element that is necessary but missing from the Preliminary Results
concerning Quebec’s private standing timber market is a discussion of the importance of imported logs
into Quebec. See page 62 of the GOQ’s case brief.
Petitioners assert that imports into Quebec are not evidence against distortion. Imports, instead,
are a result of mills along the Quebec - Western Maine border and the transportation network in
Western Maine which grants easier access to Quebec border mills for Maine logs than to Maine mills
east of the Allagash river. Petitioners further argue that imports into Quebec are also the result of the
fact that Canadian truckers picking up logs in the United States are not permitted to sell the logs to other
U.S. mills.
Department’s Position
Record evidence demonstrates that a significant volume of imports into Quebec are consumed
by a limited number of mills clustered along the Quebec/Maine border. In the underlying investigation,
the Department conducted a number of reviews of Quebec’s border mills as part of the company
exclusion process. The exclusion process covered 25 mills in Quebec. These 25 mills imported no less
than 2.4 million cubic meters of logs.46 Similar data for the POR is not available for all border mills.
However, the POI import volume of the 25 Quebec Border mills is 68 percent of the logs imported into
Quebec during the POR. The GOQ’s own study asserts that Quebec border mills are the main buyers
of imports. See The Private Forest Standing Timber Market by Del Began Masse et Associes, Inc., at
Volume 3, 115 and Exhibit 11 of the GOQ’s March 15, 2004, submission:
47 In fact, the GOQ’s consultant states that Quebec border mills own timber land in Maine: “The softwood
timber that New Brunswick and Quebec sawmills purchase from Maine comes mostly from forest lands owned by the
Canadian companies (e.g., Fraser, Irving, Maibec etc.)” See Private Forest Standing Timber Market Study at 99.
Quebec border mills are the main buyers of softwood timber from the United States and other
Canadian provinces. Sources are varied, but the main ones in order of importance, are the north
- eastern American states, Ontario and New Brunswick.
The GOQ did not provide company-specific consumption/sourcing information for companies in
the public/private/other category. However, Exhibit 171 of the GOQ’s April 15, 2004, submission does
contain company-specific data for the five largest log processors in the public/private/other category. Of
these five mills, two are border mills and the data indicate that these two mills are among the largest
importers of logs into Quebec, thus supporting the Department’s contention that imports into Quebec are
largely confined to a group of mills along the Quebec/Maine border. See page 2 of Exhibit 171.
Record evidence also indicates that border mills are reliant on imports because these mills are
closer to standing timber supplies in Northern Maine than the Maine mills located in the south of the
state. See Profile 2003: Softwood Sawmills in the United States and Canada in Exhibit 6 of the GOQ’s
April 13, 2004, submission. Furthermore, record evidence indicates that border mills hold timber lands
in Maine.47
Further, the record demonstrates that the flow of wood fiber from Maine into Quebec can be
explained by the long-standing relationships that have developed between landowners in Maine and the
Quebec Border Mills. See the December 20, 2001, Letter from Jonathan Ford, Maine Landowner to
the Department, submitted as Exhibit 10 of the GOQ’s March 15, 2004, submission.
In addition, as evidenced by the parliamentary testimony and White Paper, there are certain
advantages associated with long-term, steady access to timber supplies. See e.g., GOQ Verification
Report at Exhibit 16, page 191. This fact supports our conclusion that border mills will seek to
perpetuate the business relationships that lead to their secure access to standing timber in Maine.
The border mills’ decision to import U.S. logs is based on logistical and historical factors that
make them unique when compared to other mills in Quebec. Thus, the border mills, which account for a
significant volume of Quebec’s imports, have sourcing decisions that differ from the rest of Quebec’s
mills and, therefore, their focus on standing timber from the private forest and their incentive to harvest
private standing timber will differ from other mills in the province.
Comment 32: Whether Anecdotal Evidence Cited by Department is Relevant
The GOQ criticizes the Department’s reliance on the parliamentary testimony, White Paper, and
petition that was submitted to the GOQ on behalf of the FPBQ. The GOQ first argues that the FPBQ
presented this information prior to the POR and, therefore, it is untimely. It also contends that the
information is dated because it was submitted prior to major revisions to Quebec’s administered
stumpage system. As an example, the GOQ claims that in April 2000 it increased the number of tariffing
48See footnote 16 of the Decision Memorandum from the investigation.
zones from 28 to 161 to ensure greater homogeneity and accuracy in assessing stumpage dues on
Crown lands.
The GOQ further argues that the petition presented by the FPBQ pertains solely to trees sold in
Quebec’s private hardwood forests and did not involve the softwood forests. The GOQ also claims that
the parliamentary testimony placed on the record confirms that the private land owners’ complaints
pertained solely to hardwood products. The GOQ cites to a quote from a FPBQ representative in
which, according to the GOQ, the representative asks that the method used for setting softwood prices
on Crown lands be applied to hardwoods. See GOQ Verification Report at Exhibit 16, page 56.
The GOQ also asserts that nowhere in the transcript of the parliamentary hearing is there any
discussion about conditions in Quebec’s private softwood market. The GOQ claims that, to the
contrary, the testimony focuses on pulp and paper and hardwood markets.
Department’s Position
The White Paper was prepared in August of 2000 and the parliamentary hearings took place in
September 2000, both of which came after the reforms initiated by the GOQ in April of that same year.
Although this information predates the POR, it is still relevant to our analysis because the GOQ’s
administered stumpage system remains the same as it was when the FPBQ’s arguments were first
presented.
Additionally, a review of the information submitted by the FPBQ on behalf of the sellers of
Quebec’s private standing timber clearly indicates that their complaints and requests for reform included
softwood timber products. In the underlying investigation, verifiers from the Department met with a
representative of the FPBQ. During that meeting, the FPBQ official stated that representatives of
private land owners, “. . .lobbied the GOQ regarding the manner in which it sets stumpage prices in
Quebec. . .” and that, “. . .private wood lot owners have an interest in the level of stumpage fees
because if the GOQ sets fees at an arbitrarily low level, it would depress stumpage fees and log prices in
the entire Province.” See the November 12, 2003, Questionnaire Response of the GOQ at Exhibit 111.
Subsequent to the issuance of the Department’s verification report, the GOQ submitted an affidavit to
the Department in which the FPBQ official claimed his comments were limited to the hardwood forests.
First, as stated in the Decision Memorandum that accompanied the Final Determination, the
Department’s stands behind its finding that FPBQ official’s remarks were, in fact, in reference to the
entire forest.48 Moreover, the information that the FPBQ itself presented in the White Paper and
submitted to Quebec’s Parliament (outside the course of the countervailing duty proceeding) belies the
claims made by the GOQ. Specifically, the record demonstrates that the complaints of Quebec’s
private landowners contained in the White Paper apply to the forest as a whole. For example, in the
White Paper’s introduction, it states that the:
. . .under-use of private forests may be partially explained by the importance of public forests in
Quebec. In fact, public forests account for 71 percent of timber supplied to Quebec mills.
Although Section 43 of the Forestry Act stipulates that the public forest is a residual supply, it
still represents a solid competitor for private forest timber producers. Indeed, public forests
represent a vast monopoly that forces the hand of supply and demand. This competition is
reflected in the timber prices charged by private forest producers.
See page 162 of Exhibit 16 of the GOQ’s Verification Report. Nothing in the quote from the White
Paper indicates that the private forest landowners’ criticism applies to anything other than the entire
forest in Quebec. This is further evidenced in the FPBQ’s request for revision to the provision of the
Forestry Act that governs the setting of government stumpage fees:
. . .The Minister of Natural Resources should ensure that society procures a fair price for public
resources. Revenue generated by the use of public forests should enable a reasonable return on
forest capital. . .The Government must ensure they receive the highest possible price for public
forest resources.
See page 174 of Exhibit 16 of the GOQ’s Verification Report. Here again, the private forest
landowners do not ask that their proposed reforms to the Forestry Act be confined to the hardwood
forest. The White Paper also calls for elimination of the provision of “unjustified credits” to tenure
holding mills, credits that are applied to softwood trees harvested on Crown land. Further, the White
Paper calls for the GOQ to reduce the risk of conflict of interest by moving the responsibility of setting
prices for government-owned fees from the MRN to the Ministry of Finance. Again, the FPBQ, on
behalf of private landowners, refers to the administered stumpage system in general which, in turn,
governs the policies in the Crown forest as a whole.
Furthermore, we disagree with the GOQ that an FPBQ official’s statement during the
parliamentary hearing that the method used for setting softwood prices on Crown lands be applied to
hardwoods is evidence that the FPBQ’s requested reforms somehow are limited to the hardwood forest.
The FPBQ does not oppose the notion of an administered stumpage system in which public stumpage
fees are based on private stumpage fees. See page 173 of the White Paper where the authors state that
while using private stumpage fees to set public stumpage fees is “theoretically valid, it has been criticized
for many reasons.” Thus, the FPBQ is arguing that, to the extent that its calls for reforms are
implemented, reforms that cover the forest as a whole, then it would be willing to accept a system in
which all stumpage fees are set according to the method applied in the Crown’s softwood forests.
The information from Quebec’s private forest landowners, submitted to the GOQ outside the
course of this administrative review, provides detail concerning how Quebec’s private forest landowners
believe that the GOQ’s administered stumpage system effectively determines the prices that can be
charged in the private forest. Moreover, in spite of the GOQ’s attempts to explain this evidence away,
the information from the private forest landowners clearly applies to the entire forest as it existed during
the POR and, therefore, is extremely relevant to the Department’s findings in this proceeding.
Comment 33: Whether the Department Acted As An Impartial Fact Finder
The GOQ claims that the manner in which the Department collected information concerning
whether the prices of private standing timber is effectively determined by the prices of standing timber in
the public forest was inappropriate and, as a result, the record is incomplete and inaccurate. The GOQ
claims this incomplete record led the Department to draw erroneous conclusions concerning the market
conditions that exist in Quebec’s private forest.
In particular, the GOQ argues that verifiers from the Department failed to permit officials from
the MRN to explain their views concerning the petition, White Paper, and parliamentary testimony. The
GOQ claims that refusal to speak with GOQ officials on this matter was carried out in spite of the fact
that the Department’s April 12, 2004 verification outline requested that GOQ officials be prepared to
discuss these documents. The GOQ argues that if the Department had opted to speak with the highranking
GOQ officials who were available during verification about the information submitted by the
FPBQ, it would have clarified many of the issues raised in the documents.
The GOQ argues that a similar process occurred during verification with respect to officials from
Quebec’s forest marketing boards. The GOQ charges that during their meetings with officials from
Quebec’s forest marketing boards the verifiers chose not to ask questions that related to whether the
prices of private standing timber were effectively determined by standing timber prices charged on
Crown lands.
Department’s Position
The GOQ’s criticism on this matter hinges on the contention that the verifiers precluded officials
from the MRN from offering their opinions on parliamentary testimony that the MRN did not submit and
on documents that it did not write. As the evidence demonstrates, it was officials from the FPBQ who
attended the parliamentary hearing, the transcript of which was placed on the record of the review.
Further, it was the FPBQ, not the MRN, that submitted the White Paper and petition to Quebec’s
parliamentary body. However, as acknowledged by the GOQ, the head official of the FPBQ refused to
attend the verification.
The verifiers properly focused this portion of the verification on the collection of hearing
transcripts and documents of the FPBQ. Because FPBQ personnel, i.e., the personnel responsible for
the hearing transcript and other documents, were not available to discuss the contents of these
documents, it was not necessary to further discuss these with other GOQ officials. Subsequent to
verification, the Department quoted from these pieces of evidence and drew conclusions from them.
Nothing has prevented the GOQ from doing the same. Moreover, as evidenced by its voluminous case
brief, the GOQ has not been denied the right to comment on the information submitted by the FPBQ on
behalf of Quebec’s private forest landowners.
The GOQ’s claims regarding the verifiers’ meetings with officials from the forest marketing
board is equally without merit. The purpose of verification is to confirm and clarify existing record
evidence. This involves meeting with the relevant government and company officials who were involved
in preparing questionnaire responses and who may provide clarifications to the data and information
submitted to the record. In conducting this process, the Department has the ultimate discretion in
deciding with whom to meet and which questions it deems are necessary to clarify information on the
record.
On this basis, the Department rejects the GOQ’s unjustified accusations and stands firmly behind
the procedures followed by its verifiers during the verification of the GOQ.
3. Maritimes Stumpage Prices
a. Distortion
Comment 34: Whether the Market Conditions for Private Standing Prices in New Brunswick and
Nova Scotia Are Distinct from Those in Quebec
Petitioners argue that private prices in the Maritime provinces cannot be used as a benchmark
because government created distortions make these prices not reflective of market conditions. See page
10 of the petitioners’ case brief. Petitioners assert that the law prohibits the use of prices if it is
reasonable to conclude that prices are significantly distorted as a result of government involvement in the
market. The standard required that the record demonstrate that Maritime private prices are free from
the influence of government timber sales and other policies as a prerequisite to being used as a
benchmark. Petitioners also comment that the Department’s practice has been to reject prices when
reasonable to conclude there is a significant distortion caused by government involvement. It is not
actually required to prove a distortion exists, according to petitioners. Furthermore, according to
petitioners, the Department’s established practice is not to use prices as a benchmark when those prices
are derived from a market in which the government constitutes a majority of the supply or a substantial
portion of the market. Petitioners assert that when a government has 50 percent or more of the market
share, private prices are not useable. The petitioners argue that Maritime private prices are distorted
because record evidence shows that the provincial government is the majority supplier. Petitioners also
rely on NAFTA and WTO panel decisions to support their arguments.
Petitioners argue that the Department can find that private prices from the Maritime provinces
are distorted absent an allegation that Maritimes Crown stumpage prices are subsidized. Distorted prices
in one province are not a reflection of whether the provincial government in another province collected
adequate remuneration for provincial stumpage.
Petitioners also claim that the Department did not explain how prices in New Brunswick could
be market determined if the Crown supplied the majority of the softwood saw timber. Petitioners cite
numerous expert studies on the record as confirming that provincial government stumpage programs in
the Maritime provinces distort the price of private timber. These experts assert, according to petitioners,
that administered stumpage prices necessarily affect non-administered stumpage prices.
Petitioners assert that private prices in New Brunswick are distorted because the factors which
the Department used to determine that Quebec private prices are distorted are also present in New
Brunswick. Petitioners note that the Department found that 818 mills sourcing exclusively from the
private forest in Quebec sourced 13.87 percent of the supply from the private forest while in New
Brunswick, petitioners argue that 3 purchasers sourcing exclusively accounted for one-tenth of one
percent of the private supply in New Brunswick. Petitioners also point out that mills with access to
Crown land in New Brunswick sourced almost 100 percent of the private forest compared to Quebec
where the Department found mills with access to Crown lands sourced 86.3 percent of the private
market. Petitioners argue that while the Department found that dual source mills in Quebec were not
dependent on the private market evidenced by less than 19.0 percent of their total supply coming from
private lands, the record shows that dual source mills in New Brunswick were also not dependent on
private woodlots as evidenced by dual source mills in New Brunswick sourcing 18.2 percent of their
total supply from private woodlots. See page 26 of the petitioners’ case brief.
Petitioners argue that like the Department’s finding for Quebec, there is a “feedback effect” in
New Brunswick. Petitioners also challenge the Canadian parties claim that the feedback effect for New
Brunswick differs from the feedback effect for Quebec. Petitioners assert that the right conclusion to be
drawn is that the record evidence shows that private prices affect Crown prices in New Brunswick and
vice versa, by driving both Crown and private prices down.
The Maritime Lumber Bureau (MLB) rebuts petitioners’ argument that private prices from the
Maritimes can not be used because the Department’s regulations preclude any private price where
government involvement significantly distorts the private price. See page 2 of the MLB’s rebuttal brief.
The MLB argues that the Department’s regulations contain no bright line 50 percent test categorically
excluding any private price where the government supplies more than 50 percent of the market exists.
The MLB distinguishes the only case cited by the petitioners as employing the 50 percent test, Hot
Rolled Carbon Steel Flat Products from Thailand, 66 FR 50 410 (October 3, 2001) from this review,
by the fact that the Thai government controlled the entire in-country market and no other in-country
market existed.
The MLB contests the petitioners’ claim that private prices in the New Brunswick and Nova
Scotia are not market determined by offering support for its argument that the Maritime private timber
market is a regional market with numerous buyers and sellers from within Canada and the United States.
See Id. at 3. The MLB argues that the private stumpage market in the Maritimes is a regional one
where a fundamental characteristic is demand in New Brunswick exceeds the available supply and the
buyers in the New Brunswick market respond by importing 17 percent of supply from outside the
province. See Id. at 4. Similarly, the MLB argues that the sources of supply in the Maritime provinces
is as competitive among four types of suppliers. See Id. at 5. In New Brunswick, the suppliers include
Crown, private industrial, private woodlot and imports and provide 37.5 percent, 21.6 percent, 23.9
percent, and 17 percent, respectively. The MLB further rebuts the petitioners’ claim stating that Crown
leaseholders are not as unified a market force as posited by the petitioners; Crown lands are divided
among 6 licensees and 77 sub-licensees who must look to private sources for a majority of their wood
requirements. The MLB also refutes petitioners’ argument regarding Nova Scotia, stating that wood
from private sources constitutes 90.9 percent of the supply, with 55.9 percent of Nova Scotia’s total
harvest from private woodlots and 34.9 percent from the industrial freeholds and 9.25 from Crown
sources. When Nova Scotia and New Brunswick are treated as a region, the MLB argues that
petitioners’ argument is rebutted because Crown represents a mere 23 percent of the input used for
softwood lumber. The MLB also contradicts the petitioners’ claim that private prices in the Maritime
provinces are not market based because the MLB asserts there is record evidence that harvest volumes
in the Maritimes trend according to lumber prices.
The MLB further claims that the petitioners’ argument that private prices in the Maritime
provinces cannot be used because the government controls more than 50 percent of the supply is refuted
when look at the total control of Crown sources by the Maritime provincial governments, the provincial
governments of the Maritime provinces control 23 percent of the Crown supply. See Id. at 7. The
MLB also contradicts petitioners’ claim by reviewing the evidence cited by petitioners, which calculates
the supply from Crown lands as 42 percent of the total harvest.
The MLB argues that New Brunswick is not an isolated market but is a functioning competitive
component of a regional market, as evidenced in the petitioners’ own evidence.
The MLB cites record evidence that private stumpage prices have risen with demand, in contradiction
with petitioners’ evidence. The MLB further argues that Crown supply cannot sufficiently supply the
demand in New Brunswick which further emphasizes the importance of supply from private industrial
freeholds, private woodlots and imports.
The MLB offers rebuttal to the Stoner Reports submitted by petitioners as support for their
theory that prices in the Maritime provinces are distorted by claiming that the Stoner Reports do not
apply to the Maritime provinces. The MLB notes that the Stoner Reports never actually cite to any
evidence regarding market conditions in the Maritime provinces, and that
the basic theory underlying the Stoner Reports, the dominant firm model has no relevance to the
Maritime provinces. The MLB offers evidentiary support why each of the factors listed in the Stoner
Reports are not present in the Maritime provinces. See Id. at 15.
The MLB rebuts the Lutz Report submitted by petitioners to show that private prices in the
Maritime provinces were distorted , by pointing to the Canadian Forest Service Study Timber Markets
in New Brunswick and Nova Scotia and their Use in Assessing Stumpage Prices in Other Canadian
Provinces (CFS Study) as being a more accurate representation of the market conditions in the Maritime
provinces.
The MLB asserts that the petitioners’ argument that a headcount of mills sourcing from the
private forest exclusively fails to provide accurate information on the importance of the private market in
the Maritime provinces, where the analysis should instead focus on the fact that private sources supply
75 percent of the total wood fiber in the Maritime provinces whereas in Quebec, private sources only
account for 15 percent of the total wood supply. See Id. at 18. The MLB also challenges the
statements by academics and woodlot owners offered by the petitioners as evidence of price distortion
as overstated, taken out of context and generally not representative of the 80,000 private woodlot
owners in the Maritime provinces.
Finally, the GOQ claims that the Department’s finding that private standing timber prices from
Quebec are unuseable as a benchmark is inconsistent with its use of private prices from the Maritimes as
a benchmark. It asserts that the structure, composition, and operation of Quebec’s private market are
superior to those in the Maritimes and points out that the Department found Quebec’s administered
stumpage system superior to New Brunswick’s in Lumber III. The GOQ also argues that the
sawmill/corporate concentration in the Maritimes benchmark is higher than that in Quebec and that
Quebec has a larger, more competitive private supply than the Maritimes. The GOQ also contends that,
in comparison to the Maritimes, Quebec has twice the amount of marketing boards, more buyers and
sellers, and twice the mills sourcing exclusively from the private market, therefore making it more
competitive. Based on these factors, the GOQ argues that Quebec’s private market is equally, if not,
more competitive than the Maritimes. Consequently, it asserts that the Department should use Quebec’s
private standing timber prices, not those from the Maritimes, as the benchmark.
Department’s Position
As we recognized in the Preliminary Results, 69 FR at 33213, the statute, the regulatory
hierarchy and the record facts inform the Department’s adequacy of remuneration analysis. The
Preamble to the Regulations provides additional guidance on the use of market-determined prices
stemming from actual transactions within the country. See “Explanation of the Final Rules,”
Countervailing Duties, Final Rule, 63 FR 65348, 65377 (November 25, 1998) (Final Rule Preamble).
As noted in 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
recognizes that the Department normally will not adjust such competitively-bid prices to account for
government distortion because such distortion will normally be minimal as long as the government
involvement in the market is not substantial. See Final Rule Preamble, 63 FR at 65377.
The Preamble also states that “[w]hile we recognize that government involvement in the
marketplace may have some impact on the price of the good or service in that market, such distortion
will normally be minimal unless the government provider constitutes a majority, or in certain
circumstances, a substantial portion of the market. 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.” See Id., 63 FR 65377-78.
This guidance in the Preamble reflects the fact that, when the government is the predominant
provider of a good or service there is a likelihood that it can affect private prices for that good or
service. Where the government effectively determines the private prices, a comparison of the
government price and the private prices cannot capture the full extent of the subsidy benefit. In such a
case, therefore, the private prices cannot serve as an appropriate benchmark.
In this case, the Government of New Brunswick (GONB) owns 51 percent of the timber land in
New Brunswick. Despite petitioners’ assertions, this bare majority market share alone does not provide
a basis to determine that private prices from New Brunswick are not useable as a benchmark. As
discussed below, the GONB does not have the same level of control over the domestic market for saw
timber that the Royal Thai Government had over the electricity market in Hot Rolled Carbon Steel Flat
Products from Thailand, 66 FR 50,410 (Oct. 3, 2001) (HRC Steel from Thailand , nor the same impact
as the role of Crown timber pricing in Quebec.
Contrary to petitioners’ claims, the New Brunswick timber market can also be distinguished
from the Quebec timber market in that the GONB’s involvement does not result in market dominance by
tenure holding mills, as it does in Quebec. Timber from Crown and federal lands in New Brunswick
accounted for 41.7 percent of the timber processed by sawmills in New Brunswick during the POR.
See 2002 Timber Utilization Survey, submitted by petitioners on August 31, 2004, at Exhibit 46.
Timber from freeholds accounts for 20.8 percent, private lands represented by Marketing Boards
account for 19.4 percent and imports account for 17.6 percent of timber processed by sawmills. This
breakdown of the supply of timber demonstrates that the Crown is not the dominant supplier as
compared to Quebec where Crown accounts for 87 percent of the timber supplied to sawmills.
For petitioners’ market distortion arguments to be tenable, several factors would need to be
present. First, the facts would need to show that the Crown licensees receive timber at a below market
or subsidized price. Given that the majority of Crown timber is processed by the sub-licensees, the
licensees would be required to pass on the benefits of a below market or subsidized price to the sublicensees.
Facts would also be required to demonstrate that the sub-licensees could use their 55 percent
supply of the Crown, and their 44 percent of the private market, including imports, to dictate the prices
which private sellers of logs and timber charge. Petitioners have presented no evidence to show that the
factors outlined above exist. Further, there is no evidence to show that Crown supply is sufficient to
meet all or a majority portion of the demand needs of the province, i.e. the essential linkage which would
allow Crown prices to effect prices in the private market. Therefore there is no evidence to justify the
Department finding that the six Crown licensees or the sub-licensees dominate the New Brunswick
timber market to the extent that they can suppress private market prices.
Moreover, petitioners’ claim that the Department has a practice mandating that private prices
are unuseable when government involvement is greater than 50 percent is incorrect. In HRC Steel from
Thailand, the Department determined that private prices for electricity were unuseable as a benchmark
because “RTG essentially controls the domestic electricity market.” The Department found that the
RTG provided 73 percent of the domestic electricity supply, purchased all the imports and mandated
what the private electricity companies in Thailand could charge for electricity. See 66 FR at 50410.
Notably, the RTG was not only a majority provider of the electricity but also was deemed to “essentially
control the domestic electricity market.” (emphasis added). The Department, therefore, not only
examines the portion of market share held by the government but also considers the impact of that
market share and has discretion to determine if the level of government involvement significantly distorts
the private market.
Additionally, there is no record evidence supporting petitioners’ claim that GONB assistance to
private woodlot owners for silviculture demonstrates that private prices in New Brunswick are distorted.
Petitioners’ comments do not provide any amount of assistance that has been provided to private
woodlot owners during the POR. Second, the evidence cited by petitioners does not provide any details
concerning the level of the funding of silviculture. Nor do petitioners’ arguments demonstrate the impact
of government funded silviculture, i.e. that absent government funding the private woodlot owners would
perform no silviculture activities. Petitioners’ comment also fails to demonstrate the quantitative or
qualitative relationship between any financial assistance from the GONB and the price of wood from
private woodlots.
There is no information on the record to suggest that a feedback effect, similar to the one in
Quebec, exists in New Brunswick. As no allegations of subsidy were made regarding the New
Brunswick Crown stumpage program, the Department has not investigated that program. Additionally,
as described above, the market incentives existing in Quebec which give rise to a distorting feed-back
effect are not present in New Brunswick.
Our determination is not premised on a finding that the Maritimes is a regional market. In the
Preliminary Results, the Department used private stumpage prices from New Brunswick and Nova
Scotia, because they represented prices for actual market transactions in Canada. The Department’s
verification of these private prices confirmed the Department’s decision to use these prices. Notably, no
other provinces from the Maritime region, i.e. Prince Edward Island, Newfoundland and Labrador
submitted private prices.
As shown above in the Department’s consideration of claims comparing New Brunswick and
Quebec, private prices for standing timber in New Brunswick are not effectively determined by standing
timber in the province’s public forests. As no similar claims have been made regarding Nova Scotia, the
Department also finds that private prices for standing timber in Nova Scotia are not effectively
determined by standing timber prices in the province’s public forests. These determinations are
independent and do not require that the Department consider the Maritime provinces as a regional
market.
Interested parties from both sides have submitted comments equating the timber market in the
Maritimes with that in Quebec, albeit with different final conclusions. As the discussion above illustrates,
the Department finds when applying the same economic analysis to both areas that the timber market in
the Maritimes is substantially different from the timber market in Quebec.
For all of the reasons cited above, the Department finds for these final results that the Maritimes
stumpage prices are market-determined prices. Moreover, as explained in Comment 38, we also
continue to find that the species in the Maritimes are comparable to those in Alberta, Manitoba, Ontario,
Quebec, and Saskatchewan. Therefore, we have used the Maritimes prices as appropriate first tier
benchmark prices to measure the adequacy of remuneration for Crown provided timber in each of these
provinces.
b. Country vs. Province
Comment 35: Maritimes “In-country” Prices: Tier One of Benchmark Hierarchy
Petitioners argue that the Maritimes’ prices cannot qualify as a tier-one benchmark. Specifically,
petitioners cite to the portion of the statute which requires the Department to perform its “adequacy of
remuneration” determination “in relation to prevailing market conditions for the good or service being
provided . . . in the country which is subject to the investigation or review.” 19 U.S.C. § 1677 (5)(E).
Petitioners state that according to 19 U.S.C. §1677(3), the CVD statute defines “country” to include
either “a foreign country” or a political subdivision of a country. Petitioners add that the definition of the
term “country” was added to the CVD statute as part of the Trade Agreements Act of 1979 and, in
enacting this definition, the Senate explained that “{T}he administering authority will determine on the
basis of the facts of each case, what entity or entities will be considered the ‘country’ for the purposes of
a title VII proceeding.” See S. Rep. No. 96-249, at 81, reprinted in 1979, U.S.C.C.A.N. 381, 467.
Petitioners state that the stumpage subsidy programs are administered by the respective provincial
governments and only apply within the respective provinces, therefore, the benefit calculated by the
Department is performed by applying the benchmark to each of the individual provinces. Petitioners
argue that, for purposes of the CVD law, the “country” providing the subsidy is the province. See pages
76-79 of petitioners’ case brief.
Canadian parties also state that the Department has excluded parties from the countervailing
duty order, thereby not reviewing programs in the “country” of Canada. Therefore, Canadian parties
argue that the term “country” must be interpreted as “a political subdivision,” i.e., a particular province,
because the decision to exclude provinces means that the provinces, instead of Canada, are the
“countries” whose programs are subject to the review. In sum, Canadian parties assert that a
benchmark based upon stumpage prices from outside a province constitutes a benchmark beyond the
jurisdiction’s borders (a cross-border benchmark), irrespective of whether the stumpage prices are from
the United States or from a different province. See page 31-33 of OFIA/OLMA’s case brief.
Petitioners agree in part with Canadian parties. Specifically, petitioners agree that the Maritimes
do not represent tier one benchmarks, however, they disagree with Canadian parties’ conclusion that
the Department can use only benchmarks within each province. Rather, petitioners assert that the
Department could consider the possibility of using Maritimes’ timber price data only as a tier two or
three benchmark and would have to reject them as unuseable, given data problems, price distortion and
an absence of representativeness.
Respondents argue that the Department has historically rejected cross-border benchmarks as
“arbitrary and capricious,” emphasizing the “appropriateness of remaining within the relevant
jurisdictions.” See Certain Softwood Lumber Products from Canada, 48 FR 24159, 24168 (May 31,
1983); see also, Certain Softwood Lumber Products from Canada, 57 FR 22507, 22507 (May 8,
1992). They further assert that the NAFTA binational panel reaffirmed the Department’s historic view
and rejected the use of U.S. benchmarks, and that the WTO Dispute Settlement Body also declined to
uphold the Department’s application of cross-border benchmarks. See Certain Softwood Lumber
Products from Canada, Decision of the Panel, File No. USA-CDA-2002-1904-03 (August 13, 2003)
at 32-33. Thus, the Department should rely on data that specifically relates to the prevailing market
conditions in each province.
Department’s Position
The statute expressly provides that the Department determine the adequacy of remuneration “in
relation to prevailing market conditions for the good . . . being provided. . . in the country which is
subject to the investigation or review.” See section 771(5)(E)(iv) of the Act, (emphasis added). Tier
one of the Department’s regulation, 19 CFR 351.511(a)(2), provides that the Department “will normally
seek to measure the adequacy of remuneration by comparing the government price to a marketdetermined
price for the good or service resulting from actual transactions in the country in question.”
(emphasis added). The statute as interpreted by the Department’s regulations, thus, specifically requires
that the Department first consider whether there are useable market-determined prices resulting from
actual transactions in the country in question. Consistent with the statute and the regulations and as
explained in Comments 19 - 33 of this Decision Memorandum and in the Preliminary Results, the
49 As set forth above of this Decision Memorandum, we have revised our benchmark methodology for B.C.
Department has assessed the adequacy of remuneration for Quebec49, Ontario, Alberta, Manitoba and
Saskatchewan using market-determined stumpage prices from Nova Scotia and New Brunswick
(together, the “Maritimes”), i.e., using stumpage prices from provinces in Canada.
We disagree with the contention that, as a matter of law, the Maritimes are not part of the
country under investigation. The purpose of a countervailing duty investigation is to determine whether
and to what extent the government of the exporting country has subsidized the production, sale or export
of the subject merchandise. The countervailing duty order under review is the order on certain softwood
lumber products from Canada. The purpose of this review, therefore, is to determine whether and to
what extent the government of the exporting country, i.e., Canada, subsidized the production, sale or
export of the subject merchandise.
The inclusion of “political subdivision” within the definition of the term “country” ensures that the
Department may investigate and review subsidies granted by sub-federal level government entities and
ensures that those governments qualify as interested parties under the statute. In other words, an
examination of subsidies granted by the government of the exporting country includes subsidies granted
by sub-federal governmental authorities. The language in section 771(3) does not mean, as the parties
contend, that the term “province” is interchangeable with the word “country” under the CVD law. The
fact that the statute permits the Department to examine sub-federal programs does not change the fact
that the “country,” i.e., the “foreign country” that is subject to this review is Canada.
Moreover, as a matter of fact, the Maritime Provinces are part of the country under
investigation. The scope of this CVD order and, therefore, this review, is certain softwood lumber
products from Canada, not certain softwood lumber products from parts of Canada. The exclusion of
certain products from the Maritime Provinces from the scope of the CVD order does not mean that the
country under review is not Canada.
The Department initiated the underlying investigation of this proceeding on “certain softwood
lumber products from Canada.” See Notice of Initiation of Countervailing Duty Investigation: Certain
Softwood Lumber Products from Canada, 66 FR 21332 (April 30, 2001).
The notice of initiation was subsequently amended to exempt from the scope of the investigation certain
lumber produced in the Maritime Provinces. This exemption was limited to lumber produced in the
Maritime Provinces from timber harvested in the Maritime Provinces. Amendment to the Notice of
Initiation of Countervailing Duty Investigation: Certain Softwood Lumber Products from Canada, 66 FR
40228 (August 2, 2001). The amendment to the scope of the investigation is set forth in the CVD order
and specifically states:
On July 27, 2001, we amended our Initiation Notice, to exempt certain softwood
lumber products from the Provinces of New Brunswick, Nova Scotia, Prince Edward
Island, and Newfoundland. . . from this investigation. This exemption does not apply to
softwood lumber products produced in the Maritime Provinces from Crown timber
harvested in any other Province.
See Notice of Amended Final Affirmative Countervailing Duty Determination and Notice of
Countervailing Duty Order: Certain Softwood Lumber Products From Canada, 67 FR 36070 (May 22,
2002), as amended, 67 FR 37775 (May 30, 2002) .
The exemption therefore does not apply to all softwood lumber produced in the Maritime
Provinces. The fact remains, however, that Canada is the “country” subject to the order and this review.
Consequently, Maritimes’ price data represents actual transactions in the country under review within the
meaning of tier one of the CVD Regulations. Because we have determined that Maritimes’ prices are a
tier one benchmark, we do not need to reach the issue of whether they would be an appropriate
benchmark under tier two or three of the Department’s regulations.
The petitioners’ comments concerning the distortion and representativeness of the
Maritimes’ benchmarks are addressed in Comments 34 and 37 of this Decision Memorandum.
Finally, with respect to parties’ WTO-specific arguments, we note U.S. law, as implemented
through the URAA, is fully consistent with our WTO obligations.
Comment 36: Quebec Province-Specific Rate
The GOQ argues that if the Department finds a countervailable subsidy, it should provide
Quebec with a province-specific rate. See pages 11-12 of the GOQ’s case brief. The GOQ’s
argument in this regard tracks its argument that Quebec is the “country” under review. The GOQ
submits that for the same reason, i.e., the statutory definition of “country” includes “political subdivision,”
a province-specific rate would be consistent with U.S. countervailing duty law and the SCM Agreement.
Moreover, the GOQ submits that the Department has the authority to calculate such a rate and that such
an approach has been determined to be consistent with the purpose of U.S. and international
countervailing duty law. Citing In the Matter of Certain Softwood Lumber Products from Canada,
Panel No. U.S.A.-92-1904-02, United States-Canada Free Trade Agreement Binational Panel Review,
(May 6, 1993) (Lumber III FTA Panel). Additionally, the GOQ contends such a province-specific
approach would be consistent with the law because the law prohibits the imposition of countervailing
duties that do not offset actual benefits received.
Petitioners argue that the FTA panel in Lumber III affirmed the Department’s use of a single
country-wide rate. See Lumber III FTA Panel at 139. Thus, petitioners argue that the Department
should maintain its calculation of a single country-wide CVD rate for this review.
Department’s Position
Because of the large number of Canadian producers and exporters of the subject merchandise,
this review is being conducted under section 777A(e)(2)(B) of the Act, which permits the Department to
“determine a single country-wide subsidy rate to be applied to all exporters and producers.” The
country subject to the order is Canada. Consistent with the statute, the Department has calculated a
single Canada-wide subsidy rate.
Moreover, the GOQ’s arguments to the contrary notwithstanding, a single country-wide rate
does not impose duties in excess of the subsidy found to exist. The methodology used by the
Department is based on evidence establishing the total subsidies to the production of softwood lumber in
Canada. The country-wide subsidy rate is based on an allocation of the total subsidies. Allocating the
total subsidies found to exist across the provinces does not overstate the subsidies to the production of
softwood lumber in Canada. The Department’s country-wide rate calculation therefore does not result
in the imposition of excess duties.
c. Non-representative
Comment 37: Use of AGFOR Reports of Maritimes Stumpage Prices
Petitioners argue that private prices reported by the Maritimes are not useable as a benchmark
because these prices do not represent prices for the POR, citing issues with the Department’s use of
STATCAN’s Atlantic Region lumber price index (STATCAN index) in the Preliminary Results and the
methodology used by AGFOR in reporting pricing data. Based on a survey conducted by Athol
Forestry Cooperative (Athol survey), an organization of 230 private woodlot owners in Nova Scotia,
petitioners assert that the STATCAN index did not track timber price movements between the fivemonth
AGFOR survey period and the POR. See pages 5-7 of petitioners’ case brief. Petitioners state
that the Atlantic Canada prices reflect the experience of all of the Maritime provinces, but do not reflect
the prices for the lower grades of lumber that are produced in Nova Scotia. Therefore, petitioners argue
that it is unreasonable to rely on the STATCAN index to create POR private prices for Nova Scotia.
Petitioners also claim that the data from the AGFOR reports for New Brunswick and Nova
Scotia are inaccurate and they challenge the veracity of the AGFOR data and methodology. The
petitioners specifically question why log prices in Nova Scotia decreased between the data reported and
the indexed data which the Department used in its Preliminary Results calculations, when the petitioners
claim their evidence shows the price should have increased. In one claim, the petitioners assert that
New Brunswick private prices cannot be used because a conversion factor data error was discovered
during verification. In another instance, the petitioners claim that a price reported in percentage of total
sales is not representative of an actual sales transaction and, therefore, is unusable. The petitioners also
question the data reporting studwood at a higher price in some Marketing Board regions than the price
of sawlogs in New Brunswick. See Id. at 6-7.
In regard to the Nova Scotia report, the petitioners argue that these prices are unusable as a
result of flaws in AGFOR’s methodology. Petitioners assert that AGFOR’s pro-ration of total harvest
volumes on a product-specific basis is unsupported by any factual information and bears no relation to
market conditions in Nova Scotia. See Id. Because of these flaws in the AGFOR data and
methodology for both the New Brunswick and Nova Scotia reports, the petitioners argue that the
AGFOR reports are not representative of private prices in the Maritime provinces for the POR and,
therefore, are unusable. See Id. at 249.
OFIA and OFMA argue that the Department cannot use the AGFOR Reports for New
Brunswick and Nova Scotia as a matter of law because they allege that these reports do not contain
data from actual transactions reflecting prevailing market conditions. See pages 46-48 of
OFIA/OLMA’s case brief. The OFIA/OLMA repeats several arguments made by petitioners and
further is critical of AGFOR’s weight averaging methodology and reporting of stumpage prices on a
percentage of mill delivered log price basis. In addition, the OFIA/OLMA asserts that the Department
did not review the accuracy of the mill prices published by grades by the marketing boards or the grades
used to catagorize softwood lumber. See page 5 of OFIA/OLMA’s case brief.
Counsel for the MLB rebuts petitioners’ challenge to the data collected and the methodology
used for the New Brunswick AGFOR Report. In support, the MLB outlines the methodology used by
AGFOR that describes the process by which the Department verified the data, and asserts that the New
Brunswick AGFOR Report was not prepared in preparation for this review but rather as a means to
provide the GONB an update of private prices for internal use. See page 21 of MLB’s rebuttal brief.
The MLB challenges the petitioners’ criticism of the Department’s decision to index prices collected for
Nova Scotia to reflect POR data. The MLB states that the petitioners’ proposed index method is a less
accurate method than that used by the Department. See Id. at 22. Moreover, the MLB counters
petitioners’ argument that the data and methodology employed by AGFOR for the Nova Scotia Report
make the report unusable. Specifically, the MLB states this argument is without merit, given that the
petitioners’ own consultant, Athol, used a similar methodology and means for data collection in the
survey it submitted on the record. The MLB further rebuts petitioners’ claim that the Department
incorrectly equally weighted studwood and sawlogs prices by asserting that a review of the Nova Scotia
Registry of Buyers and the Random Lengths Big Book supports the Department’s reasoning. See Id. at
23.
Department’s Position
The AGFOR data used by the Department were collected in the ordinary course of business
and the prices were verified subsequent to the issuance of the Preliminary Results. Although it was
necessary to index the data from the Nova Scotia report to make it contemporaneous with the POR, the
Department used an index reported by STATCAN, which is also utilized by AGFOR in indexing certain
data in its report. See Appendix A, at page B-3 of the AGFOR report entitled “Review and
Recommendations of the Valuation, Allocation and Sale of Crown Timber Resources in Nova Scotia”
contained in the June 17, 2004, Memorandum to the File concerning Pages Missing from the Calculation
Memoranda. Although petitioners argue that the Athol survey shows a different price trend regarding
Nova Scotia timber prices in the five-month period between the AGFOR report and the POR, the
Department is unable to corroborate the Athol survey results. The STATCAN index, however, is a
reliable source consistent with AGFOR’s own practice of indexing. Therefore, we find no reason to
doubt the accuracy of the STATCAN index used by the Department to make the AGFOR data
contemporaneous with the POR.
The Department, when it verified the Maritimes’ data, found only a single error for a single entry
in the New Brunswick price data. See the October 1, 2004, Memorandum to Melissa G. Skinner,
Director, from Maura Jeffords, Case Analyst, concerning Verification of the Questionnaire Responses
Submitted by Governments of New Brunswick and Nova Scotia and AGFOR Reports Submitted in
Reference to Private Prices in New Brunswick and Nova Scotia (Maritimes Verification Report) at 7.
The conversion factor error was not systemic and the Department is able to correct this calculation;
therefore, the error does not warrant the rejection of the entire AGFOR report.
As explained in the Maritimes verification report, AGFOR’s survey interviewees reported
certain prices on a “percent mill” basis because the landowner’s arrangement indicated that their
stumpage price was a certain percentage of the price determined at the mill. In these instances, AGFOR
used mill prices by grade, as published by the marketing boards and Table 2.1 of the New Brunswick
report, to determine the price. See Id. at 8. Therefore, the “percent mill” prices reflect the actual
business practice of the landowners and the prices at which they sell their trees in the open market.
Thus, the mere fact that landowners opt to sell their standing timber on a “percent mill” basis does mean
that their prices are not market prices as petitioners contend.
In regard to AGFOR’s derivation of a weighted-average stumpage price, the Maritimes
Verification Report explains the methodology, stating that:
for each product code, AGFOR multiplied the unit value by its corresponding estimated volume
to arrive at a total value for each region. For example, in Central Nova Scotia, for product one,
they multiplied 11.55 C$/m3 by 134,063 m3. They then calculated a province wide total value
for each product code ($14,931,411 for the Central region) and divided that amount by the
product code’s corresponding estimated province-wide volume (1,503,933 m3) to arrive at the
weighted-average stumpage price for that particular product (9.93 C$/m3).
See Id. at 14-15. This methodology is used by AGFOR in the ordinary course of its reporting of
stumpage data to the Government of Nova Scotia (GONS). As a result of the fact that the GONS does
not collect harvest volume data by species, AGFOR used a methodology which allowed it to allocate
the species prices to the corresponding species volumes. The Department examined the accuracy of this
allocation and finds AGFOR’s allocation methodology to be a reasonable approach.
For these reasons, the Department has determined that it is reasonable to accept AGFOR’s
methodology for reporting the New Brunswick and Nova Scotia stumpage prices.
Comment 38: Maritimes Do Not Reflect Prevailing Market Conditions
Petitioners and respondents both argue there are irreconcilable factual differences between the
market conditions in the Maritimes and other provinces and, therefore, the Maritimes’ prices are an
inappropriate benchmark. The parties argue that the geographical, ecological, and species variations
across Canadian provinces demonstrate that the same forest and market conditions for stumpage cannot
be found in any two provinces in Canada. Additionally, natural phenomena (e.g., mountain ranges) and
differing ecosystems (e.g., climate) greatly affect the quality, size and value of timber and species
composition as one moves east to west and, therefore, an east-west comparison of timber is
problematic. They add that the Department acknowledges this fact by applying different adjustments to
the Maritimes’ benchmark for each province under review.
Petitioners specifically argue that the Department is legally forbidden to use Maritimes’
sawtimber prices for benchmark purposes, stating the statute and regulations establish that benchmark
goods and markets must be representative to make prices for these goods “useable.” If such benchmark
goods and markets are not representative, then they do not facilitate the statutorily required inquiry into
adequate remuneration vis-a-vis relevant market conditions in the subject country. Citing to section
351.511(a)(2)(i) of the CVD regulations, petitioners assert that the Department will use only prices for
the same good that the government, under review, is providing; though, the Department will consider
product similarity and use prices for similar products that are comparable. However, petitioners assert
that certain differences in the physical environment of the Maritimes result in low-quality timber, which is
not comparable to timber found in the other provinces. See page 57 of petitioners’ case brief. They
discuss that the timber harvested in the Maritimes is generally lower-quality second, third, and fourth
generation growth. The quicker growth and maturity cycles of the Maritimes have resulted in a large
concentration of immature trees which are harvested before reaching full value and which are relatively
less dense and weaker than trees of other provincial forests.
Respondents also argue that a comparison of the Maritimes’ forest to other forests is not
possible, but for different reasons. The GOO, GOM and GOS discuss that Manitoba’s and
Saskatchewan’s Crown forests are boreal forests, while all of Nova Scotia’s forest and the vast majority
of New Brunswick’s forest are acadian forest. They claim that the acadian forests have a wetter and
milder climate and longer growing season than the boreal forests and, as such, the growing conditions in
Manitoba and Saskatchewan are significantly harsher than the Maritimes, affecting the size and quality of
their commercial forests. See page 6 of GOM’s and GOS’ case briefs. Because the Maritimes, the
GOM and GOS claim, enjoy better growing conditions, larger trees are harvested from their forests.
See Id. The GOA also discusses that Alberta’s forest, unlike the Maritimes’ forest, suffers from low
precipitation, cold northern climates, short growing season, minimal road construction, and poor
proximity to the mills; all of which results in poorer quality, smaller diameter, and lower value Alberta
trees. See page 5 of the GOA’s case brief.
Further, both petitioners and respondents argue that there is an extreme difference in species
composition between private timber in the Maritimes and public timber in Western Canada. For
example, in New Brunswick, the dominant softwood species are spruce and balsam fir, with minuscule
amounts of jack pine; however, jack pine is the dominant species in Saskatchewan and balsam fir
represents only 2.3 percent of the harvest. Also, much of the timber harvested in the Maritimes is
comprised of species (e.g., white pine) that do not exist or are rare, poor quality, or inaccessible to
harvest in Alberta.
Department’s Position
The statute requires that the adequacy of remuneration for the good being provided “shall be
determined in relation to prevailing market conditions,” which includes “price, quality, availability,
marketability, transportation, and other conditions of sale.” See section 771(5)(E)(iv) of the Act.
Section 351.511(a)(2)(i) of the regulations further instructs the Department, when measuring the
adequacy of remuneration, to consider product similarity and other factors affecting comparability
50 As described in Comment 40, for Quebec, we have added market-determined benchmark prices for larch
to our Maritimes SPF benchmark, because this species is included in the SPF species group in Quebec.
51 Eastern SPF accounts for 71 percent of Saskatchewan’s harvest.
between a government price and a market-determined benchmark price. Contrary to the arguments
made by both petitioners and respondents, evidence on the record demonstrates that, with the exception
of B.C., the forest and market conditions of the Maritimes are in fact comparable to those of the
provinces whose stumpage programs are under review. Therefore, for the reasons explained below
(and as previously set forth in the Preliminary Results), we continue to find that the Maritimes’ stumpage
prices are market-determined benchmarks that reflect prevailing market conditions in Alberta,
Manitoba, Ontario, Quebec and Saskatchewan.
The Maritimes’ benchmark consists of prices for the eastern SPF species group, which includes
jack pine, balsam fir, black and white spruce.50 We have grouped these timber species together for
benchmark purposes because the various species share similar characteristics. For example, these
species are sufficiently similar in physical characteristics to be commercially interchangeable in lumber
applications and are priced similarly by some provinces. The species of “eastern SPF” is a widely
recognized group, which numerous publications and reports analyze and refer to collectively.
Eastern SPF is also an ubiquitous species group, which grows in the forests of all of the
provinces whose stumpage programs are under review, with the exception of B.C. Eastern SPF
constitutes almost the entire harvest (between 95 and 100 percent) in Alberta, Manitoba, Ontario, and
Quebec.51 Though eastern SPF is somewhat less predominant in the Maritimes, this species group
accounts for between 44 and 94 percent of the provinces’ harvest.
Petitioners and respondents also argue that because the Maritimes is in a different forest region,
i.e., the acadian forest, than the other provinces, i.e., the boreal forest, the trees are not comparable.
While we agree in principal that the type of forest can affect the comparability of
species and composition (i.e., size and quality) of trees grown therein, we, nonetheless, find that the
record of this review shows the similarity of the two forests. The species maps for eastern SPF
demonstrate the species group’s range of growth stretching from the Maritimes to Alberta. Additionally,
the record indicates that eastern SPF trees are comparable across their entire growing range as
demonstrated by tree diameter, which is one of the most important characteristics in terms of lumber use.
The record indicates comparable diameters among eastern SPF trees grown from the Maritimes to
Alberta. At the easternmost portion of their range, eastern SPF’s average diameter at breast height
(DBH) in New Brunswick is 7.78 inches, at the westernmost portion of their range in Alberta, the DBH
is 8.00 inches, and in Quebec, which accounts for the largest overall harvest, the DBH is 7.91. We also
note that to the extent other adjustments are necessary to reflect prevailing market conditions, those
adjustments are reflected in our analysis (see Comment 39).
For these reasons, we continue to find that the forest and market conditions of the Maritimes are
comparable to those conditions of the provinces’ whose stumpage programs are under review and,
therefore, the Maritimes’ stumpage prices are market-determined benchmarks that reflect prevailing
market conditions in Alberta, Manitoba, Ontario, Quebec, and Saskatchewan.
- 105 -
d. Adjustments
Comment 39 : Benchmark Adjustments
In general, the Canadian parties argue that, if the Department erroneously persists in using
benchmark prices from the Maritimes, it must make adjustments to account for differences in prevailing
market conditions in each of the provinces. At a minimum, the parties argue, the Department must
correct the fundamental adjustment errors in its Preliminary Results by accurately quantifying and
adjusting for the differences between the provincial markets and the private Maritimes market in order to
effectuate a more accurate “apples to apples” comparison. To properly assess the adequacy of
remuneration, the Department should have granted any adjustment evidencing a supply cost difference
between Crown stumpage and the benchmark. The specific arguments concerning the adjustments are
discussed in further detail below.
Department’s Position
Since issuing the Preliminary Results, the Department has verified and obtained additional
information concerning the Maritimes’ pricing data. In light of this new information and the comments
received from the parties, we have reconsidered the cost adjustments we made in the Preliminary
Results. The refined approach we have adopted further facilitates the comparison of market-determined
stumpage prices in the Maritimes with the Crown-administered stumpage prices in the subject provinces
to assess the adequacy of remuneration for Crown-provided timber.
In determining which cost adjustments to make, we have focused on those on costs that are
assumed under the timber contract (e.g., the Crown tenure agreement) and those costs that are
necessary to access the standing timber for harvesting, but that may differ substantially depending on the
location of the timber. Where such costs are incurred by harvesters in either the Maritimes or the
subject provinces, we have included them in our benefit calculations. We have not, however, made
adjustments for costs which may be necessary to access the standing timber for harvesting, but that do
not substantially differ depending on location of the timber, e.g., costs for tertiary road construction and
harvesting. Post-harvest activities such as scaling and delivering logs to mills or markets are also not
included, because they are not necessary to access the standing timber for harvesting.
The pricing data for New Brunswick and Nova Scotia (together, the Maritimes) reflect the
prices paid by harvesters for standing timber and include the value of the timber being purchased in
addition to any landowner costs. At verification, we learned that Maritimes harvesters must also incur
additional costs that must be paid in order to be able to acquire the timber. Specifically, harvesters in
New Brunswick are required to pay silviculture fees as well as administrative fees to the marketing
board operating within the region. In Nova Scotia, in order to be able to acquire the tree, the registered
buyer must either pay for or perform in-kind activities equal to CN$3.00 for every cubic meter of
private wood harvested. See Maritimes Verification Report at 9 and 17. In addition, we learned that
New Brunswick and Nova Scotia both have existing networks of permanent roads by which harvesters
52 The existing road network also eliminates the need for logging camps in the Maritimes.
53 The GONB requires harvesters to have certain types of equipment on site (e.g., a back tank full of 18
litres minimum of water) and to combat the fire until the government arrives. See page 10 of the Maritimes
Verification Report. However, these are requirements imposed on the landowner and would be factored in the
landowner’s costs which are included in the price offered to the harvester for the standing timber.
54 The Forest Management Levies are used to fund silviculture and other forest management activities on
private lands. Administration levies are used to fund the management of the Marketing Boards and to assist private
landowners with developing administrative plans for their woodlots. For a specific list of what these levies fund, see
GONB Verification Exhibit 6.
can access timber.52 See Id. Therefore, harvesters did not have to build or maintain primary and
secondary roads to access a harvesting area. Also, at verification, we learned that in New Brunswick
and Nova Scotia, the provincial governments are responsible for providing the province-wide fire
fighting infrastructure and that the provincial governments do not impose fire fighting/prevention fees on
landowners or harvesters.53 See Id. at 10 and 17. Harvesters in the Maritimes are also not required to
incur any landowner-related costs. See, e.g, Id. at 8 and 15. The only costs Maritimes harvesters must
incur to purchase and access timber for harvesting are thus the cost of the timber itself as well as the fees
that are described above. Therefore, we have added these costs to the Maritimes benchmark prices
when comparing these prices to the Crown-adjusted prices in the subject provinces.
Crown tenure holders are charged an administered fee for the timber they harvest. In addition,
the tenure holders assume additional costs under the terms of tenure, and incur costs to access the
timber for harvesting . The costs that are assumed under the tenure in the subject provinces include
silviculture activities, forestry fund payments, fire and insect protection, and forest planning/tenure
administration fees. The necessary costs associated with accessing the timber for harvesting in the
subject provinces differ depending on the market conditions in those regions. These include road
construction and maintenance costs and, for example in the case of Quebec, cost for logging camps. As
explained above, we have not made adjustments for costs that harvesters incur once they reach the
harvest area (i.e., tertiary or haulage roads and harvesting costs) because such costs are not dependent
on the location of a given tree stand relative to existing road networks or population centers.
Pursuant to this methodology, for purposes of these final results, we have added the following
costs to the stumpage price of the Maritimes:
New Brunswick - (1) Forest Management Levy Paid to the Marketing Boards (2) Administration Levy Paid to the Marketing Boards 54
Nova Scotia - (2) Silviculture Fees
We have added the following costs to the stumpage prices of the subject provinces:
Alberta - (1) Costs for Primary and Secondary Roads (e.g., Permanent Road
Costs in Road Classes 1 Through 4), (2) Basic Reforestation, (3) Forest
Management Planning, (4) Holding and Protection, (5) Environmental
Protection (6) Inventory (7) Reforestation Levy (8) Fire, Insect, and
Disease Protection
Saskatchewan - (1) Forest Management Fee, (2) Processing Facilities License Fee, (3)
FPP Application Fee, (4) Forest Management Activities, and (5) Costs
for Permanent Roads (e.g., Primary and Secondary Roads)
Manitoba - (1) Forest Renewal Charge, (2) FML Silviculture, (3) Costs for
Permanent Roads (e.g., Primary and Secondary Roads), (4) Forest
Inventory, (5) Forest Management Planning, (6) Environmental
Protection
Ontario - (1) Forest Management Planning, (2) Construction and Maintenance of
Primary and Secondary Roads, (3) Fire Protection
Quebec - (1) Forest Fund, (2) Administrative Forest Planning, (3) Non-Credited
Silviculture, (4) Construction and Maintenance of Primary and
Secondary Roads, (5) Fire and Insect Protection, (6) Logging Camps,
(7) Silvicultural Credits for Non-Mandatory Activities (Negative
Adjustment)
Adjustment Comments Raised by Interested Parties
Adjustments for British Columbia
The GOBC points out that in the Final Determination the Department adjusted for certain costs.
However, they argue that in the Preliminary Results, the Department neglected to adjust for these same
costs that tenure holders in B.C. incurred, but were not borne by harvesters in the Maritimes. The
GOBC contends that if the Department reverts to an impermissible cross-border benchmark, pursuant
to Section 771(5)(E) of the Act, it must account for the “prevailing market conditions” in B.C., which
differ substantially from prevailing market conditions in the U.S. Pacific Northwest (PNW). As such, the
GBC argues that the Department should make adjustments for the following costs in its final results: (1)
primary and secondary road construction and maintenance, (2) remote logging camps, (3) helicopter
logging, and (4) fire and pest management expenses.
Petitioners counter that the Department should make no adjustments for secondary road building
and fire and pest management. Regarding remote logging camps, petitioners assert that the Department
should adjust only for costs actually associated with accommodating workers at remote locations, and
not for activities such as storing equipment that must be performed in any logging operation.
Department’s Position
For these final results for B.C., we used U.S. logs as a benchmark and deducted all harvesting
costs incurred in B.C., which included costs associated with acquiring Crown timber. See discussion
above. Therefore, the question of any appropriate adjustments between private stumpage prices in the
Maritimes and Crown stumpage charges in B.C. is irrelevant.
Adjustments for Alberta
The GOA argues that the Department’s Preliminary Results did not include credit for all the inkind
services provided to Alberta tenure holders or adjust for other technical issues. In the Preliminary
Results, the Department granted adjustments for road construction and maintenance costs, basic
reforestation, forest management planning, holding and protection, environmental protection, inventory,
and reforestation levies. The GOA argues that the Department should also adjust for costs for fighting
fire, insects and disease, scaling, land use administration, costs for coordinating overlapping tenures,
secondary road construction, and adjust any comparison for differing scaling rules.
Petitioners argue that no adjustment should be made for Alberta tenure holder’s fire, insect and
disease protection costs, secondary roads, and that an adjustment for scaling is unnecessary. Petitioners
rebut GOA’s suggested adjustments for land use administration and overlapping tenures and argue that
any costs would be offset in a market by corresponding cost savings.
Department’s Position
Pursuant to the methodology stated above, the Department is granting the following adjustments
for these final results: road construction and maintenance costs (primary and secondary roads in Road
Classes 1 through 4 permanent), basic reforestation, forest management planning, holding and
protection, environmental protection, inventory, reforestation levies, and fire, insect, and disease
protection.
Adjustments for Quebec
The GOQ argues that the Department must adjust Quebec stumpage prices to account for
differences between Quebec and the Maritimes’ stumpage prices. The GOQ claims that the
Department must adjust for primary and secondary road construction and maintenance costs, fire
protection, insect disease and protection, logging camps, transport to mill and transport to market. The
GOQ also argues that the Department must adjust the price paid by Quebec’s tenure holders for tree
stand-to-mill and mill-to-market transportation costs.
Department’s Position
In accordance with our methodology for granting adjustments as specified above, we granted
adjustments for primary and secondary road construction and maintenance costs, fire protection, insect
disease and protection, and logging camps. In regard to Quebec’s claimed adjustment for tree
stand-to-mill and mill-to-market transportation costs, record evidence clearly indicates that the
Maritimes’ pricing data reflect the price received by landowners from harvesters and do not reflect a
delivered mill price or a delivered lumber price. See Maritimes Verification Report at 7 and the
AGFOR Report at 22. Therefore, we are not adding such costs to the government stumpage price in
Quebec because they constitute costs that are incurred past the point of harvest and, thus, are costs that
are not reflected in the Maritimes’ price used in the Department’s benefit calculation.
Adjustments for Manitoba
The GOM argues that, in the Preliminary Results, the Department did not take into account
differences in utilization standards, scaling rules, climate and growing conditions, and size differences
between logs harvested in public forests and those harvested in the Maritimes. The GOM also argues
that the Department must adjust for differences in log-haul distances and distances from mill to market.
Finally, the GOM argues that the Department must adjust for prevailing market conditions in Manitoba
by adjusting for road construction costs, forest inventory costs, forest management planning,
environmental, and full road costs. See pages 5-10 and 12-14 of the GOM’s case brief.
Petitioners argue that no adjustments are warranted for forest management costs, because all
harvesters must devote time and resources to long-range and short-term planning strategies. Further,
argue the petitioners, the remaining forestry administration costs advanced by the GOM, including
environmental costs, are analogous to costs of government relations or compliance with forestry and
other regulations that other loggers incur. See page 20 of petitioners’ rebuttal brief.
Department’s Position
Pursuant to the methodology described above, we adjusted for certain costs incurred in
Manitoba. In the Preliminary Results, the Department adjusted for FML silviculture and primary road
costs. For these final results, we have also adjusted for secondary road costs, forest inventory, forest
management and planning, environmental protection, and fire protection costs.
Adjustments for Saskatchewan
The GOS argues that, in the Preliminary Results, the Department did not take into account
differences in utilization standards, scaling rules, climate and growing conditions, and size differences
between logs harvested in public forests and those harvested in the Maritimes. The GOS also argues
that the Department must adjust for differences in log-haul distances and distances from mill to market as
well as adjusting for all management planning and road costs. In addition, the GOS argues that the
Department created a species-specific comparison that does not represent the prevailing market
conditions in Saskatchewan because its Crown timber dues for softwood sawlogs do not vary by
species.
Petitioners argue that no adjustments are warranted for forest management costs, because all
harvesters must devote time and resources to long-range and short-term planning strategies. See page
29 of the petitioners’ rebuttal brief.
Department’s Position
Pursuant to the methodology described above, we adjusted for certain costs incurred in
Saskatchewan. In the Preliminary Results, the Department adjusted for a forest management fee,
processing facilities license fee, FPP application fee, regional forestry costs, and primary road costs.
For the final results, we have also adjusted for secondary road costs and forest management activities,
including insect and disease control and fire protection.
Adjustments to Ontario
The GOO argues that “any attempt to compare stumpage prices between Ontario and the
Maritimes must take into account and adjust for all of the differences between the two markets.”
Specifically, the GOO argues that the Department must properly account for differences in road costs,
forest management costs, forest protection costs, and "mill-to-market" costs. The GOO requests an
adjustment for road construction, maintenance, and overhead. The GOO argues the Department should
grant an adjustment for costs associated with compiling and implementing forest management plans, First
Nations consultations, and an allocation for overhead expenses. The GOO also argues that Department
should grant an for the costs of protecting Crown forests from fire, disease, and insects.
The GOO asserts that the Department should account for differences between the size of
Ontario timber and Maritimes’ timber, arguing that Ontario saw timber is smaller than Maritimes’ saw
timber. The GOO argues that record evidence demonstrates that softwood mills in Ontario are generally
further from potential U.S. and domestic markets than softwood mills in the Maritimes and the additional
hauling costs reduce the value of Ontario timber relative to Maritime timber. The GOO did not,
however, provide a figure for how much of a "mill-to-market" adjustment should be made.
Petitioners argue that Maritimes’ timber is not comparable to subject timber and, therefore,
Maritimes’ prices are unuseable for benchmark purposes.
Department's Position
Pursuant to our adjustment criteria, we are granting a road adjustment for the costs of primary
and secondary construction and maintenance and a corresponding allocation for overhead. We did not
make any adjustment for costs associated with tertiary roads. We have made adjustments for forest
management costs, First Nations relations, and forest protection.
We determine that the saw timber in Ontario and the Maritimes are comparable and, therefore,
determine that no size adjustment is warranted. In addition, we did not make an adjustment for
differences in “mill-to-market”distances.
e. Calculation of Maritimes Prices
Comment 40: Errors Using Maritimes Benchmark
The Canadian parties argue that, should the Department continue to use Maritimes’ prices
as the benchmark, then certain corrections must be made for the final results. In particular, the GOQ
disagrees with the Department’s preliminary decision to use the Maritimes’ stumpage value for white
pine as a benchmark for Quebec’s red pine stumpage. The GOQ claims that only white, red, and jack
pines are harvested in the Maritimes and because jack pine is included in the Maritimes’ SPF category
and white pine is reported separately, the “pine” category in Table 3.1 of the AGFOR Report for New
Brunswick must exclusively contain red pine. Therefore, for the final results, the Department must
compare Quebec’s red pine prices to the Maritimes’ pine category.
The GOQ also argues that the Department did not accurately compare the Maritimes’
benchmark to Quebec stumpage, claiming that the benchmark for SPF was compared to Spruce-Pine-
Fir- Larch (SPFL) in Quebec. The GOQ asserts that a price for larch must be included in the
Maritimes’ benchmark when comparing it to Quebec’s SPFL.
Other Canadian parties argue that the AGFOR Report for New Brunswick contained an
overstated value for SPF sawlogs for the Carleton-Victoria Marketing Board and, therefore, for the final
results, the New Brunswick average value for SPF sawlogs needs to be recalculated.
Department’s Position
There is no basis to determine, as the GOQ asserts, that the “pine” price in Table 3.1 of the
New Brunswick AGFOR Report must be a red pine price. The fact that the table separately listed
white pine, red pine, spruce, fir, jack pine (SPF), cedar, larch and hemlock as softwood logs, does not
mean that “pine” listed under softwood tree length must be “red pine.” Rather, because red and white
pine are listed separately in the logs category, the pine listed in tree length must be something other than
either red or white pine. Therefore, we have continued to not use that price to calculate a benchmark
for either red or white pine.
With respect to the GOQ’s request that larch be included in the Maritimes’ benchmark to
account for Quebec’s SPF categorization including larch, we agree. Therefore, to measure the
adequacy of remuneration of Quebec’s SPFL, we have calculated a Maritimes’ SPFL benchmark.
Further, the Department agrees with the Canadian parties that the corrected value for SPF
sawlogs from the Carlton - Victoria Marketing Board in New Brunswick, as discovered at verification
should be used. The Department’s benchmark calculations reflect this change.
f. Ministerial Errors
Comment 41: Errors Concerning Quebec’s Forestry Fund Adjustment and Non-credited
Silviculture Costs
Respondents claim that in calculating an adjustment for fees charged to public tenureholders
under Quebec’s Forestry Fund, the Department calculated a cubic meter per dollar rate, instead of
calculating a dollar per cubic meter rate. See the June 2, 2004, Memorandum to the File from Brian
Ledgerwood, Case Analyst, concerning Calculations for the Province of Quebec. They also claim when
calculating an adjustment for non-credited silviculture costs, the Department did not adjust the 1997-
1998 reported figures for inflation. See Id. For the final results, the Department must correct these
errors.
Department’s Position
For the Forestry Fund, the Department has corrected the calculation to reflect the amount paid
by TSFMA holders divided by the volume harvested by TSFMA holders. Regarding, the non-credited
silviculture expenses, the Department took the figures from Verification Exhibit 9 at page 73, which
indicates that the figures are actual numbers for the POR (see GOQ Verification Report). Therefore, no
adjustment for inflation is needed.
Comment 42: Volume and Value Data for B.C. Softwood Logs
The GOBC argues that the Department does not need to apply volume and value ratios to B.C.
Crown sawlog data to estimate a softwood log price because the information is on the record. See page
23 of the GOBC’s case brief.
Department’s Position
The volume and value data for B.C. softwood logs is on the record, and thus no application of
ratios is necessary. We have used the information on the record in these final results.
g. East-West Adjustment
1. Alberta
Comment 43: Timber in Western Alberta: East-West Adjustment for Quality
The GOA argues that the Department made an erroneous conclusion in its Preliminary Results
that Alberta has a distinct “Western” region with valuable timber not found in the rest of Alberta. The
GOA states that differences between Eastern and Western Alberta are marginal or nonexistent and the
Department had no factual basis to support the application of a high value benchmark. The GOA
asserts that much of the area in southwestern Alberta is not commercially harvestable because it lies
within Protected Areas or Resource Management Zones where harvesting cannot occur or is limited.
Furthermore, the GOA argues that areas near the Rocky Mountains are, in some cases, worse than
conditions in the central and eastern areas of Alberta which explains why there is almost no Douglas Fir
harvested in Alberta. See pages 16-17 of the GOA’s case brief.
Petitioners assert that Alberta’s forests and SPF timber are much more typical of western SPF
than eastern SPF in terms of species composition and value. Therefore, petitioners argue that if the
Department erroneously continues to use a Maritimes benchmark, the Department should make an East-
West adjustment for the entire Alberta harvest recognizing that the Alberta harvest consists primarily of
species not found in the Maritimes. Petitioners assert that the Maritimes SPF benchmark price is based
significantly on low-value balsam fir, the Maritimes and Alberta are in different forest regions, and
Alberta’s forests are old growth like British Columbia’s. Finally, petitioners contend that Alberta is in
the same timber market as the western SPF states and provinces and, therefore, is not in the same
timber market as the Maritimes. See pages 88-90 of petitioners’ case brief.
Department’s Position
Based upon further review of record information, the Department finds that a significant portion
of the Western region of Alberta is considered a Protected Area or Resource Management Zone. See
the November 12, 2003, Questionnaire Response of the GOA at Volume 2, Exhibit AB-S-18.
Because the harvesting of timber is restricted in the forest region in which more valuable western SPF
timber is grown, the Department finds that an East-West quality adjustment is unwarranted for Alberta’s
provincial harvest. In addition, the record of this proceeding does not adequately establish what, if any,
volume of Crown harvest in Western Alberta is the same species as the timber harvested in interior B.C.
Therefore, for these final results, the Department has calculated the benefit for Alberta without the use of
a quality adjustment.
4. Tier Three Benchmarks
Comment 44: Market Principles under Third-tier Category as Benchmark
Respondents argue that the third tier of the benchmark hierarchy in the Department’s regulations
provides for an analysis of the government’s costs and whether it achieves “rates of return sufficient to
ensure future operations.” See the Preamble to the CVD Regulations, 63 FR at 65378. Respondents
contend that the Department should find that the provincial stumpage programs operate consistent with
market principles under the third tier of the benchmark hierarchy, arguing that each of the Provincial
governments obtained revenues from its stumpage program that exceeded the costs of managing its
forests and are sufficient to ensure future operations. They argue that the Department has applied a
cost-revenue test in many cases, including an instance when the government’s share of the market
approaches or even reaches 100 percent. See, e.g., Certain Hot-Rolled Carbon Steel Flat Products
from South Africa, 66 FR 20261, 20270 (April 20, 2001) (Hot-Rolled Steel from South Africa).
Petitioners argue that the Department has determined that multiple methodologies could be
applied under the third tier of the regulation and that the Department expressly reserves discretion to
choose a methodology appropriate to the market under examination, as "the circumstances of each case
vary widely." Citing Preamble, 63 FR at 65378. They further argue that the Department has posited
that a cost-revenue approach could be appropriate only in certain limited circumstances. They state that
the Department's clear objective under the third tier is to structure the methodology for the facts of the
market at issue and only if the Department finds that cost-revenue accords with how the market values
the good provided, then this test could provide a reasonable basis for assessing the adequacy of
remuneration. However, petitioners claim that the cost-revenue analysis for the subject timber does not
work because respondents omit the very cost item at issue, which is the value of the timber. The
respondents would have the Department consider only the costs of selling timber and not the value of the
timber itself. Petitioners state that although respondents suggest that the Department regularly applies a
cost-revenue test in similar cases, the facts of Hot-Rolled Steel from Thailand and Hot-Rolled Steel from
South Africa do not support respondents' argument that there is a broad legal requirement that the
Department apply a simplistic cost-revenue test.
Petitioners also contend that the record evidence demonstrates that provincial systems do not set
their prices according to market considerations. They state that the provinces impose numerous
requirements on tenure holders including minimum and maximum cut requirements, minimum processing
requirements, appurtenancy requirements, and mill closure restrictions. They claim that these aspects of
the Canadian system alter the costs and revenues that this type of analysis compares, and thus would be
distorted by their nonmarket origin. See Id. They further assert that the Department may not use a
benchmark comparison that has been distorted by the government's involvement in the market. See
SAA at 927; NAFTA Panel Dec. (2003) at 34. Thus, petitioners believe that if the Department reaches
the third tier benchmark, it should reject a cost-revenue analysis to determine whether provincial
stumpage programs are consistent with market principles.
Department’s Position
As explained above in response to various comments, the Department is using Maritimes’
stumpage prices for benchmark purposes under tier one of the Department’s hierarchy to examine the
administratively-set prices paid for Crown stumpage in Alberta, Manitoba, Ontario, Quebec, and
Saskatchewan. The Maritimes’ prices are useable under tier one because they are market-determined,
in-country prices. Because we have determined that these Maritimes’ prices are useable under tier one
of the regulations for these provinces, it is not necessary to consider other data or methodologies under
the second or third tier of the CVD regulations. See 19 CFR 351.511(a)(2)(i)-(iii).
As explained above, we are using U.S. log prices under tier three of the benchmark hierarchy to
examine the administratively-set prices paid for Crown stumpage in British Columbia. In conducting a
market principles analysis, the Department’s practice is to consider the facts of the case. Consistent
with our practice, we have examined how the market determines the price of timber and developed
benchmark stumpage prices accordingly. By deriving species-specific benchmark prices in the same
manner that the market derives such prices, the Department was able to assess whether B.C.’s
stumpage prices were consistent with market principles. This approach reasonably effectuates the
purpose of the statute and the regulations and is supported by record evidence.
Despite the GOC’s argument to the contrary, the Department is not required under tier three to
limit itself to a cost-recovery methodology, i.e., a methodology that relies on whether or not the
provincial governments’ revenues cover their operational costs as reflective of the market principles
underlying the pricing of stumpage. Indeed, the CVD regulation is written broadly to afford the
Department the discretion necessary to address the facts of each specific case and determine the most
appropriate methodology to use. There is absolutely nothing in the law or prior practice to suggest that a
“cost-recovery” analysis is the required methodology or even the preferred methodology under a tier
three market principles analysis.
Although the Department has conducted cost-revenue analyses in certain cases, the nature of the
market principles analysis is driven by the particular facts and circumstances of the goods and services
alleged to be subsidized. In this case, the “cost-recovery” methodology is inappropriate in light of
record evidence concerning B.C.’s stumpage practices. The record evidence demonstrates that the
province administratively, rather than competitively, sets prices for timber, sets minimum and maximum
cut requirements, sets minimum processing requirements, and designates where the timber must be
processed (appurtenancy requirements). In addition, tenures are normally long-term to ensure a stable
supply of timber to Canadian mills. The province also restricts mill closures even in down markets. The
objectives of these provincial mandates are to keep Canadian mills supplied with timber and to keep the
mills operating and the workers employed, regardless of what the market might otherwise dictate. None
of these practices can be considered market based. Rather, they distort the operation of normal market
forces, and fundamentally undermine the GOC’s claim that provincial stumpage prices are established in
accordance with market principles.
Additionally, the GOC’s proposed “cost-recovery” methodology is completely divorced from
market principles and, as such, could not reasonably be used to measure consistency with market
principles. Most importantly, the methodology advocated by the GOC fails to account for the value of
the standing timber. Without taking into consideration the full replacement costs of all standing timber,
which any profit-maximizing commercial actor would do, the proffered cost-revenue analysis fails the
market principles test.
As discussed above, given the evidence on the record of this review, we have determined that
the best method to determine whether B.C.’s provincial stumpage prices are consistent with market
principles is by deriving stumpage prices from U.S. log prices, as adjusted.
D. Other Program Issues
Comment 45: Federal Economic Development Initiative in Northern Ontario (FEDNOR )
The GOC notes that the Department had found in the underlying investigation that CFDC loans
were made on commercial terms, and claims that the Department erred when it found in this review that
two CFDC loans conferred a countervailable benefit within the meaning of section 771(5)(E)(ii) of the
Act. According to the GOC, the record evidence shows that loan number 5, issued on April 1, 2002,
had an interest rate of 6.10 percent; while loan number 139, issued on December 18, 2001, had a
floating interest rate of prime plus 2 percent, or 6.00 percent. On both issuance dates, the GOC
continues, the prime rate was 4.00 percent and the medium/small business rate was 5.125 percent.
Thus, the GOC contends, the two loans were made at interest rates above the prevailing commercial
rates and not at a discount to “comparable commercial loans.” Consequently, the GOC argues, there is
no administrative efficiency in limiting the Department’s finding to a conclusion that no benefit was
conferred on the loans outstanding in the POR, and the Department should find the loans not
countervailable.
The petitioners note that, consistent with the Department’s practice when conducting a review
on an aggregate basis, the Department correctly used a national long-term fixed interest rate benchmark,
rather than loan-specific, actual interest rates. Consequently, the petitioners dispute the respondent’s
argument that the Department should have compared the CFDC loan rates to the prime rate or the
medium/small business rate. The petitioners argue that the GOC provided no explanation for why the
respondent’s proposed modification of the methodology is superior to what the Department adopted
under its regulations (see 19 CFR 351.505(a)(5)(ii)).
Department’s Position
The commercial benchmarks suggested by the GOC, i.e., the prime rate and the medium/small
business rate, are components of the “Short-term Business Interest Rates” calculated by the GOC. The
loans in question, numbers 5 and 139, are long-term loans. Therefore, in accordance with 19 CFR
351.505(a)(2), we have used long-term benchmarks to determine whether these loans give rise to a
benefit. The long-term benchmark for loans taken out in 2001, based on the long-term interest rate
information provided by the GOC, was 6.6 percent, and the long-term benchmark for loans taken out in
2002 was 6.48 percent. As noted in the
Preliminary Results, we did not have a long-term variable benchmark interest rate and, consequently,
used the long-term fixed benchmark rate provided by the GOC to measure any benefit from variablerate
long-term loans provided under this program. Because the benchmark interest rates exceeded the
rates on loans 5 and 139, we continue to find that this program conferred a countervailable subsidy.
Comment 46: Western Economic Diversification Program Grants and Conditionally Repayable
Contributions (WDP)
The GOC argues that, although it does not concede that the WDP ITPP contributions were
countervailable subsidies, the Department erred in attributing the alleged benefit to exports from the
covered regions to the United States. Specifically, according to the GOC, the record demonstrates that
it did not limit its reporting to grants supporting personnel focused on sales to the U.S. market, but
included support for individuals whose job was to promote global sales (citing the GOC’s August 16,
2004, supplemental response). The GOC claims that, for example, as explained in its August 16, 2004,
supplemental response at GOC-2, one individual employed under Project Number BXHZOO122
worked to develop global markets and attended trade shows throughout the world. According to the
GOC, the regulations require that the Department must tie a grant to sales to a particular market before
the Department can attribute the benefit only to those sales (citing to 19 CFR 351.525(b)(4)). The
GOC concludes that, since the ITPP contributions were not tied solely to U.S. market sales, the
Department should attribute any alleged benefit to worldwide exports from the regions covered by the
WDP, rather than to U.S. exports alone.
Noting that the GOC does not challenge the countervailability of the WDP ITPP grants, the
petitioners contend that there is no basis to adjust the denominator as argued by the GOC, since the
Department had accounted for the fact that the reported disbursements already excluded portions of the
grants that were expressly dedicated to export promotion in Asian markets. Additionally, the petitioners
dispute the GOC’s contention that a portion of the remaining ITPP grants included contributions tied to
global markets. Specifically, the petitioners say that having one individual attend trade shows throughout
the world hardly disproves that the thrust of the balance of the grants was the U.S. market, especially
since the U.S. market accounts for the overwhelming bulk of Canadian lumber exports.
Department’s Position
Based on further information submitted at the Department’s request, we have revised our
calculation from the Preliminary Results. Specifically, the GOC has clarified what activities were
undertaken by personnel whose salaries were supported under this program. Where the personnel hired
under this program promoted exports to the United States, we attributed the benefits to those exports.
Where the personnel promoted exports to non-U.S. markets, we did not attribute any of the benefit to
U.S. sales. Finally, where the personnel promoted exports generally, we attributed the benefit to total
exports.
We disagree with the petitioners that assistance to support personnel attending trade shows
around the world should be attributed to U.S. sales because of the importance of the U.S. markets.
Instead, because the trade shows occurred throughout the world and because the personnel undertook
other activities to support exports to all markets, we have attributed the benefit total exports of softwood
lumber.
Comment 47: Natural Resources Canada (NRCAN) Softwood Lumber Marketing Research
Subsidies Under the Value-to-Wood Program (VWP) and the National Research Institutes
Initiative (NRII)
The GOC observes that, although the Department has countervailed indirect subsidies (such as
inducements or requirements to provide loans, control over loan processes, and the provision of
transportation services), the Department has not countervailed funds provided to a research institute as
an indirect subsidy to the production of subject merchandise. The GOC notes that, e.g., in Final
Affirmative Countervailing Duty Determination: Dynamic Random Access Memory Semiconductors
from the Republic of Korea, 68 FR 37122 (June 23, 2003) (citing the unpublished decision
memorandum, dated June 16, 2003, at 122) (Korean DRAMS), the Department found government
contributions to Seoul National University and various research institutes to be not countervailable, partly
because there was no evidence that the research would otherwise have been conducted by the
respondents.
According to the GOC, in the current review, NRCAN provided VWP funding to Forintek—a
national, not-for-profit research institute—to conduct pre-competitive research related to value-added
wood products. Funding was also provided under the NRII to Forintek and two other national,
not-for-profit institutes—FERIC and PAPRICAN—again, according to the GOC, to conduct
pre-competitive research; specifically, the funding was used to maintain highly specialized personnel
during a financial crisis so that the institutes’ core research could continue. The GOC claims that none of
the funding under the VWP or the NRII was transferred to any softwood lumber producer or exporter,
or used to provide research to any softwood lumber producer or exporter. Hence, since there was
neither a direct nor an indirect financial contribution to any softwood lumber producer or exporter, there
was no countervailable subsidy within the meaning of section 771(5)(B) of the Act.
The petitioners dispute the GOC contention that the Department has not countervailed funds
provided to a research institute as an indirect subsidy to the production of subject merchandise. Instead,
the petitioners claim that the Department has customarily countervailed research funds channeled to
non-profit institutions if the funds benefitted a given industry and the research results were not publicly
available. On this point, the petitioners cite, e.g., Preliminary Affirmative Countervailing Duty
Determination: Pure and Alloy Magnesium From Canada, 56 FR 63927 (December 6, 1991)
(Magnesium from Canada), where the Department determined that funding to the Institute of Magnesium
Technology conferred a specific benefit to the magnesium processing industry, because it was limited to
only three recipients and, thus, limited to a group of enterprises or industries.
The petitioners contend that, in the current review, the funding to Forintek and FERIC does not
fit the exception allowed by section 771(5B) of the Act and, hence, is countervailable under 19 CFR
351.522. As in Magnesium from Canada, the results of Forintek’s and FERIC’s research were not
publicly available and benefitted a given industry, i.e., Canada’s softwood lumber producers.
55 The petitioners have additionally cited Magnesium from Canada where the Department investigated
government assistance to the Institute of Magnesium Technology. The Department eventually found the assistance
to be not countervailable under a public availability test which has since been abandoned by the Department (see 63
FR 65388). Therefore, we are not addressing this precedent further.
Specifically, the petitioners note that, in its description of the VWP, Forintek specified that research
results were available only to Canadian “wood products manufacturers,” and that, similarly, FERIC
stated on its website that it distributes its “research and development results” only to its “members.”
Additionally, the petitioners note that, per information on Forintek’s and FERIC’s websites, both
institutes undertake applied research, not pre-competitive or basic research as the GOC has claimed.
Department’s Position
A thorough review of the Department’s practice with respect to assistance provided to research
organizations shows that this assistance is treated as a direct subsidy to the production, manufacture or
exportation of the subject merchandise if the research is for the improvement of the merchandise or
enhancement of the technology used to produce the merchandise. Where the government funds such
research, we determine that the government is relieving producers in the industry of the costs they would
normally incur in carrying out the R&D themselves.
This practice is articulated in two cases involving assistance provided by the Korean
government.55 First, in the Final Affirmative Countervailing Duty Determination: Structural Steel Beams
from the Republic of Korea, 65 FR 41051 (July 3, 2000) (Korean Structurals), the Department
investigated assistance to the Korean New Iron & Steel Technology Research Association
(KNISTRA), an association of steel companies established for the development of new iron and steel
technology. KNISTRA was a member-based R&D agency that supports R&D projects through private
and public contributions. In preliminarily determining assistance to KNISTRA to be countervailable, the
Department stated:
Since most companies normally fund R&D programs to enhance their own technology,
we determine that GOK funding to KNISTRA relieves companies of this obligation.
Therefore, GOK's grants are a financial contribution under section 771(5)(D)(i) of the
Act which provide a benefit to the recipient in the amount of the grant.
(See Preliminary Negative Countervailing Duty Determination and Alignment of Final Countervailing
Duty Determination with Final Antidumping Duty Determination: Structural Steel Beams from the
Republic of Korea, 64 FR 69731, 69740 (December 14, 1999). The preliminary finding was
confirmed without comment in the final.)
In the second case, Korean DRAMs, the petitioners alleged that government funding of
research by Seoul National University and government research institutes regarding nano-technology
conferred a subsidy on the semiconductor industry because such research was vital to the future of the
56 While it may be possible that some of the research projects at issue do not relate to subject merchandise,
as it has been here, the burden is on the respondent to demonstrate that any particular government-funded projects
do not benefit the subject merchandise.
industry and would have been undertaken by members of the industry if it had not been funded by the
Korean government. The Department, however, found no subsidy, inter alia, because there was no
evidence that the semiconductor producers would have undertaken this particular research.
In light of this practice, the issue before the Department in this review is to determine whether
the record evidence indicates that the government-funded research by Forintek and FERIC aims to
improve the subject merchandise or the technology for producing subject merchandise.
In May 2002, NRCAN announced funding for three programs to help insure “that Canada’s
forest industry remains prosperous and competitive,” and “to secure the industry’s position in the global
market.” See the March 24, 2004, Questionnaire Response of the GOC at Volume 4, attachment 1.
The first program, Canada Wood, was available only for projects outside Canada and the United
States, and is not discussed further here. The second program, Value to Wood, was established to
provide funds to Forintek and several universities to conduct research related to value-added wood
products. Only Forintek received funds under Value to Wood during the POR. The final program, the
Three Institutes Initiative, provided funds to Forintek, FERIC, and PAPRICAN, to allow these
institutes to maintain their core staff while seeking to achieve long-term financial stability. Because any
research conducted by PAPRICAN relates to non-subject merchandise (pulp and paper), funding for
PAPRICAN is not discussed further here.
Under Value to Wood, 14 projects were funded during the POR. These projects were
selected as follows. An industry research advisory committee was established to identify key research
issues. Forintek developed research proposals in response. The industry advisory committee then
ranked the proposals and sent its recommendations to NRCAN which approved the funding. Under
the Three Institutes Initiative, Forintek and FERIC submitted requests for funding to NRCAN to cover
anticipated shortfalls in their research programs. Thus, the government funding helped to defray the
cost of these institutes’ ongoing research.
Both Forintek and FERIC are non-profit, member-based organizations. Forintek’s members
include numerous producers of softwood lumber. These producer members participate in Forintek’s
ongoing research as “project liaisons.” This ongoing research includes, inter alia, numerous projects
on aspects of lumber manufacturing. See Id.
FERIC describes its goal, “... improv[ing] Canadian forestry operations related to the
harvesting and transportation of wood, and the growing of trees ....” Most of FERIC’s funding comes
from “a growing partnership between leading forestry companies (who utilize almost 70 percent of the
total Canadian wood harvest), the Government of Canada, and the provinces....” FERIC’s research
program is developed with guidance from its partners. See Id. at Volume 4, attachment 12.
Based on this evidence, we believe it is appropriate to conclude that the research being
conducted by FERIC and Forintek serves to improve the subject merchandise or the technology for
producing subject merchandise. Therefore, there is evidence that softwood lumber producers would
have undertaken this research if it had not been funded by the GOC.56 Consequently, we have
determined that the GOC’s grants to Forintek and FERIC provide a direct subsidy on the manufacture
or production of the subject merchandise.
Comment 48: Payments to the Canadian Lumber Trade Alliance (CLTA) & Independent Lumber
Remanufacturers Association (ILRA)
According to OFIA and OLMA (together, the Ontario associations), the courts have held that,
to find a subsidy, the Department must find both a financial contribution and a benefit (citing Delverde,
SRL v. United States, 202 F.3d 1360 (Fed. Cir. 2000) (Delverde III)). The Ontario associations
argue that the Department cannot treat the CLTA—an industry association that does not produce
subject merchandise—as though it were a producer or exporter of subject merchandise. The
petitioners, they say, mischaracterized Department practice when it claimed that the Department has
recognized government financial contributions to producer associations as providing a benefit to the
industry. Rather, the Ontario associations contend, the Department must make a determination whether
the CLTA grant benefitted the softwood lumber industry by relieving it of an obligation it would
otherwise have incurred, as required under 19 CFR 351.513(a). Prior determinations, they say,
support this principle: e.g., in Notice of Final Determination of Sales at Less Than Fair Value: Live
Cattle from Canada, 64 FR 57040, 57042 (October 22, 1999) (Canadian Cattle), the subsidies to
cooperative feeder associations were found to benefit the industry because those associations were
suppliers to the industry, a function not applicable to the CLTA; and, in Notice of Final Determination
of Sales at Less Than Fair Value: IQF Red Raspberries from Chile, 67 FR 35961 (May 22, 2002)
(Raspberries from Chile), subsidies to a trade association for specific promotional activities were found
to benefit the industry because they relieved the industry of an obligation otherwise incurred. Given the
voluntary nature of CLTA membership, the Ontario associations claim the CLTA could not have
compelled members to pay for the administrative and communication costs supported by the grants.
Additionally, they claim that, contrary to the requirements of section 701(a)(1)(1994) of the Act
(codified as section 1671(a)(1)) and as mandated by Delverde III, the Department has not made a
determination that the grants were tied to the manufacture, production, or export of softwood lumber to
the United States.
With regard to the subsidy rate calculation, the Ontario associations point out that the
Department found the CLTA subsidy to be a domestic subsidy under section 771(5A)(D)(i) of the Act
and then incorrectly treated it as an export subsidy under 19 CFR 351.514(a) when calculating the ad
valorem rate. The first finding, the Ontario associations argue, precluded the second finding. In any
case, they say, the Department failed to attribute the subsidy to all products sold by the producer, as
required to make the domestic subsidy finding. Moreover, they claim that, in terms of tying a subsidy to
export performance, a distinction should be made—which the Department did not make—between
“related,” meaning “connected,” and “contingent,” meaning “dependent on something else” (citing
Black’s Law Dictionary, Deluxe Eighth Edition (2004); Merriam-Webster’s Collegiate Dictionary, 11th
Edition (2003); and Webster’s II New College Dictionary (1995)). According to the Ontario
associations, to make the export subsidy determination, the Department was required to find that the
CLTA grant was “dependent” on export performance, not merely “connected” to exports. On this
point, they cite Certain Pasta from Italy: Preliminary Results and Partial Rescission of Countervailing
Duty Administrative Review, 68 FR 17346 (April 9, 2003), at 17349-50; Notice of Preliminary
Results and Rescission in Part of Countervailing Duty Administrative Review: Polyethylene
Terephthalate Film Sheet & Strip from India, 69 FR 18542 (April 8, 2004), at 18544-45. Since the
grants were related to designated administrative and communication costs, and the CLTA did not
export softwood lumber (and its members could qualify for the grants without ever exporting), the
Ontario associations contend that the grants were unrelated to export performance.
Similarly, the GOC contends that the payments to the CLTA and ILRA during the POR were
intended to help defray the associations’ costs related to the softwood lumber dispute, not to aid in the
production or marketing of softwood lumber, since neither the CLTA nor the ILRA produces or
exports softwood lumber. Therefore, the GOC argues, the payments did not constitute countervailable
subsidies.
Should the Department continue to find them countervailable, the GOC argues that the
Department should not compound the error by using softwood lumber exports to the United States as
the denominator in calculating the alleged benefit. The GOC argues that, per 19 CFR 351.525(b)(2),
the Department may limit the denominator to exports only if the alleged subsidy is an export subsidy,
i.e., a subsidy that is, in law or fact, contingent upon export performance within the meaning of section
771(5A)(B) of the Act. According to the GOC, the softwood lumber dispute imposed on the CLTA
and the ILRA an entirely new set of costs related to facilitating communication among the members
regarding the dispute and taking on advocacy responsibilities. These burdens, the GOC asserts, were
necessarily of a domestic nature, since neither association exports softwood lumber to the United
States, and, thus, the grants could not be export subsidies. Consequently, according to the GOC, the
proper denominator is the total amount of softwood lumber production during the POR.
The petitioners note that, as conceded by the respondents, the GOC provided money to an
association of producers of the subject merchandise. Therefore, the petitioners argue, the program is
countervailable as a matter of law, and that is where the Department’s analysis must stop. The
petitioners contend that the Department has consistently recognized financial contributions to producer
associations as providing a countervailable benefit to the industry (citing, e.g., Raspberries from Chile,
Decision Memorandum at Comment 2; Final Affirmative Countervailing Duty Determination: Structural
Steel Beams from the Republic of Korea, 65 FR 41051 (July 3, 2000) (Structural Steel Beams)).
According to the petitioners, what the subsidizing government intends to be done with the subsidy, and
what the recipient actually does with the subsidy, are irrelevant for purposes of countervailability (citing
section 771(5)(C) of the Act, as codified in 19 U.S.C. 1677(5)(C), and Saarstahl A.G. v. United
States, 78 F.3d 1539, 1543 (Fed. Cir. 1996), in quoting S. Rep. No. 103-189, at 42-43 (1993)).
With regard to the subsidy rate calculation, the petitioners argue that the Department is correct to use
softwood lumber exports to the United States as the denominator, since the Department determined
that the payments were directly tied to anticipated exports to the United States.
Department’s Position
57 The CLTA’s member firms produce lumber and all types of lumber products. The ILRA’s members are
producers of value-added wood products in B.C. (GOC’s March 24, 2004, response, Volume 5 at GOC-CLTA-1-2)
We disagree with the Ontario associations and the GOC that payments to industry associations
cannot be considered a direct subsidy on the manufacture, production or exportation of the subject
merchandise. Industry associations have producer members and, hence, act on behalf of those
members.57 When a government makes a grant to an industry association to cover the association’s
excessive expenses, that grant benefits the association’s members.
This position is consistent with that taken by the Department in Raspberries from Chile. In that
case, the Department stated:
It is reasonable, in our view, to treat funds received by a trade association as benefitting the
members of the association and the products they produce. Although we do not believe that
we are required to show that the responding companies would have borne the costs incurred by
the association and underwritten by the government, international promotion of products is
typically a cost that exporting companies face.
As in Raspberries from Chile, we do not believe that we are required to show that the responding
companies would have borne the expenses incurred by the CLTA and ILRA, and underwritten by the
GOC. However, we would normally expect companies to incur the costs of formulating joint positions
and conveying their views on matters of interest to them. See the March 24, 2004, Questionnaire
Response of the GOC at Volume 5, GOC-CLTA-3. Therefore, we have continued to find that the
GOC grants to CLTA and ILRA confer a countervailable subsidy on the subject merchandise.
The Ontario associations also cite Canadian Cattle where the Department found countervailable
loan guarantees to feeder associations. There is no discussion in that decision about whether subsidies
to feeder associations might or might not provide a benefit to the subject merchandise, or even
identifying feeder associations as suppliers to producers of the subject merchandise.
Regarding the Department’s specificity determination and its attribution of the benefits to
exports to the United States, we agree with the Ontario associations that finding a program to be
specific under section 771(5A)(D) of the Act (“Domestic Subsidy”) is not consistent with using exports
to the United States as the denominator for calculating the ad valorem subsidy rate. Under 19 CFR
351.525(a)(3), the benefits of domestic subsidies are properly attributed to all sales.
Nevertheless, we continue to find that the benefits of these grants are tied to exportation to the
United States. The purpose of the grants was to defray the costs incurred by the CLTA and ILRA in
developing and conveying their positions on the softwood lumber dispute, opposing trade limiting
remedies in the United States. Consequently, we have revised our specificity determination and find
that the grants to the CLTA and ILRA are specific under section
771(5A)(B), i.e., as export subsidies.
Comment 49: Denominator Used to Calculate the Forest Renewal B.C. Subsidy Rate
The GOBC argues that the Department should recalculate the alleged subsidy rate for Forest
Renewal B.C. According to the GOBC, because this program benefits a broad range of products,
similarly to the FII program, the Department should calculate the benefit by dividing the grants received
over total sales of the B.C. wood product manufacturing industries.
As the Department determined that this program provided grants directly to softwood lumber
producers, the petitioners argue the Department must use the total sales of B.C. softwood lumber as the
denominator when calculating the benefit received under this program. According to the petitioners, the
respondent fails to reference any evidence or provide additional information to support its arguments
factually.
Department’s Position
We continue to find that the FRBC program confers countervailable benefits that provide a
direct subsidy to the manufacture or production of the subject merchandise for the same reasons as
outlined in Comments 50 and 51, which addresses the FII program. Accordingly, we have continued
to calculate the benefit by dividing the grants received over B.C.’s total sales of lumber shipments.
Comment 50: Whether the Land Base Investment Program is (LBIP) Countervailable
The petitioners argue that the Department’s decision to exclude the LBIP from the
administrative review because of its similarity to the Forest Renewal B.C. program is unsustainable.
The petitioners note that the Forest Renewal B.C. program was not investigated in Lumber IV because
the Department determined that the GOBC was merely purchasing services, which are not
countervailable. However, the petitioners argue that this position enables any foreign government to
avoid the countervailing duty law by simply requiring that subsidy recipients perform some nominal
service. Moreover, the petitioners argue that the direct allocation of funds to tenure-holders that
perform a certain service is more akin to a grant than a purchase of services. According to the
petitioners, this has been the Department’s consistent practice, citing Certain Cold-Rolled Carbon Steel
Flat Products from the Republic of Korea, 67 FR 62101, 62104 (October 3, 2002) (Carbon Steel
from Korea); Certain Hot-Rolled Carbon Steel Flat Products from Thailand, 66 FR 60410 (October
3, 2001) (Carbon Steel from Thailand); and Certain Cut-to-Length Carbon Steel Plate from Mexico,
65 FR 18067, 18069 (April 6, 2000) (Carbon Steel from Mexico).
The respondent contends that the Department properly decided not to include the LBIP in this
administrative review. The respondent argues that the Department verified that the LBIP activities are
carefully designed not to provide a competitive benefit to any company or industry, but to improve the
forest resource over the long term. According to the respondent, the Department properly concluded
that the LBIP was similar to the Forest Renewal B.C. land-based program. Moreover, the GOBC
states that LBIP funds can be used only to perform the agreed-upon activity, which is thoroughly
reviewed prior to approval of the project by the LBIP administrator as well as after completion of the
project to ensure compliance.
As for the three cases cited by the petitioners, the respondent argues that the referenced
programs involved subsidies geared to the production of particular products and allowed companies
various tax or import duty exemptions provided these companies used domestic materials or located
facilities in certain areas. The GOBC argues that the LBIP is clearly distinguishable from these
programs and that none of the LBIP projects is linked to the production of particular products, but, as
recognized by the Department, these projects relate to the improvement of the forest resource as a
whole.
Therefore, the GOBC contends that the Department should sustain its proper conclusion not to
include the LBIP in this review.
Department’s Position
At verification, the Department confirmed the GOBC’s claim regarding the similarity of the
LBIP and the land base activities of Forest Renewal B.C., activities which the Department determined
not to investigate in Lumber IV. As a result, in the Preliminary Results we determined not to include the
LBIP in this administrative review. After the Preliminary Results, no new information or evidence was
submitted that indicated that this program is different from the land-base activities of Forest Renewal
B.C. or that it otherwise conferred a countervailable subsidy. Moreover, we do not find the precedents
cited by the petitioners in Carbon Steel from Korea, Carbon Steel from Thailand, or Carbon Steel from
Mexico to be persuasive. These programs provided tax exemptions and import duty exemptions to
companies that utilized domestic materials over imported materials or located production facilities in
specific regions. The LBIP does not offer any such exemptions. Therefore, for these final results we
are not revising the Department’s determination in the Preliminary Results.
Comment 51: Whether Forestry Innovation Investment (“FII”) Expenditures Are
Countervailable
The GOBC argues that the Department’s preliminary finding that the FII expenditures
constitute countervailable subsidies is not supported by the record. According to the GOBC, the FII
grants provided to support product development, international marketing, and research serve generally
to improve the forest resource over the long term and relate to a broad spectrum of forest issues and
products. The connection between the aggregate FII expenditure and the production of subject
merchandise, argues the GOBC, is at most extremely remote and tenuous.
For example, in regard to the International Marketing program, the GOBC contends that at the
verification of the GOBC the Department examined the U.S. Market Promotion Program undertaken
by the Western Red Cedar Lumber Association and noted in the verification report that the focus of the
project was not to market the products of specific B.C. producers, but rather, to promote cedar as a
product regardless of its origin. The GOBC further argues that the FII funds may not be used to
58 Final Affirmative Countervailing Duty Determination: Dynamic Random Access Memory
Semiconductors from the Republic of Korea (Korean DRAMs), 68 FR 37122 (June 22, 2003) and accompanying
Decision Memorandum at Comment 27.
59 The GOBC further argues that the Department’s use of the total POR shipment values for the paper and
wood products manufacturing industries as the denominator in the benefit calculation does not correct for the fact
that the Research Program did not provide countervailable grants to these industries.
support activities that provide a direct benefit to any for-profit entity and the results of FII funded
projects are publicly available.
As for the Research Program projects supported by the FII, the GOBC contends that they are
designed to support the long-term health and sustainability of the forest resource as a whole.
According to the respondent, the FII activities, such as “Ecology and Management of Riparian -
Stream Ecosystems,” “Insect Families in B.C.,” and “Foraging Area Habitat Selection by Northern
Goshawks in Northwest B.C.” are good examples of the broad focus of the research projects carried
out under this program and do not provide any financial contribution to producers of subject
merchandise.
The vast majority of these projects, notes the GOBC, were conducted by universities,
provincial government agencies, and private research organizations or consultants. The respondent
argues that in Korean DRAMs,58 the Department found “government-supported, broad-ranging
research {by} universit{ies} and other research entities was not countervailable” because those
institutions provide no good or service to industry, and industry would not have undertaken the research
itself. Although a “handful” of FII funded projects were undertaken by companies, the GOBC states
that these projects could not provide a direct benefit to these companies and that there is no evidence
that producers of subject merchandise would undertake such research in the absence of FII support.
Furthermore, the GOBC notes that the Department’s preliminary finding in regard to this program was
based on a single sentence from the Ministry of Forests’ Annual Service Plan Report, which stated that
Research Program investments are expected to provide a “positive contribution” to the GOBC’s goal
of a leading edge forest industry. According to the GOBC, “this language does not provide substantial
evidence, much less any evidence, that a benefit has been provided to producers of softwood lumber
during the POR.”59
Finally, the GOBC argues that the Department did not show, as it must, that FII expenditure
conferred both a financial contribution and a benefit on lumber producers. According to the GOBC,
the Department did not demonstrate these two things because the focus of these research projects is to
improve the long-term sustainability of the forest as a whole, taking into account all of the elements that
make up the forest. Moreover, the respondent argues that the Research Program projects are similar in
nature to the land-base activities of Forest Renewal B.C. and its successor, the Forest Investment
Account Land Base Investment Program, both of which the Department determined were government
purchases of services and did not countervail in the Preliminary Results. According to the respondent,
the GOBC is doing the same thing, purchasing services, i.e., publicly available research, to enhance the
long-term health and value of the forest for the province generally and with respect to all of its uses,
commercial and otherwise.
Therefore, the GOBC states that the Department should find in the final results that the FII
expenditures made under the Research, Product Development, and International Marketing Programs
do not constitute countervailable subsidies to producers of subject merchandise.
The petitioners state that the Department correctly concluded that this program provides
countervailable subsidies. The petitioners argue that the record does establish a clear nexus between
the three FII sub-programs and the subject merchandise, and contend that much of the funding goes
directly to lumber companies and lumber trade associations. In support of these statements the
petitioners cite their August 14, 2003, submission at Exhibits FIIP-3 (a GOBC FII Forest Research
Program (FRP) overview that asserts that “investments made through {FRP} are expected to provide a
contribution to the government’s goal of having a leading edge forest industry . . .”) and FIIP-6 (a
GOBC Ministry of Finance document, which lists organizations that receive funding from Forestry
Innovation Investment’s International Marketing and Product Development Programs). See page 120
of petitioners’ rebuttal brief. The petitioners also disagree with the GOBC’s contention that the
Research Program projects are merely a mechanism through which B.C. purchases services, which in
this case are publicly available research. According to the petitioners, the GOBC did not identify any
evidence that this research is made public.
Department’s Position
In the Preliminary Results, we found the FII grants, provided to support product development,
international marketing, and research, to be countervailable subsidies. The GOBC argues that grants to
support these activities should not be countervailed because they serve to improve the forest resource
over the long-term and their connection to the subject merchandise is tenuous.
We note first that with respect to the Product Development sub-program, the GOBC stated
that 19 projects were funded during the POR, but the GOBC reported only five of those projects
because the other 14 “. . . involved products or activities with no nexus to subject merchandise or
products directed to non-U.S. markets . . .” See the March 12, 2004, submission of the GOBC at
BC-FII-8. Similarly, for the International Marketing sub-program, of the 14 projects approved during
the POR, the GOBC only reported six because eight of the projects “involved products with no nexus
to subject merchandise or were directed at Asian and European export markets.” See Id. at BC-FII-
9. While the GOBC may view the connection between the few reported projects and the subject
merchandise to be tenuous and remote, the connection is acknowledged and the benefit has been
attributed accordingly.
In regard to the research sub-program, the Department’s practice with respect to assistance
provided to research organizations is to treat such assistance as a direct subsidy to the production,
manufacture, or exportation of the subject merchandise if the research is for the improvement of the
merchandise or enhancement of the technology used to produce the merchandise. Where the
government funds such research, we believe that the government is relieving producers in the industry of
the costs they would normally incur in carrying out the R&D themselves. For a more in-depth
discussion of the circumstances in which a research program is found to be a countervailable subsidy,
see Comment 47. In light of this practice, the issue before the Department in this review is to determine
60 While it may be possible that some of the research projects at issue do not relate to the subject
merchandise, the burden is on the respondent to demonstrate that any particular government-funded projects do not
benefit the subject merchandise.
61 The Department allocated the benefit from the Research Program over POR shipment data for the B.C.
wood product manufacturing and paper industries.
whether the record evidence indicates that the research projects funded under the FII program aim to
improve the subject merchandise or the technology for producing subject merchandise.
As we noted in the Preliminary Results, investments made through the research program “are
expected to provide a positive contribution to the government goal of having a leading edge forest
industry that is globally recognized for its productivity, environmental stewardship and sustainable forest
management practices.” According to information submitted by the petitioners, the GOBC expects
investments made under this program “to lead to positive outcomes in at least four identified impact
areas, including: . . . enhancing timber quality, . . . increasing available timber volume, . . . and . . .
improving forest health to improve the market acceptability of B.C. forest products . . .” See the
August 14, 2004, submission by petitioners at Exhibit FIIP-3. In addition, ten out of the twenty-five
projects funded in 2002/2003, according to documentation provided by the petitioners, were
conducted by lumber companies. For example, Riverside Forest Products Ltd., a company that
produces softwood products for customers in North America, received funding through this program to
conduct three separate projects in 2002/2003. See Id. at FIIP-5.
Based on the record evidence, it is reasonable to conclude that the research projects funded
under the FII program serve to improve the subject merchandise or the technology for producing the
subject merchandise.60 Consequently, we have determined that the FII research grants provide a direct
subsidy to the manufacture or production of the subject merchandise.
For these final results, we are continuing to find the (reported) projects that received funding
through the FII program during the POR from the product development, international marketing, and
research sub-programs to be countervailable.
Comment 52: Denominator Used to Calculate the FII Subsidies
If the Department continues to find the FII sub-programs countervailable, the respondent
argues that the Department should use the same denominator it used to calculate the subsidy rate for the
FII Research Program for the Product Development Program and International Marketing Program
calculations.61 This would be the appropriate allocation, argues the GOBC, because of the remote and
tenuous connection between the FII-funded programs and the subject merchandise.
The petitioners argue that the Department used the appropriate denominators in calculating the
subsidy rates for the FII sub-programs. The petitioners contend that as a result of the GOBC’s failure
to report grants tied to markets other than the United States, the Department reasonably concluded that
the total sum reported was related to marketing efforts linked to the sales in the United States.
Department’s Position
We disagree with the GOBC. Based on the record evidence, we believe the denominators
used in the Preliminary Results were correct. For both the Product Development and the International
Marketing sub-programs, the GOBC limited the reported amounts by excluding projects that involved
products or activities with no nexus to subject merchandise or products directed to non-U.S. export
markets. Lacking information on the non-reported Product Development projects, some of which may
have related to wood products or paper (industries included in the denominator for the research subprogram),
it would not be appropriate to use the larger denominator for these sub-programs.
Similarly, regarding the International Marketing grants, of the 14 projects funded during the
POR, the GOBC reported six. Given the exclusion of projects unrelated to subject merchandise or to
sales to non-U.S. markets, we have continued to use total export sales of softwood lumber from B.C.
to the United States during the POR as the denominator in our calculation of the countervailable subsidy
rate.
Comment 53: Whether the Private Forest Development Program (PFDP) Is Countervailable
The GOQ disagrees with the Department’s finding that the PFDP is specific under the
countervailing duty law and the Department’s claim that the fees paid by the sawmills into the PFDP are
irrelevant because they do not represent one of the “offsets” enumerated under the countervailing duty
statute.
The GOQ argues that the Department’s specificity finding is legally and factually flawed
because the Department does not explain how private woodlot owners constitute an “enterprise or an
industry within the jurisdiction of the authority providing the subsidy” as required by Section
771(5A)(D) of the Act. According to the respondent, any landholder (i.e., any person who owns land
on which trees grow) with more than 4 hectares is eligible to participate in this program and eligibility is
automatic. See page 93 of the GOQ’s case brief. Therefore, the respondent asserts that the only
conclusion the Department can logically reach is that the PFDP is neither de facto nor de jure specific.
The GOQ further states that it never argued that the sawmill contributions to the PFDP should
be viewed as one of the enumerated offsets under 771(6) of the Act. Therefore, the GOQ argues that
the Department’s explanation for disregarding these payments is inapposite as it addresses an argument
that was never presented. According to the GOQ, its argument was that, in addition to not being
specific to an “enterprise or an industry” producing softwood lumber, there is simply no benefit being
conferred.
The GOQ notes that the PFDP is jointly funded by the Ministere des Ressources Naturelles de
la Faune et des Parcs and the lumber mills. According to the GOQ, there are 130,000 private woodlot
owners in Quebec, of which 1,303 hold wood processing plant operating permits (i.e., sawmills). The
GOQ states that these 1,303 mill operators are required to pay C$1.20 to the private regional agencies
for each cubic meter of timber acquired. The GOQ further states that there are 38,500 registered
woodlot owners in Quebec, of which roughly 13,000 receive silviculture reimbursements each year
through the PFDP at an average of less than C$3,000 per recipient. According to the GOQ, only 38
62 The petitioners further note that it is Departmental practice to not revisit in reviews the specificity of
programs found to be countervailable in the investigation, referencing Pure and Alloy Magnesium from Canada;
Final Results of the Fifth (1996) Countervailing Duty Administrative Reviews, 63 FR 45045 - 45046 (August 24, 1998)
(Pure and Alloy Magnesium from Canada).
registered private woodlot owners in the program produced softwood lumber, which is a de minimis
proportion in relation to either the 13,000 annual beneficiaries or the more than 38,500 registered
woodlot owners.
The GOQ states that the sawmills that were eligible to participate in the PFDP only received an
80 percent silviculture reimbursement. Because of the compulsory fee associated with purchasing
wood on private lands, the GOQ argues that these sawmills paid six times more into the program than
they received. For this reason the GOQ argues that the PFDP does not provide a financial contribution
or benefit with respect to the production of softwood lumber. The GOQ claims that, in fact, the
sawmills that received silviculture reimbursement under the program lost money because of their
compulsory obligation to fund the program in excess of any benefit they could receive. Specifically,
these mills contributed C$2,942,791 to the PFDP during the POR and were reimbursed only
C$489,611, states the GOQ. Therefore, the GOQ argues the verified record confirms that the PFDP
does not provide a financial contribution or benefit with respect to the production of softwood lumber
but rather imposes a financial expense.
If the Department nevertheless continues to countervail this program, the GOQ argues that any
subsidy from the PFDP would benefit all private woodlot producers. Subsequently, the GOQ states
that the Department must use a denominator that includes all lumber (hardwood and softwood), as well
as all co-products and any other wood products, produced by sawmills in the denominator of the
Department’s subsidy calculation. See the March 15, 2004, Letter from the GOQ to the Department
concerning revised StatsCan Data at Exhibit GOC-GEN.
The petitioners agree with the Department’s preliminary finding that assistance under the PFDP
is specific because it is limited to private woodlot owners62 and is not directed to a wide range of
industries. Additionally, the petitioners note that the GOQ itself stated in its questionnaire response that
“a forest woodlot owner who wishes to benefit from the private forest development assistance program
must first apply to become a certified ‘forest producer’” and that the application to obtain PFDP
assistance requires the woodlot owner be a certified forest producer. See the November 12, 2003,
submission by the GOQ at 2. Moreover, the petitioners claims that private woodlot owners would only
participate in silviculture if they intended to harvest the timber commercially and that the GOQ would
not provide silviculture assistance to anyone who is planting trees for random reasons.
Because this program is limited to owners of commercially useable timberland that participate in
the forest products industry and disproportionately participate in the softwood lumber industry, the
petitioners argue that this program is specific under section 771(5A)(D) of the Act. The petitioners also
state that the Department correctly determined that contributions to the PFDP did not qualify under the
statutory offset provision. Moreover, as the program is specific to private woodlot owners that are
forest producers, the petitioners disagree with the GOQ’s suggestion to change the denominator used
for the subsidy calculation for these final results.
Department’s Position
In Pure and Alloy Magnesium from Canada, the Department stated that it is Departmental
policy, absent the presentation of new facts or evidence, to not revisit prior determinations that a
program is, or is not, specific. See Pure and Alloy Magnesium from Canada at 63 FR 45045 -
45046. In the present review, no new facts or evidence have been presented regarding the specificity
of this program. Therefore, the specificity finding from Lumber IV stands.
Regarding the GOQ’s claim that this program does not confer a benefit, we disagree. The
payments to the sawmills are grants and, hence, financial contributions (see section 771(5)(D)(i) of the
Act). Under 19 CFR 351.504(a), the benefit from a grant is the amount of the grant. Section 771(6)
of the Act permits an offset to reduce the amount of the benefit in certain narrowly drawn
circumstances. However, for the reasons explained in the Lumber IV and the Preliminary Results the
payment made by the sawmills to fund the PFDP do not qualify as an offset to the payments the
sawmills receive from the PFDP. Hence, we find that there is a benefit in the amount of the payments
to the sawmills.
Finally, we have decided to include all sales of softwood lumber, softwood co-products, and
hardwood lumber from Quebec in the denominator used to calculate the countervailable subsidy rate.
The basis of our decision is that the production at the sawmills that received funding under this program
is not limited to softwood lumber.
Comment 54: Worker Assistance Programs Administered by Human Resources & Skills
Development (HRSD)
The GOC contends that its August 16, 2004, supplemental submissions—and, in particular,
the sample collective bargaining agreements (CBAs)—confirm the preliminary finding that its HRSD
worker assistance programs are not countervailable because softwood lumber companies have no
customary or legal obligations to retrain laid-off employees and, therefore, are not relieved by HRSD of
any such obligations.
The respondent complains that the Department did not, in the Preliminary Results, address
financial contribution or specificity with regard to the HRSD programs, and urges the Department to do
so in the final. According to the GOC, the record demonstrates that these programs do not draw on
general treasury funds but simply return to workers the workers’ unemployment insurance payments to
the employment insurance system. The GOC contends that the Department has previously found such
contributions to be not countervailable, e.g., in Final Affirmative Countervailing Duty Determination:
Steel Wire Rod from Germany, 62 FR 54990 (October 22, 1997) (Wire Rod from Germany).
Insurance payouts, the GOC argues, do not constitute a financial contribution because the payouts are
simply the workers’ own contributions coming back to them. Accordingly, the GOC urges the
Department to find, consistent with Wire Rod from Germany, that employment insurance benefits
administered by HRSD are not countervailable financial contributions.
On the issue of specificity, the GOC claims that the express terms of the HRSD programs make
their benefits generally available to all Canadian workers; none is limited even to such a broad group of
industries as the forestry sector, or to an enterprise or industry in a designated geographical region as
set forth in section 771(5A)(D)(iv) of the Act. The GOC argues that regions with greater than 10
percent unemployment are not “designated” within the meaning of the statute, since the makeup of such
regions change as unemployment surges and dissipates. Rather, the GOC continues, worker assistance
limited to such regions falls under the “objective criteria or conditions” within the meaning of section
771(5A)(D)(ii) of the Act—i.e., that are “neutral” and “do not favor one enterprise or industry over
another”—which render a subsidy “not specific as a matter of law.” On this point, the GOC cites Final
Affirmative Countervailing Duty Determinations; Certain Steel Products from the Federal Republic of
Germany, 47 FR 39345 (September 7, 1982), where the Department found that a training program for
unemployed workers in administrative regions with unemployment rates higher than six percent was not
regionally specific.
Regarding the April 2002, C$13 million aid package, the petitioners complain that the
Department accepted without verification the GOC’s claim that funds came from worker and employer
contributions directly to employees. Similarly, the petitioners fault the Department for relying on
unverified information regarding the October 2002, C$71 million aid package; specifically, that the
OWPPI worker retraining assistance was limited to a region not subject to the current review, i.e., the
Maritime Provinces. The petitioners also believe that the Department’s analysis of the IRTI retraining
program was seriously flawed.
The petitioners argue that payments to workers provide a benefit under section 771(5)(E) of
the Act to the extent the payments relieve producers of an obligation they otherwise would incur, as set
forth in 19 CFR 351.513, which may include retraining costs that are typical or customary for a given
industry in a given country. In this regard, the petitioners claim that the Department relied on
questionable or misleading statements by the GOC that softwood lumber producers’ retraining
obligations, if any, existed only in the contracts between companies and employees, not in Canadian
law or regulation.
The petitioners complain that the Department did not address evidence the petitioners submitted
that softwood lumber producers were “normally” obligated to provide retraining assistance to laid-off
workers and that, therefore, government assistance toward these obligations constitutes a
countervailable benefit. For example, the petitioners cite a report showing that Weyerhauser put
together “comprehensive programs . . . for impacted employees, including severance benefits,
outplacement counseling, transition assistance, education and relocation assistance,” in connection with
the closure of its sawmill in Dryden, Ontario (see the August 14, 2004, New Subsidy submission by
petitioners at Exhibit WAP-11). Similarly, the petitioners cite information from a union internet site that
an agreement between Domtar and its workers in St. Catherines, Ontario, provided for a severance
pay package and six months of benefits, retraining, and other adjustment assistance (see Id. at Exhibit
WAP-13).
The petitioners argue that, consistent with the Department’s practice, a government program
should be countervailed when it is designed to provide additional unemployment benefits to lumber
workers that relieve softwood lumber producers of part of the costs related to workforce reductions
(citing the Preamble to Countervailing Duties; Final Rule, 63 FR 65348, 65379, which states in part
that “‘obligation’ should be interpreted broadly” and that “even though an obligation is not binding in a
contractual or statutory sense, an exemption from it may nevertheless provide a benefit to a firm”). The
petitioners contend, additionally, that the Department’s policy is to consider the impact of the
knowledge of government worker subsidies on the outcomes of negotiated severance packages
between companies and workers (see Certain Steel Products from Germany, 58 FR 37318 (July 9,
1993), where the Department found that the company would have agreed to pay more to its laid-off
workers had it not known that the government was going to pay the workers as well). According to
the petitioners, Canadian lumber companies that negotiated severance packages and laid off workers
after the announcement of the C$71 million package in October 2002, would have been impacted by
the knowledge of that aid package.
In its October 27, 2004, rebuttal brief, the petitioners dispute the respondents’ contention that
record evidence confirms the Department’s conclusion that mandatory retraining for laid-off employees
was not a customary element in the labor contracts of softwood lumber companies. On the contrary,
according to the petitioners, several of the sample CBAs submitted by the GOC actually show that
lumber producers commonly undertake such obligations. The petitioners cite, as an example, Article
12.10 of Great West Timber’s CBA, which states that employees whose positions are terminated will
be offered alternative work on remaining jobs “in accordance with Article XII, to meet the Company’s
labour requirement,” and that, if such employees require retraining, they “shall be trained by the
Company” (see the August 16, 2004, Supplemental Response of the GOC at Volume 3). The
petitioners point out that similar language appears in the CBAs of Domtar (see Id. at Volume 3, section
12.10), McKenzie Forest Products, Inc. (see Id. at Volume 4, section 12.10), and Weyerhaeuser
Company Limited, (see Id. at Volume 4, section 12.10(i)). Additionally, in another example offered by
the petitioners, under the “2000-2003 Coast Master Agreement” between B.C. companies and their
unions, each participating company bound itself to “cooperate with the Government of British Columbia
and participate in every possible way in training or retraining of employees so affected.” See Id. at
Volume. 2, Exhibit GOC-HRSD-23, Article VI, Section 3.
Department’s Position
In determining that a countervailable subsidy exists, the Department must find, inter alia, a
benefit within the meaning of section 771(5)(E) of the Act. As in the Preliminary Results, because we
have found that the HRSD programs did not confer a benefit to softwood lumber producers, it is
unnecessary to make a further determination as to the other subsidy elements within the meaning of
sections 771(5)(D) and 771(5A) of the Act, i.e., financial contribution and specificity, respectively.
Accordingly, we are not addressing the comments raised by the respondent on these points.
With regard to the petitioners’ comment that the Department relied on unverified information
from the GOC, we note that 19 CFR 351.307 provides the Department discretion to conduct a
verification in the final results of an administrative review, and we did not find it necessary to conduct
such a verification.
We do not agree with the petitioners’ contentions that Canadian softwood lumber producers
were normally obligated under the CBAs to retrain laid-off workers. The language in the CBAs
referred to by the petitioners is found in a boilerplate paragraph that pertains to workers whose
positions are discontinued and who are assigned to other positions within the company, rather than to
workers laid-off from the company. As such, it is not relevant to the HRSD programs at issue or to
what companies were contractually obligated to provide in the case of laid-off workers.
With respect to the “2000-2003 Coast Master Agreement” also cited by the petitioners,
specifically the one-sentence paragraph requiring the company’s cooperation with the GOBC and
participation “in every way possible” in training or retraining, we find that the language—although
suggestive—is too broad and vague regarding the nature of the obligation. More to the point, it is not
clear what cost the company would otherwise incur within the meaning of 19 CFR 351.513, since the
language does not set forth what the company’s obligation would be absent this provision.
With respect to the petitioners’ claims that its information supports a finding that retraining
obligations do exist between employers and laid-off workers, we disagree. The information submitted
by the petitioners was adequate for the Department to investigate the alleged subsidy conferred by this
program. Having investigated the program and developed a more complete record, however, we have
determined that the evidence does not support a finding that sawmills in Canada are obliged, through
law or contract, to provide retraining assistance. With regard to the specific evidence cited by the
petitioners, the Domtar agreement related to the closing of a paper mill. Regarding the Weyerhaeuser
announcement, it provides only a general description of a program for laid-off workers, including
“education.” Moreover, because of the aggregate nature of this proceeding, we are not investigating
alleged subsidies to individual producers. Instead, for this program we sought information from the
GOC and ten randomly selected producers, and have based our determination on their responses.
Thus, we continue to find that no benefit was conferred within the meaning of section 771(5)(E)
of the Act.
Comment 55: Litigation-Related Payments to Forest Products Association of Canada (FPAC)
According to the petitioners, in deciding not to countervail the government payments to FPAC,
the Department mistakenly accepted the respondents’ erroneous interpretation of the general export
promotion exception under 19 CFR 351.514(b)—i.e., that, since the subsidy provided only “general
informational services” on behalf of the industry, it qualified as not countervailable under that section of
the regulations. The petitioners contend that the exception for “general informational activities that do
not promote particular products” mentioned in that section is unambiguously narrow: as discussed in
the relevant part of the Preamble to the regulations, the exception applies only to the indirect benefit
from government promotional efforts, such as “government guides on how to export, overseas
marketing reports, and marketing opportunity bulletins,” as well as “certain advocacy efforts, such as
country image events or country product displays” (citing Preamble, 63 FR at 65381), not to payments
to associations of subject merchandise producers.
The petitioners contend that the Department recognized this narrow scope of the exception
when it countervailed government payments to two other such associations—the CLTA and the
ILRA—which are indistinguishable from the payments to FPAC. In the case of FPAC, says the
petitioners, the government did not merely undertake “general informational activities,” but, rather,
made a cash grant by simply handing the industry a check. The petitioners claim the Department has
consistently recognized that government financial contributions to producer associations provide a
countervailable benefit to the industry. On this point, the petitioners cite, e.g., Raspberries from Chile,
in which the Department found it reasonable to “treat funds received by a trade association as
benefitting the members of the association and the products they produce”; and Structural Steel Beams,
where the Department found government contributions to a steel industry association to be
countervailable. In any event, the petitioners note, the Preamble states that efforts to “promote
particular products” and “image events ... that focus on individual products ...” would not meet the
general export promotion exception (citing Preamble, 63 FR at 65381, specifically in reference to Final
Negative Countervailing Duty Determination: Fresh Atlantic Salmon from Chile, 63 FR 31437 (June 9,
1998)). Thus, the petitioners conclude, the FPAC’s government-funded lobbying effort to convince the
U.S. government to remove tariffs on certain softwood lumber products, is clearly related to “particular
products” within the meaning of 19 CFR 351.514(a) and does not qualify for an exception.
The GOC argues that the record evidence contradicts the petitioners’ assertion that the FPAC
grant does not fall within the exception under 19 CFR 351.514(b). According to the GOC, the grant’s
stated purpose was to “inform and educate a target audience on the punitive impact” of softwood
lumber duties in the United States and, to this end, the FPAC worked with a U.S. advertising firm to
develop marketing materials aimed at increasing awareness in the United States about the importance of
the U.S.-Canada trade relationship. Although the campaign featured information about the softwood
lumber dispute and its harmful effects on U.S.-Canada relations, it did not promote the sale of
Canadian softwood lumber.
The GOC claims the petitioners were incorrect to assert that the government “simply handed
the trade association a check.” The money was given pursuant to an FPAC proposal that did not
mention marketing Canadian softwood lumber or provide any funds to aid in softwood lumber
production. The GOC adds that periodic progress reports detailing the expenditure of the grant money
and forecasts of future expenses assured the government that FPAC was following the proposal rather
than providing money to the industry.
The petitioners’ reliance on Raspberries from Chile and Structural Steel Beams is misplaced,
according to the GOC, since those cases involved grants that aided, respectively, in the marketing and
production of subject merchandise. Moreover, the GOC contends, in Raspberries from Chile the
dispute was not whether the grants were used for export promotion but whether the export programs
were intended to increase the exports of certain companies; in contrast, the FPAC grant was not used
to fund export promotion at all. In Structural Steel Beams, the Department found that the R&D project
supported by the grant was used in the production of the subject merchandise. Again, the GOC claims,
this is unlike the situation of the FPAC grant, which was not intended to, and did not, aid in the
production of softwood lumber.
The Ontario associations contend that the Department correctly found that the FPAC public
relations campaign was an extension of government advocacy activities on behalf of a country’s
exporters, which are not countervailable per Department practice under 19 CFR 351.514(b). They
claim the record does not support the petitioners’ allegation that FPAC’s activities promoted particular
products. As the Department found, they say, the campaign did not advertise Canadian lumber or
promote Canadian lumber sales in the United States; rather, the advertisements sought to resolve the
U.S.-Canada trade dispute and promote bilateral trade relations generally.
According to the Ontario associations, the petitioners mischaracterized the law when they
asserted that payments to producer associations are always countervailable. They claim the
Department has never found that a financial contribution to a producer association, per se, provides a
countervailable benefit; rather, the Department finds a countervailable benefit only where the
contribution relieves the recipient of an obligation it would have incurred otherwise. The Ontario
associations point out that, e.g., in Raspberries from Chile, the Department found contributions given
for “specific promotional activities” benefitted the industry, since exporting companies typically incur the
cost of international promotion of their products; and in Structural Steel Beams, the Department found
funds given to an industry association for R&D work relieved the industry of a financial obligation
normally incurred by the industry. In contrast, the Ontario associations argue, FPAC did not relieve
FPAC members of any obligations they would incur otherwise; rather, the government simply delegated
an advocacy program to an organization that encompassed both respondents and other forest products
industries.
Department’s Position
We disagree with the petitioners that we have expanded the narrowly drawn export promotion
exception in 19 CFR 351.514(b). As explained in the preamble to the regulation (63 FR at 65381),
the exception encompasses “government advocacy efforts on behalf of a country’s exporters...”
Whether that advocacy is undertaken by the government itself or is paid for by the government does
not change the nature of effort, i.e., a public relations campaign to influence members of the U.S.
government. We further disagree with the petitioners that the campaign promoted particular products.
Clearly, the campaign focused on the softwood lumber dispute, but its purpose was to educate U.S.
government and the public about the impact of the dispute and not to promote sales of Canadian
softwood lumber in the United States.
Because we have found that this program is not a subsidy because it falls within 19 CFR
531.514(b), we are not addressing the additional comments regarding the countervailability of
payments to industry organizations.
Comment 56: Whether Timber Damage Assessments (TDA) Confer a Countervailable Benefit
The GOA agrees with the Department’s preliminary finding that timber damage assessments
did not provide subsidies to anyone in Alberta and argues that the Department should reaffirm that
finding in the final results. The GOA further explains that TDA is not a government program or
government mandate, but rather, is a private sector initiative to calculate annually the market value of
standing timber in Alberta for strictly commercial reasons. The GOA states that Alberta law makes it
clear that the province will collect stumpage from the forest sector for any timber cut on a tenure area,
regardless of whether it is used or destroyed (citing the November 12, 2003, submission of the GOA at
Exhibit 12 section 91(1)). According to the respondent, after collecting money for stumpage cut, the
GOA is not involved thereafter with private party concerns as to who destroyed the Crown timber and
the GOA does not direct or entrust industrial entities operating in the forests to pay anything on behalf
of the GOA to tenureholders when trees are destroyed on their tenure areas. The GOA states that any
right to damages is a general common law right to property damage that is also outlined in the Surface
Rights Act in Alberta. Finally, the GOA argues that the petitioners’ allegation that the stumpage amount
paid by the tenureholders might be less than the tenureholders are paid by private parties for damaged
timber, and thus could be a subsidy, is mere speculation refuted by the evidence on the record.
The petitioners argue that section 16(2) of the Alberta Forests Act, which authorizes
compensation to be paid to FMA holders rather than to the province (the owner of the timber) for any
damage to timber to which the FMA holders are entitled, is an indirect subsidy within the meaning of
section 771(5)(B)(iii) of the Act. The petitioners argue that the issue is not whether the FMA holders
pay timber dues on damaged timber but whether those dues paid match what the FMA holder receives
in compensation from a third party. According to the petitioners, the standing timber value included in
the 2002 TDA Table was C$20.14 per cubic meter for softwoods (see the November 18, 2003,
submission by petitioners at Exhibit 5) while timber dues for most of the softwood harvest averaged
only C$4.29 per cubic meter (see Id. at 36). The petitioners state that the Department should address
this issue specifically and verify whether the GOA requires FMA holders to pass on to the government
the full amount of the compensation that they received in the form of timber dues. If the FMA holders
only re-convey to the GOA a portion of that compensation, the petitioners contend that the Department
should treat that difference as a countervailable benefit.
Department’s Position
The record evidence shows that, as the GOA gives rights to FMA holders to harvest timber
from Crown lands, it similarly provides rights to people, usually through lease or license, to obtain
subsurface resources as well. This practice has resulted in conflicts between those parties that have
access to the surface of the land and those that have access to the subsurface, as both parties can have
claims to the same land area. To manage this area of conflict, the GOA established the right to seek
compensation in the Surface Rights Act. The record shows that the Surface Rights Act entitles the
existing occupants of the land to seek compensation from the entities extracting subsurface resources
for any injury to the occupied land. Within section 1(g) of the Surface Rights Act, an occupant is, in
part, described as “(I) a person, other than the owner, who is in actual possession of land . . . or . . .
(iv) in the case of Crown land, a person shown on the records of the department or other body
administering the land as having an interest in the land.” See the March 12, 2004, submission of the
GOA at Exhibit 1. Additionally, after years of conflict and negotiations, the GOA brought the forest
and industrial operators together to find common agreement on the levels of compensation for timber
damage. This resulted in the creation of the TDA Tables, which were based on a methodology
developed by an outside third party with direct input from both the forest and industrial operators.
We do not find this right to seek compensation for damage under this program to be a subsidy
within the meaning of section 771(5)(B)(iii) of the Act, as argued by the petitioners. Section
771(5)(B)(iii) of the Act states that, a subsidy exists when an authority “makes a payment to a funding
mechanism to provide a financial contribution, or entrusts or directs a private entity to make a financial
contribution, if providing the contribution would normally be vested in the government and the practice
does not differ in substance from practices normally followed by governments, to a person and a benefit
is thereby conferred.” The circumstances behind the right to seek compensation under this alleged
program do not meet these requirements. Specifically, we disagree with the petitioners that a right to
seek compensation for damages in these circumstances constitutes the entrustment or direction of a
private entity to provide a financial contribution. Moreover, there is no evidence or reason to believe
that the GOA normally compensates private entities for damage to their property when that damage is
caused by another private entity.
This right to seek compensation for injury caused by a third party is also not a subsidy as
described in section 771(5)(B)(i) or (ii) of the Act. There is no financial contribution being made by the
government, or on behalf of the government, within the meaning of section 771(5)(D).
In sum, the GOA, through the Surface Rights Act and its adoption of the TDA Tables, has
simply established a procedure whereby the FMA holders and the industrial operators can negotiate
damages between themselves. However, the fact that private parties may compensate one another for
damages in no way implies that the GOA either directly or indirectly provides a financial contribution.
Furthermore, the record evidence shows that the law in Alberta recognizes the rights of a broad
range of property interests in Alberta, not just the FMA holders, to seek redress for damage caused by
subsurface operators, including banks holding a mortgage on a property, real estate agents owed
commissions who have taken liens against the land, condominium associations owed fees, unpaid
purchasers or vendors with liens, anyone with a lease or an interest in a lease, anyone with an easement
or right of way, anyone with rights under a restrictive covenant or encroachment agreement, and anyone
with a right to take resources from the land surface or from near the land surface (e.g., gravel, soil).
Therefore, for these final results, we have determined the FMA holders’ right to seek
compensation when timber within their designated area is damaged to not be countervailable.
Comment 57: Affirm Preliminary Findings for Timber Damage Compensation for
Timber Licensees
For these final results, the GOM argues that the Department should not only continue to find
that this program did not confer a benefit, but the Department should also find that this program is not
countervailable. The GOM states that, although Section 20(2) of The Forest Act authorizes
compensation to be paid to timber licensees for damage to timber incurred as a consequence of “boring
or operating any salt, oil, or gas wells,” or “in working any quarries or mines,” there is no program in
place to compensate forest licensees, and no compensation has ever been paid to timber licensees, for
such damages. According to the respondent, the province’s Forest Damage Appraisal and Valuation
Procedures require that any damage to timber caused by industrial users be paid to the Crown, as the
owner of the timber, and not to any individual timber licensee. Moreover, the GOM argues that even if
a licensee’s area might be damaged by industrial users, there is more than enough of Manitoba’s annual
allowable cut (AAC) that is uncommitted (69 percent of the softwood AAC and 64.7 percent of the
hardwood AAC) that no licensee would be unable to obtain its harvest volume.
The petitioners argue that there is no new evidence or basis for the Department to go beyond its
findings in the Preliminary Results and find that this program is not countervailable.
Department’s Position
Having found no benefit, we have determined that there is no subsidy conferred on softwood
lumber by this program. Therefore, there is no need to make additional findings and, as a matter of
administrative economy, we have chosen not to address other aspects of this program.
Comment 58: Whether Assistance Under Article 28 of Investissement Quebec is a
Countervailable Program
The GOQ argues that the Department should affirm its preliminary finding that no benefit was
provided to softwood lumber producers under Article 28. See Preliminary Results, 69 FR at 33234.
The GOQ further argues that the Department should find that Article 28 does not provide a
countervailable subsidy because assistance provided thereunder is not specific. The GOQ states that
the sole requirement for the receipt of assistance under Article 28 is that a project must be of major
economic significance for Quebec. The GOQ states that there is no record evidence that the granting
of such assistance is dependent upon export performance or the use of domestic goods over imported
goods; that there is, in terms of a domestic subsidy, dominant or disproportionate use; or that
Investissement Quebec provided assistance under Article 28 in such a manner as to indicate that it
favored the wood sector over any other sector. The GOQ points out that this conclusion would be
consistent with the evidence in this proceeding and with the Department’s previous determinations (see,
e.g., Alloy and Magnesium and Pure Magnesium from Canada; Preliminary Results of Full Sunset
Reviews, 65 FR 10766, 10768 (February 29, 2000) (Alloy Magnesium and Pure Magnesium from
Canada: Sunset)).
The petitioners argue that there is no new evidence or basis for the Department to go beyond its
findings in the Preliminary Results and find this program is not countervailable.
Department’s Position
Having found no benefit, we have determined that there is no subsidy conferred on softwood
lumber by this program. Therefore, there is no need to make additional findings and, as a matter of
administrative economy, we have not chosen to address the specificity of this program.
Comment 59: Canadian Forest Service Industry, Trade & Economics Program (IT&E)
The GOC contends that, although the Department found the IT&E program to be not used
during the POR, the Department failed to address the statutory factors necessary to a subsidy finding.
The record, according to the respondent, clearly demonstrates that the IT&E program does not
provide grants or other financial contributions; rather, it is an economic and policy research office
staffed by four professional economists who produce economic studies in conjunction with universities,
non-profit organizations, and other government entities. Therefore, the Department should also find that
the program is not a countervailable subsidy.
The petitioners argue that the respondent has not identified any basis for the Department to go
beyond its preliminary determination that the IT&E program was not used and make a finding that the
program did not provide a countervailable benefit.
Department’s Position
When a program is not used, the Department typically does not make a finding as to its
countervailablity. This is a matter of both administrative efficiency and practicality. Regarding
administrative efficiency, the respondents are relieved from the requirement of providing extensive
information about non-used programs and the Department is relieved of the burden of analyzing and
verifying information related to those programs. Regarding the practicality, it is generally easier to
understand how a program works when the program is being used. Otherwise, the analysis is
necessarily abstract. Therefore, we have not gone beyond the non-use determination to examine
whether this program potentially provides a countervailable subsidy.
Comment 60: British Columbia Private Forest Land Tax Program
The petitioners contend the Department was correct to find that the differential tax rates under
the Assessment Act conferred a de jure specific subsidy on B.C.’s softwood sawmill industry. The
petitioners claim that the respondent has failed to explain how the requirement to harvest timber under
Section 24(1) of the Assessment Act is not dispositive. The petitioners add that, by pointing to an
older—and, therefore, irrelevant—version of the statute which does not contain this requirement, the
respondent merely substantiated the subsidy allegation by showing that B.C. later adopted legislation
that expressly provided for the subsidy benefit.
With regard to the affidavits submitted by the GOBC, the petitioners dismiss as meaningless the
assertion by one official that B.C. has never declassified Class 7 land due solely to cessation of
harvesting activities. The petitioners claim that, because stopping timber operations is a contributing
factor to removal of Class 7 status, harvesting timber is not only a legal requirement, but an enforcement
obligation for B.C. officials and timberland owners. Assuming B.C. timberland owners are law-abiding,
the petitioners continue, they would comply with the law on threat of enforcement with no need for
actual enforcement. Thus, the petitioners say the affidavits merely imply that the threatened loss of a
beneficial tax status ensures the owners stay with the program and continue harvesting timber.
The petitioners note that the GOBC has not responded to its allegation that the true amount of
the tax break is actually larger when the difference in local tax rates is taken into account. The
petitioners fault the Department for failing to countervail the tax subsidy at the local government level,
based on the lack of necessary information, which it views as legally and factually erroneous. Citing
section 701(a) of the Act, the petitioners say the statute requires that the entire countervailable subsidy
be fully countervailed, a principle upheld, e.g., in RSI (India) Pvt., Ltd., v. United States, 687 F. Supp.
605 (CIT 1988) and Fujian Mach. & Equip. Imp. & Exp. Corp. v. United States, 178 F. Supp. 2d
1305 (CIT 2001). According to the petitioners, the Department should calculate an average Class
3/Class 7 rate differential for each type of local tax reported in the GOBC’s May 24, 2004, response,
and apply the differential to the land value used in the provincial subsidy calculation; alternatively, the
Department should request specific data regarding municipal Class 7 acreage and tax collection. The
petitioners claim that the Department need not request company-specific data, but can directly request
the GOBC or the municipal jurisdictions for data on Class 7 land with sawmills. Additionally, the
petitioners note that, pursuant to the B.C. Forest Act, at Chapter 157, Section 127, all private sawlogs
have to be sold to B.C. sawmills, and argue that, therefore, the Department should not limit the benefit
to Class 7 sawmills, but use the entire Class 7 land acreage as the proxy for timber value.
The petitioners provide their own calculation for the benefit conferred by the differential tax
rates at the municipal level, based on municipal-level land value and tax rates data submitted earlier by
the respondent.
The GOBC argues that the Department has drawn an artificial connection between Class 7
property rates and softwood lumber production, saying lumber mills belong to an entirely separate
property class, i.e., Class 4, major industry, which is taxed higher than Class 7. The GOBC faults the
Department for equating softwood lumber production with timber production and harvesting, saying
that timber is used to produce a vast number of distinct products representing myriad industries other
than softwood lumber. There is no record evidence, the GOBC continues, that Class 7 landowners
supplied timber to softwood lumber producers during the POR.
The GOBC contends that the Class 3 rates are punitive and do not reflect the tax rates normally
applicable to private forest land. Additionally, Class 3 land comprises only a residual class amounting
to no more than 7 percent of the total land area, and only a small portion of the total assessed value, of
private forest land. The GOBC argues the Department is wrong to presume that Class 3 rates are the
default rates when there is a range of other possible tax rates that could apply to private forest land. A
more reasonable benchmark, the GOBC claims, is the Class 9 farm land classification, which also
comprises “managed” land under the tax statutes and is identified in the 1986 Budget as the comparable
rate applicable to Class 7.
The GOBC asserts it is illogical to conclude that Class 7 rates are preferential, since Class 7
owners voluntarily agree to incur the additional costs of reforestation and environmental standards to
which Class 3 owners are not obligated. According to the GOBC, the Province’s private forest land
policy falls within the parameters of a legitimate government function undertaken on behalf of the
general public interest, which the Department has recognized in, e.g., Final Affirmative Countervailing
Duty Determination; Certain Fresh Atlantic Groundfish from Canada, 51 FR 10041 (March 24, 1986)
(Groundfish from Canada). The GOBC argues that, in the absence of evidence that the ultimate taxes
paid by Class 7 owners are reduced, the Department essentially made a finding that a tax rate
differential is per se countervailable. There is no prior case, the GOBC claims, where the Department
has made such a finding; rather, the Department has countervailed tax rate differentials only when the
industry clearly pays a lower tax than otherwise owed (citing Oil Country Tubular Goods from
Argentina; Final Results of Countervailing Duty Administrative Reviews, 56 FR 38116 (August 12,
1991), at Comment 15, in comparison with Bicycle Tires and Tubes from Taiwan: Reopened
Investigation – Final Countervailing Duty Determination, 46 FR 53201 (October 28, 1981)).
The GOBC argues that the Department’s de jure analysis incorrectly construed Article
24(1)(b) of the Assessment Act and improperly considered it separately from the Forest Land
Reserve Act Amendment, 1999 (FLRA), under which the responsibility for determining Class 7
eligibility falls to the Agricultural Land Commission (ALC), rather than B.C. Assessment. The FLRA,
the GOBC claims, does not restrict Class 7 status to landowners who harvest and produce timber,
much less to those who supply lumber producers, and does not provide for removal from Class 7 status
of any landowner who ceases harvesting activity. In any case, the GOBC contends, Article 24(1)(b)
does not strictly limit Class 7 status to timber-producing landowners, as attested to by the affidavits of
two key officials which the GOBC submitted for the record. The Department, the GOBC argues, is
wrong to find that these affidavits are irrelevant to the de jure specificity analysis. The GOBC claims
that actual practice should be deemed consistent with an express statutory restriction, and that such a
consideration does not amount to a de facto analysis, but merely ensures that substantial evidence
supports the de jure analysis, as the Department had done in, e.g., Final Negative Countervailing Duty
Determination: Carbon and Certain Alloy Steel Wire Rod from Turkey, 67 FR 55815 (August 30,
2002) (Steel Wire Rod from Turkey) (citing, in particular, the Decision Memorandum at 8-14), and
Preliminary Negative Countervailing Duty Determination and Alignment with Final Antidumping Duty
Determination: Bottle-Grade Polyethylene Terephthalate (PET) Resin from Thailand, 69 FR 52862
(August 30, 2004) (PET Resin from Thailand). The GOBC believes that the same comprehensive
approach taken by the Department in those cases is warranted in the present case, given the body of
laws and regulations governing Class 7 status.
Substantial record evidence, the GOBC argues, confirms that Class 7 status is not specific on
either a de jure or de facto basis because it is open to all private landowners in the Province: once the
land is included in the private land reserve, the landowner only has to submit a Management
Commitment form to the ALC to obtain Class 7 status. According to the GOBC, only 13 of the
hundreds of Class 7 landowners during the POR owned or operated sawmills, and the Department’s
finding that Class 7 sawmill owners or operators constituted the majority users of the Class 7 tax rates
does not negate the general availability of the classification. Moreover, the GOBC points out, the
record shows that timber harvested from private land is used to produce a vast array of end-products,
not just softwood lumber.
The GOBC argues that the POR value of sawmill softwood lumber shipments used as the
denominator was unduly narrow, since harvested logs are used to produce myriad distinct products
other than softwood lumber, including paper products, panel products, furniture, chemicals, etc.
Additionally, the GOBC claims, nearly 30 percent of the POR harvest was exported out of the
Province. Therefore, according to the GOBC, since Class 7 status is not tied to softwood lumber
production, the Department should attribute the alleged benefit to all appropriate products, pursuant to
19 CFR 351.525(b)(3). For the proper denominator, the GOBC points to the value used in the
preliminary calculation with regard to the FII research program, i.e., the total value of B.C. shipments of
wood and paper products during the POR, or C$16,593,449,000. At a minimum, the GOBC
continues, the Department should at least add to the denominator the value of B.C. lumber shipments
by “other wood industries,” amounting to C$227,875,000, or the value of B.C. sawmill shipments of
softwood logs amounting to C$162,879,000.
The GOBC rebuts the petitioners’ argument that the Department should include tax savings at
the local level in the benefit calculation, claiming, first, that the record does not show that
countervailable subsidies were conferred by local tax authorities. According to the GOBC, under the
Local Government Act, submitted in the GOBC’s May 24, 2004, response at Exhibit BC-T-20,
municipalities exercise independent tax authority and, although they use the nine property classes
established by the Province, are not required to assign higher taxes to Class 3 than to Class 7 land.
The GOBC provides the example of the District of Kent, which in 2002 and 2003 imposed higher tax
rates on Class 7 than Class 3 land. The GOBC adds that neither softwood lumber producers, Class 7
landowners, nor any other forestry sector participant is listed in the exemptions from municipal property
taxes pursuant to section 339 of the Local Government Act. Therefore, the GOBC asserts, there is
no financial contribution at the municipal level within the meaning of section 771(5)(D)(ii) of the Act.
Moreover, the GOBC claims that the task of calculating a benefit at the local level is inherently
company-specific and inappropriate to the aggregate nature of the current review. Since municipalities
set property tax rates independently, the GOBC says, owners of land in multiple jurisdictions face
multiple tax rates for which the Department would need detailed information from each landowner. The
GOBC claims that an attempt to avoid company-specific data by applying an average differential rate,
as the petitioners have suggested, will double-count taxes where landowners own land in multiple
jurisdictions. The GOBC reminds the Department that it refused to initiate investigations into companyspecific
issues in the underlying investigation, e.g., with regard to the Job Protection Commission
benefits and to an alleged subsidy to Skeena in Lumber IV. In any case, the GOBC claims it has
already submitted the necessary municipal-level land value and acreage data in its October 5, 2004,
supplemental response at Exhibit BC-T-42. However, since neither B.C. Assessment nor the ALC
retains records identifying sawmill owners, the GOBC explains it has been unable to provide a list of
sawmill owners at the municipal or regional district level, because the precise location of each sawmill is
available only from the landowners themselves.
In addition, the GOBC rejects the petitioners’ suggested calculation method because it grossly
overstates any alleged benefit. According to the GOBC, the petitioners’ chart of municipalities and
their Class 3 and Class 7 tax rates included jurisdictions that do not even have Class 3 or Class 7 land,
e.g., Armstrong, Belcarra, Bowen Island, Cache Creek. The GOBC claims that none of these
municipalities levy municipal property tax rates on Class 3 or Class 7 land; the rates presented by the
petitioners are largely school taxes already accounted for in the Department’s calculation and “other”
taxes collected for a variety of services, not an assessment on land in the municipality. Only seven
municipalities, the GOBC asserts, have both classes of land, and these seven accounted for only a
minuscule portion of Class 7 land value and acreage during the POR, which is not enough to have a
material impact on the calculation.
Department’s Position
Consistent with our determination that this program is de jure specific, we agree with the
petitioners that the statutory requirement for timber production in Class 7 land is dispositive. Section
24 of the Assessment Act unambiguously states that Class 7 land is land “that is being used for the
production and harvesting of timber.” Section 771(5A)(D)(i) of our own statute clearly stipulates that
when the relevant legislation “expressly limits access to the subsidy to an enterprise or industry, the
subsidy is specific as a matter of law.” The Department’s de jure analysis rests on a textual reading of
a statute, and where the legal language plainly limits access to the subsidy to an enterprise or industry,
we find de jure specificity, which concludes the analysis on that subsidy element. For this reason, it is
not necessary for us to address the respondent’s other comments related to actual practice or actual
usage.
We find the GOBC’s comments regarding the relative relevance of the Assessment Act versus
the 1999 FLRA to be unpersuasive. We did not, as the GOBC claims, consider the Assessment Act
in isolation from the FLRA, which specifically addresses the forestry and environmental requirements
for Class 7 land. In our preliminary analysis of this program, we specifically cited the FLRA, because it
carried “Consequential Amendments” that included Section 24 of the Assessment Act. The
amendment left unchanged the requirement that Class 7 land be “used for the production and harvesting
of timber.” Although, as the GOBC claims, the main body of the FLRA does not carry the timber
production requirement, it nowhere precludes the operation of that requirement by other means, i.e.,
through the Assessment Act, and the appearance of that very requirement under the FLRA’s
“Consequential Amendments” appendix contradicts the GOBC’s position. Further, the Assessment
Act, being a tax statute, remains equally, if not more, relevant because the program under review is a
tax system.
We do not share the respondent’s view that our finding amounts to a finding that differential tax
rates are per se countervailable. The tax differential at issue pertains to two alternative tax
classifications, Class 3 and Class 7, distinguished, inter alia, by a timber production requirement that
makes the tax savings specific to an industry. Those who qualify for the lower rate based on such a
requirement would clearly “pay a lower tax than otherwise owed.” The GOBC’s comments on this
point are predicated on another contention, which we also do not share, i.e., that the Class 3 rates are
not the default rate. Despite the fact that the Class 3 rates may be punitive, the language and structure
of Section 24 of the Assessment Act clearly pose Class 3 and Class 7 as alternatives to each other and
not to some other classification. In particular, the express language of the statute plainly states that
forest land is not farm land, which directly contradicts the GOBC’s claim that the farm land
classification, Class 9, is the one most comparable for the purposes of selecting a benchmark.
Moreover, Class 9 is treated under a separate section of the Assessment Act.
The Department’s benefit analysis does not extend to the broader economic analysis implied in
the respondent’s argument that Class 7 rates provide no benefit because Class 7 owners commit to the
additional costs of eco-friendly forestry practices. These costs do not fall within the groups of offsetting
costs enumerated under section 771(6) of the Act to be subtracted from the gross countervailable
subsidy amount. Therefore, we have not adjusted for them in our benefit analysis.
The respondent cites Groundfish from Canada for the proposition that the B.C. tax constitutes a
legitimate government function undertaken on behalf of the general public interest. However, in
Groundfish from Canada, the Department determined that the program did not provide any financial
assistance to the groundfish industry. In contrast, we have found that the tax program in the current
review provides a financial contribution to an industry.
With regard to whether all B.C. logs are sold to the sawmills, the record indicates that under
the B.C. log export restriction regime, some logs may be exported, rather than sold to the sawmills, if
they can be shown to be surplus to domestic demand, or uneconomical for domestic processing, or
would otherwise go to waste. See GOBC Verification Report at 14. Hence, we have continued to
limit the numerator in our benefit calculation to Class 7 sawmills. Regarding the respondent’s
contention that the preliminary denominator was unduly narrow, it is our understanding that the value of
sawmill shipments we used, comprising in-scope lumber, co-products and other softwood (residual),
comprise the totality of primary wood products shipments by sawmills in the Province. Accordingly,
for the final calculation, we are using the same value for the denominator.
We do not agree with the respondent that the local authorities did not provide a countervailable
subsidy. As the record shows and the GOBC has stated, the property classes by which the localities
set their taxes are established by the Province. See, e.g., the May 24, 2004, Question Response of the
GOC/GOBC at Exhibit BC-T-4, page 20 (Section 19(14) of the Assessment Act) and page 3,
footnote 2 of the GOC/GOBC’s rebuttal brief. Therefore, the timber production requirement that is
integral to the managed forest land classification continues to operate at the local level, and our
specificity determination is applicable at that level. Further, our analysis of the local tax rate data
submitted by the GOBC shows that, in the overwhelming majority of jurisdictions, the tax rates were
lower for Class 7 than for Class 3 land, although the differential varied across the jurisdictions.
We have addressed the respondent’s concern that jurisdictions with neither Class 3 nor Class 7
land were included in the petitioners’ suggested computation of an average tax differential and that the
school tax was double-counted: as shown in the B.C. Tax Final Calculation, the benefit calculation was
based only on jurisdictions whose assessment rolls included both Class 3 and Class 7 assessments
during the POR, and excluded the school tax, which is accounted for only at the provincial level, as we
did in the preliminary calculation. On this point, we believe to be erroneous the respondent’s claim that
only seven jurisdictions assessed both Class 3 and Class 7 land during the POR. According to our
analysis of the data provided in the GOBC’s October 5, 2004, supplemental response at Exhibit BCT-
42, there were dozens of jurisdictions where the assessment rolls showed both Class 3 and Class 7
land.
Comment 61: Tenureholders Underreporting Volumes of Timber Harvested in Quebec
Petitioners argue that the GOQ has provided a benefit by allowing tenureholders to underreport
the volumes of timber harvested, resulting in less stumpage fees paid. See, e.g., the August 14,
2003, Petitioners’ New Subsidy Submission at 47-52 (New Subsidy Submission) and the November
18, 2003, Petitioners’ New Subsidy Reply at 28-32. They contend that a report by the Auditor
General of Quebec found that the Quebec Ministry of Natural Resources “does not always ensure that
all the stumpage fees contemplated by the legislation are received.” See New Subsidy Submission at
48 and Exhibit PUT-5. They further assert that STATCAN data shows that 20,747,000 cubic meters
of softwood lumber were produced in Quebec during the POR, but the application of standard
conversion factors to the reported volume of softwood logs used in Quebec sawmills indicates that no
more than 17,849,704 cubic meters of lumber could have been produced out of that volume.
Petitioners claim that the total lumber production was 16 percent greater than the volume that the log
input into Quebec sawmills could have produced. As a result, they assert that the Auditor General’s
report, in conjunction with other record evidence, constitutes a reason to suspect that the GOQ knows
that Quebec tenureholders are under-reporting the volume of timber.
Respondents rebut by noting that the Department verified the Quebec public stumpage system
and assured itself that the system accurately reports timber volumes harvested from public lands. See
GOQ Verification Report at 14. Respondents assert that the Auditor General’s report neither states
nor implies that there is deliberate or systematic inaction by the Quebec government which promotes
the under-reporting of harvested timber. They contend that the report simply discusses that more
accurate monitoring by the provincial government is possible and makes recommendations to increase
management controls. In addition, respondents argue that petitioners’ attempt to use verified log
harvest data and verified lumber production data to demonstrate that there is missing timber is
misguided as they rely on three separate data sets taken from three disparate data sources.
Department’s Position
At verification, the Department traced the provincial softwood log harvest amount that entered
and was processed in Quebec’s sawmills during the POR. See GOQ Verification Report at 14. The
Department also traced the volume and value of lumber used in Quebec’s portion of the denominator
calculation to STATCAN’s databases. We found no discrepancies regarding these data. See GOC
and STATCAN Verification Report at 6. We, therefore, find no reason to believe that Quebec
tenureholders under-reported the volume of timber. Further, as discussed at the initiation of the
underlying investigation, while there has been information submitted in this proceeding suggesting
isolated incidents of alleged under-scaling (i.e., under-reporting), which could indicate fraud by a
company, such action does not constitute a government-sanctioned policy of knowingly tolerating
timber under-reporting. See the April 23, 2001, Memorandum to the File from Melissa G. Skinner,
Director, concerning Initiation of Countervailing Duty Investigation: Certain Softwood Lumber Products
from Canada at 38. Consequently, we did not initiate an investigation of timber under-reporting as such
action does not in and of itself constitute a government action as required under the statute for an
investigation or an alleged subsidy practice. There is no information on the record of this proceeding to
warrant a change in our position concerning timber under-reporting.
Comment 62: Whether British Columbia’s Skeena Cellulose and NWBC Timber & Pulp Ltd
Received Any Benefits During the POR
Petitioners disagree with the Department’s determination that an analysis of programs related to
one specific company would be inappropriate in this administrative review because of the aggregate
nature of this review. See New Subsidy Memorandum at 9-10. Petitioners argue that the Department
should conduct an analysis of company-specific programs because the Department cannot assess duties
without regard to the more flagrant lumber subsidies in Canada, as the Department is not accorded
discretion under the CVD statute to disregard enormous countervailable subsidies. See 19 U.S.C.
§ 1671(a) (CVD must be “equal to the net countervailable subsidy.”). Petitioners believe that Skeena
Cellulose (Skeena) received several countervailable subsidies from the B.C. government, including
significant debt forgiveness, large loan guarantees, subsidized loans and an environmental indemnity, and
that the GOBC also provided additional subsidies to Skeena's new owner, NWBC Timber & Pulp Ltd.
(NWBC).
See Id. at 29-45. They assert that the Department itself recognized this program in its preliminary
results (see 69 FR at 33232).
Respondents rebut by stating that the Department correctly declined to investigate to Skeena
and its successor company. Respondents agree with the Department’s position that it is not
appropriate to analyze subsidies related to one specific company, as the Department is determined to
apply an aggregate methodology in the proceeding. Furthermore, respondents assert that the
Department determined for itself that alleged subsidies to Skeena examined in the investigation were far
below the de minimis threshold, resulting in a negligible rate of less than 0.005 percent ad valorem.
See Preliminary Determination, 66 FR at 43212. In addition, respondents contend that the Department
did consider all of petitioners’ new information supplied on the record. Thus, respondents believe that
the Department should reject petitioners’ arguments that it revisit its determination not to include
allegations concerning Skeena in this administrative review.
Department’s Position
As discussed above, we determined to conduct this review on an aggregate basis because of
the extraordinarily large number of Canadian producers/exporters. With the exception of the four
companies for which we conducted zero rate reviews, we are not calculating company-specific subsidy
rates. As this allegation is applicable to only one specific company, we continue to find that it is not
appropriate to analyze this program in the context of an aggregate final results.
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 review in the
Federal Register.
__________ __________
Agree Disagree
________________________
James J. Jochum
Assistant Secretary
for Import Administration
_______________________
Date