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