[Federal Register: June 14, 2004 (Volume 69, Number 113)]
[Notices]
[Page 33203-33235]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr14jn04-136]
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Part IV
Department of Commerce
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International Trade Administration
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Notice of Preliminary Results of Countervailing and Antidumping Duty
Administrative Reviews: Certain Softwood Lumber Products From Canada;
Notices
[[Page 33204]]
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DEPARTMENT OF COMMERCE
International Trade Administration
[C-122-839]
Notice of Preliminary Results of Countervailing Duty
Administrative Review: Certain Softwood Lumber Products From Canada
AGENCY: Import Administration, International Trade Administration,
Department of Commerce.
ACTION: Notice of preliminary results of countervailing duty
administrative review.
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SUMMARY: The Department of Commerce (the Department) is conducting an
administrative review of the countervailing duty order on certain
softwood lumber products from Canada for the period May 22, 2002,
through March 31, 2003. If the final results remain the same as these
preliminary results of administrative review, we will instruct U.S.
Customs and Border Protection (CBP) to assess countervailing duties as
detailed in the Preliminary Results of Review section of this notice.
Interested parties are invited to comment on these preliminary results.
(See Public Comment section of this notice.)
EFFECTIVE DATE: June 14, 2004.
FOR FURTHER INFORMATION CONTACT: James Terpstra at (202) 482-3965,
Stephanie Moore at (202) 482-3692, or Robert Copyak at (202) 482-2209,
Office of AD/CVD Enforcement VI, Group II, Import Administration,
International Trade Administration, U.S. Department of Commerce, Room
4012, 14th Street and Constitution Avenue, NW., Washington, DC 20230.
SUPPLEMENTARY INFORMATION:
Background
On May 22, 2002, the Department published in the Federal Register
(67 FR 36070) the amended final affirmative countervailing duty
determination and countervailing duty order on certain softwood lumber
products from Canada, as corrected (67 FR 37775, May 30, 2002). On May
1, 2003, the Department published a notice of "Opportunity to Request
Administrative Review of Certain Softwood Lumber Products from Canada"
(68 FR 23281, May 1, 2003). The Department received requests that it
conduct an aggregate review from, among others, the Coalition for Fair
Lumber Imports Executive Committee (petitioners) and the Government of
Canada (GOC), as well as approximately 400 requests for review covering
an estimated 290 individual companies. On July 1, 2003, we initiated
the review covering the period May 22, 2002, through March 31, 2003 (68
FR 39055).
On July 25, 2003, the Department determined to conduct this
administrative review on an aggregate basis consistent with section
777A(e)(2)(B) of the Tariff Act of 1930, as amended (the Act), and to
the extent practicable, conduct a limited number of individual reviews
between May 7 and May 11, 2004. The pool of companies considered for
company-specific review was limited from the estimated 290 companies
for which we received requests for individual review to those 148
companies claiming zero or de minimis rates. Section 351.213(k)(1) of
the countervailing duty (CVD) Regulations provides that the Department
will, to the extent practicable, conduct reviews of companies
requesting and claiming either zero or de minimis rates if the
Department conducts an administrative review upon an aggregate basis
under section 777A(e)(2)(B) of the Act. For further discussion, see
Memorandum to Joseph A. Spetrini, Acting Assistant Secretary for Import
Administration from Holly A. Kuga, Acting Deputy Assistant Secretary
regarding "Methodology for Conducting the Review," dated July 25,
2003, which is in the public file in the Central Records Unit (CRU),
Room B-099, of the Department of Commerce.
On August 14, 2003, in accordance with section 351.301(d)(4)(i)(B)
of the CVD Regulations, petitioners timely filed new subsidy
allegations. Petitioners alleged that Canadian softwood lumber
producers benefitted from twelve additional subsidy programs during the
period of review (POR). Petitioners further alleged that the Canadian
federal and provincial governments increased their subsidy programs, in
some cases specifically in an effort to offset the effects of the
countervailing and antidumping duties imposed by the Department. The
Department determined that the petitioners had sufficiently supported
their allegations, and initiated an investigation of the new programs.
See Memoranda to Melissa G. Skinner, Director, Office of AD/CVD
Enforcement VI through Eric B. Greynolds, Program Manager from Margaret
Ward, Case Analyst regarding "New Subsidy Allegations," dated
February 6, 2004, and April 19, 2004, which are in the public file in
the CRU.
On January 16, 2004, the Department extended the period for
completion of these preliminary results pursuant to section
751(a)(3)(A) of the Act. See Certain Softwood Lumber Products from
Canada: Extension of Time Limit for Preliminary Results of
Countervailing Duty Administrative Review, 69 FR 2568 (January 16,
2004).
On March 15, 2004, the Department determined to conduct individual
company-specific reviews of 11 companies. The Department selected these
11 companies from the already narrowed pool of 148 companies claiming
zero/de minimis subsidies on the basis of (1) whether the company
claimed to source all of its inputs from the United States, Maritime
Provinces,\1\ and/or Canadian private lands, or (2) the company
acquired Crown logs from third parties and had quantities of either
lumber inputs or Crown stumpage that could be considered insignificant
when compared to overall volume and, therefore, ignored in any
analysis. See Memorandum to James J. Jochum, Assistant Secretary for
Import Administration, from Holly A. Kuga, Acting Deputy Assistant
Secretary, regarding "Conduct of Company-Specific Reviews," dated
March 15, 2004, which is in the public file in the CRU.
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\1\ Nova Scotia, New Brunswick, Newfoundland, and Prince Edward
Island.
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On April 9, 2004, the Department sent questionnaires to the 11
companies. We received timely responses from all 11 companies, as well
as a voluntary response from Commonwealth Plywood Co., Ltd.
From April 13 through May 4, 2004, we conducted verifications in
Canada of the government questionnaire responses.
Due to the unexpected emergency closure of the main Commerce
building on Tuesday, June, 1, 2004, the Department has tolled the
deadline for these preliminary results by one day to June 2, 2004.
Period of Review
The POR for which we are measuring subsidies is May 22, 2002,
through March 31, 2003. By memorandum dated July 31, 2003, the
Department determined that any subsidy rate calculated during this
review would be based on data from the Canadian fiscal year (April 1,
2002-March 31, 2003) and would apply to entries between May 22, 2002
(the date of the countervailing duty order), and March 31, 2003. See
Memorandum from Holly A. Kuga, Acting Deputy Assistant Secretary for
Group II, to Joseph A. Spetrini, Acting Assistant Secretary for Import
Administration, regarding the "First Administrative Review of the
Countervailing Duty Order on Softwood
[[Page 33205]]
Lumber Products From Canada--Period of Review."
Extension of Time Limits for Final Results
Pursuant to section 19 CFR 351.213(h)(2) of the CVD Regulations,
the Department finds that as a result of the complex nature of the
issues in this case it is not practicable to complete the review within
the normal time period allocated under 19 CFR 351.213(h)(1); therefore,
we are extending the final results from 120 days to 180 days after the
publication of these preliminary results. Therefore, the Department
will issue its final results no later than 180 days after the
publication of the preliminary results of this review, i.e., on or
about December 7, 2004.
Scope of the Review
The products covered by this order 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 moldings 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
customs purposes, the written description of the merchandise subject to
this order is dispositive.
As specifically stated in the Issues and Decision Memorandum
accompanying the Notice of Final Determination of Sales at Less Than
Fair Value: Certain Softwood Lumber Products from Canada, 67 FR 15539
(April 2, 2002) (see comment 53, item D, page 116, and comment 57, item
B-7, page 126), available at http://www.enforcement.trade.gov, drilled and
notched lumber and angle cut lumber are covered by the scope of this
order.
The following softwood lumber products are excluded from the scope
of this order provided they meet the specified requirements detailed
below:
(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 heading 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 this
order 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 the
satisfaction of CBP that the lumber is of U.S. origin.
(6) Softwood lumber products contained in single family home
packages or kits,\2\ regardless of tariff classification, are excluded
from the scope of this order if the importer certifies to items 6 A, B,
C, D, and requirement 6 E is met:
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\2\ To ensure administrability, we clarified the language of
exclusion number 6 to require an importer certification and to
permit single or multiple entries on multiple days as well as
instructing importers to retain and make available for inspection
specific documentation in support of each entry.
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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, sub floor, sheathing,
beams, posts, connectors, and if included in the 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. Softwood lumber products entered as part of a single family home
package or kit, whether in a single entry or multiple entries on
multiple days, will be used solely for the construction of the single
family home specified by the home design matching the entry.
E. For each entry, the following documentation must be retained by
the importer and made available to CBP upon request:
i. A copy of the appropriate home design, plan, or blueprint
matching the entry;
ii. A purchase contract from a retailer of home kits or packages
signed by a customer not affiliated with the importer;
iii. A listing of inventory of all parts of the package or kit
being entered that conforms to the home design package being entered;
iv. In the case of multiple shipments on the same contract, all
items listed in E(iii) which are included in the present shipment shall
be identified as well.
Lumber products that CBP 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 this order and
may be classified under HTSUS
[[Page 33206]]
subheadings 4418.90.45.90, 4421.90.70.40, and 4421.90.97.40.
Finally, as clarified throughout the course of the investigation,
the following products, previously identified as Group A, remain
outside the scope of this order. They are:
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.
In addition, this scope language has been further clarified to now
specify that all softwood lumber products entered from Canada claiming
non-subject status based on U.S. country of origin will be treated as
non-subject U.S.-origin merchandise under the countervailing duty
order, provided that these softwood lumber products meet the following
condition: upon entry, the importer, exporter, Canadian processor and/
or original U.S. producer establish to CBP's satisfaction that the
softwood lumber entered and documented as U.S.-origin softwood lumber
was first produced in the United States as a lumber product satisfying
the physical parameters of the softwood lumber scope.\3\ The
presumption of non-subject status can, however, be rebutted by evidence
demonstrating that the merchandise was substantially transformed in
Canada.
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\3\ See the scope clarification message ( 3034202),
dated February 3, 2003, to CBP, regarding treatment of U.S. origin
lumber on file in the CRU.
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Subsidies Valuation Information
Aggregation and Company-Specific Rates
In the countervailing duty investigation of softwood lumber from
Canada, the Department solicited information from the GOC on an
aggregate or industry-wide basis in accordance with section
777(A)(e)(2)(B) of the Act, rather than from individual producers and
exporters, as a result of the large number of producers and exporters
of softwood lumber in Canada. See page 7 of the April 23, 2001,
Memorandum to the File from the Team, "Initiation of Countervailing
Duty Investigation: Certain Softwood Lumber Products from Canada,"
which is in the public file in the CRU. As noted above, in accordance
with 19 CFR 351.213(b), the GOC and petitioners requested an
administrative review of this countervailing duty order and both
requested that this review be conducted on an aggregate basis. See
Initiation Notice. The Department also received requests for company-
specific reviews from a large number of individual Canadian producers/
exporters pursuant to 19 CFR 351.213(b).
Because of the extraordinarily large number of softwood lumber
producers in Canada, the Department is conducting this administrative
review of the order on an aggregate basis and will calculate a single
country-wide subsidy to be applied to all exports of subject
merchandise. See section 777A(e)(2)(B) of the Act. As noted above in
the "Background" section of this notice, the Department also
determined to calculate company-specific rates for certain selected
companies that claimed zero/de minimis rates. See the March 15, 2004,
Memorandum to James J. Jochum, Assistant Secretary, for Import
Administration, from Holly A. Kuga, Acting Deputy Assistant Secretary,
Group II, (Company Selection Memorandum), which is in the public file
in the CRU.
As noted in the "Background" section of this notice, the
Department received questionnaire responses from the companies selected
for individual review. Based upon our review of the questionnaire
responses, the Department preliminarily has concluded that additional
information will be needed in order to complete our analysis of these
companies. Therefore, the Department intends to issue a decision
memorandum related to subsidy rate calculations involving these
companies prior to issuing the final results of this review in order to
provide parties an opportunity to comment.
Allocation Period
In the underlying investigation and pursuant to 19 CFR
351.524(d)(2), the Department allocated, where applicable, all of the
non-recurring subsidies provided to the producers/exporters of subject
merchandise over a 10-year average useful life (AUL) of renewable
physical assets for the industry concerned, as listed in the Internal
Revenue Service's (IRS) 1977 Class Life Asset Depreciation Range
System, as updated by the Department of the Treasury. See Notice of
Preliminary Affirmative Countervailing Duty Determination, Preliminary
Affirmative Critical Circumstances Determination, and Alignment of
Final Countervailing Duty Determination With Final Antidumping
Determination: Certain Softwood Lumber Products From Canada, 66 FR
43186 (August 2001), and in the Notice of Final Affirmative
Countervailing Duty Determination and Final Negative Critical
Circumstances Determination: Certain Softwood Lumber Products From
Canada, 67 FR 15545 (April 2, 2002) (Lumber IV). No interested party
challenged the 10-year AUL derived from the IRS tables. Thus, in this
review, we have allocated, where applicable, all of the non-recurring
subsidies provided to the producers/exporters of subject merchandise
over a 10-year AUL.
Recurring and Non-Recurring Benefits
The Department has previously determined that the sale of Crown
timber by Canadian provinces confers countervailable benefits on the
production and exportation of the subject merchandise under
771(5)(E)(iv) of the Act because the stumpage fees at which the timber
is sold is for less than adequate remuneration. For the reasons
described in the program sections, below, the Department continues to
have found that Canadian provinces sell Crown timber for less than
adequate remuneration to softwood lumber producers in Canada. Pursuant
to section 351.524(c)(1) of the CVD Regulations, subsidies conferred by
the government provision of a good or service normally involve
recurring benefits. Therefore, consistent with our regulations and past
practice, benefits conferred by the provinces' administered Crown
stumpage programs have, for purposes of these preliminary results, been
expensed in the year of receipt.
In this review the Department is also investigating other programs
that involve the provision of grants to producers and exporters of
subject merchandise. Under section 351.524 of the CVD Regulations,
benefits from grants can either be classified as providing recurring or
non-recurring benefits. Recurring benefits are expensed in the year of
receipt, while grants providing non-recurring benefits are allocated
over time corresponding to the AUL of the industry under review.
Specifically, under section 351.524(b)(2) of the CVD Regulations,
grants which provide non-recurring benefits will also be expensed in
the year of receipt if the amount of the grant under the program is
less than 0.5 percent of the relevant sales during the year in which
the grant was approved (referred to as the 0.5 percent test).
[[Page 33207]]
Benchmarks for Loans and Discount Rate
In selecting benchmark interest rates for use in calculating the
benefits conferred by the various loan programs under review, the
Department's normal practice is to compare the amount paid by the
borrower on the government provided loans with the amount the firm
would pay on a comparable commercial loan actually obtained on the
market. See Section 771(5)(E)(ii) of the Act; 19 CFR 351.505(a)(1) and
(3)(i). However, because we are conducting this review on an aggregate
basis and with the exception of the company-specific reviews noted
above we are not examining individual companies, for those programs
requiring a Canadian dollar-denominated discount rate or the
application of a Canadian dollar-denominated, short-term or long-term
benchmark interest rate, we used for these preliminary results the
national average interest rates on commercial short-term or long-term
Canadian dollar-denominated loans as reported by the GOC.
The information submitted by the GOC was for fixed-rate short-term
and long-term debt. For short-term debt, the GOC provided monthly
weight-averaged short-term interest rates based on the prime business
rate, SME rate, three-month corporate paper rate, and one-month
bankers' acceptance rate, as reported by the Bank of Canada. For long-
term debt, the GOC provided quarterly implied rates calculated from
long-term debt and the interest payments made on long-term debt as
reported by Statistics Canada (STATCAN). Based on these rates, we
derived simple averaged POR rates for both short-term and long-term
debt.
Some of the 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 POR as reported by the GOC.
Regarding the selection of a discount rate for the purposes of
allocating non-recurring subsidies over time, we are directed by 19 CFR
351.524(d)(3). Because we are conducting this review on an aggregate
basis under section 777A(e)(2)(B) of the Act, we used as the discount
rate, the average cost of long-term fixed-rate loans in Canada as
reported by the GOC. See 19 CFR 351.524(d)(3)(i)(B).
Aggregate Subsidy Rate Calculation
As noted above, this administrative review is being conducted on an
aggregate basis, with the exception of 11 individual company-specific
reviews. We have used the same methodology to calculate the country-
wide rate for the programs subject to this review that we used in the
investigation.
1. Provincial Crown Stumpage Programs
For stumpage programs administered by the Canadian provinces
subject to this review, we first calculated a provincial subsidy rate
by dividing the aggregate benefit conferred under each specific
provincial stumpage program by the total stumpage denominator
calculated for that province. For further information regarding the
stumpage denominator, see the "Denominator Issues" section, below. As
required by section 777A(e)(2)(B) of the Act, we next calculated a
single country-wide subsidy rate. To calculate the country-wide subsidy
rate conferred on the subject merchandise from all stumpage programs,
we weight-averaged the subsidy rate from each provincial stumpage
program by the respective provinces' relative shares of total exports
to the United States during the POR. As in Lumber IV, these weight-
averages of the subject merchandise do not include exports from the
Maritime Provinces. See e.g., the April 25, 2002, Memorandum to Faryar
Shirzad, Assistant Secretary for Import Administration, from Bernard T.
Carreau, Deputy Assistant Secretary for Import Administration,
"Ministerial Error Allegations Filed by Respondents and Petitioners,"
a public document that is on file in the CRU. We then summed these
weight-average subsidy rates to determine the country-wide rate for all
provincial Crown stumpage programs.
2. Other Programs
We are also examining a number of non-stumpage programs
administered by the Canadian Federal Government and certain Provincial
Governments in Canada. These include programs previously investigated
and programs newly alleged in this review. To calculate the country-
wide rate for these programs, we have used a different methodology than
that employed in the investigation. For federal programs that were
found to be specific because they were limited to certain regions, we
have calculated the countervailable subsidy rate by dividing the
benefit by the relevant denominator (i.e., total production of softwood
lumber in the region or total exports of softwood lumber to the United
States from that region), and then multiplying that result by the
relative share of total softwood exports to the United States from that
region. For Federal programs that were not regionally specific, we
divided the benefit by the relevant sales (total sales of softwood
lumber, total sales of the wood products manufacturing industry (which
includes softwood lumber), or total sales of the wood products
manufacturing and paper industries).
For provincial programs, we calculated the countervailable subsidy
rate by dividing the benefit by the relevant sales amount for that
province (i.e., total exports of softwood lumber from that province to
the United States, total sales of softwood lumber in that province, or
total sales of the wood products manufacturing and paper industries in
that province). That result was multiplied by the relative share of
total softwood exports to the United States from that province.
Where the countervailable subsidy rate for a program was less than
0.005 percent, the program was not included in calculating the country-
wide countervailing duty rate.
3. Excluded Companies
In the investigation, we deducted from the above-mentioned
denominators sales by companies that were excluded from the
countervailing duty order. The Department has since also concluded
expedited reviews for a number of companies, pursuant to which a number
of additional companies have been excluded from the countervailing duty
order. See, Final Results of Countervailing Duty Expedited Reviews:
Certain Softwood Lumber Products from Canada: Notice of Final Results
of Countervailing Duty Expedited Reviews (68 FR 24436, May 7, 2003).
Pursuant to our prior practice, we have deducted the sales of all
companies excluded from the countervailing duty order from the relevant
sales denominators used to calculate the country-wide subsidy rates, as
discussed above.
On May 25, 2004, we requested sales data for the POR from the
companies that were excluded from the countervailing duty order as a
result of exclusion and expedited review process. Because of the
timing, we have yet to receive any responses to our requests.
Lacking actual POR sales data from the excluded companies, we have
estimated the companies' POR sales using sales data they supplied
during the underlying investigation or expedited review. Specifically,
we have indexed the sales data of the excluded companies to the POR
using province-
[[Page 33208]]
specific lumber prices indices obtained from STATCAN. We then
subtracted the indexed sales data of the excluded companies from the
provincial and Canada-wide sales denominators.
Pass-Through
During the underlying investigation, the Canadian parties claimed
that a portion of the Crown logs processed by sawmills were purchased
by the mills in arm's-length transactions with independent harvesters.
Canada further claimed that such logs must be excluded from the subsidy
calculation unless the Department determines that the benefit to the
independent harvester passed through to the lumber producers. In
anticipation of a similar claim in this administrative review, we
requested in the original questionnaire that each of the Canadian
provinces report the volume and value of Crown logs sold by independent
harvesters to unrelated parties during the POR. See September 12, 2003,
Questionnaire.
In response to the Department's original questionnaire, and in more
recent submissions, certain provinces have submitted information on the
record of this proceeding that they claim demonstrate the volume of the
provincial Crown logs harvested during the POR that were sold in arm's-
length transactions, and for which a pass-through analysis must be
performed. Our analysis and preliminary findings with respect to these
claims are detailed, by province, below.
Alberta
The volumes of Crown timber sales claimed by Alberta to be at
arm's-length and for which a pass-through analysis should be conducted
is contained in its original November 12, 2003, questionnaire response
and in two more recent submissions. In a letter dated May 18, 2004, at
page 8, the GOA stated that "at least 1.5 million cubic meters of wood
were sold in arm's length transactions in the period of review" and
"more than 2 million cubic meters of provincial Section 80/81 wood
moved between unrelated parties." A letter submitted on May 24, 2004,
on behalf of the Canadian parties further states that at least
1,724,826 cubic meters of Section 80/81 log volume was "moved from
unrelated parties" during the POR and should therefore be removed from
the subsidy rate calculation. See Respondent's May 24, 2004, letter
"First Administrative Review, Pass-Through of Benefit to Arm's Length
Purchasers of Log and Lumber Inputs' dated May 24, 2004, at page 8. For
the reasons described below, we preliminarily determine that Alberta
has failed to substantiate its claim that logs entering sawmills during
the POR included logs purchased in arm's-length transactions.
The GOA and the Canadian parties have failed to provide any
evidence to support the claim that there were arm's length sales of
logs. They have provided only vague assertions of "transfers" to
"unrelated parties" that "likely represent sales, and could include
both cash and other forms of transactions." Id. at page 7 (emphasis
added). Thus, they have only provided conjecture, not evidence, that
these were, in fact, sales or that they were at arm's-length. In
addition, with respect to volume, Alberta asserts that "the Alberta
numerator should be decreased by a substantial amount, e.g., at least
1,724,826 cubic meters of log volume, to account for arm's-length
transactions during the POR." Again, Alberta has failed to establish
the basis for this claim. Id. at page 7 (emphasis added). In
particular, Alberta's figures include logs from both Crown and private
sources. Moreover, Alberta is basing its claim for its 1.5 million
figure on data obtained for calendar year 2002, rather than the POR.
Id.; see also the GOA's November 12 Questionnaire response, Exhibit 69,
"2003 Update" at pages 5-6.
In addition, at verification, the Department obtained information
that further undermines Alberta's claims. In Alberta, the GOA explained
that it is common for sawmills to enter into agreements where a tenure-
holding independent harvester will supply timber to the sawmill but the
sawmill will pay the stumpage directly to the province. We examined
three separate contracts between mills and harvesters of Crown timber
that include this provision, which is known as "delegation of signing
authority" ("submission authority"). We also reviewed the timber
return associated with one of the contracts to confirm that the timber
dues were made by the sawmill directly to the GOA. Under this type of
agreement, the sawmill simply pays the tenure holder for harvesting and
hauling services. In such cases, there is not an arm's length log
sale--i.e., there is no log sale at all between the sawmill and the
harvester because the sawmill is paying the Crown directly for the
timber. More importantly, any stumpage benefit goes directly to the
sawmill paying the stumpage fee, just as if the sawmill were drawing
from its own tenure and contracting out for harvesting and hauling
services. Accordingly, because the GOA has failed to substantiate its
claim that sawmills purchased Crown logs in arm's-length transactions
during the POR, a pass-through analysis is not warranted.
British Columbia
The Canadian parties and the Government of British Columbia (GBC)
claim that "at least 25.7 percent of logs harvested from Crown lands
and consumed in sawmills were purchased at arm's length during the
POR," of which about 20 percent were logs sold by independent
harvesters and 5.7 percent logs sold by tenure holders with sawmills.
May 24, 2004, at 6; see also BC November 12, 2003, Questionnaire
Response at BC-IV-26. In support of this claim, B.C. provided survey
data on what were purported to be B.C.'s primary sawmills' arm's length
log purchases. See the "Norcon Forestry Ltd. Survey of Primary
Sawmills' Arm's Length Log Purchases in the Province of British
Columbia" at Appendix I of the March 15, 2004, letter from Steptoe &
Johnson, LLP. We have examined the transactions which the Canadian
parties and the GBC claim involved arm's-length sales of logs harvested
from Crown lands during the POR and preliminarily have determined that
these sales were not conducted at arm's-length.
At verification, we learned that these transactions involved sales
of Crown logs through Section 20 small business auction sales which are
administered under the Small Business Forest Enterprise Program (SBFEP)
and sales to mills by small "woodlot" tenureholders. Most of these
transactions are structured under standard contracts called "Log
Purchase Agreements" in which sawmills purchasing the Crown timber are
billed for the Crown stumpage fee directly by the B.C. Ministry of
Forests. See BC Verification Report. Although the terms of these
agreements may vary, most also involve additional payments and services
incurred by the sawmill purchasing the logs, including (1) payments to
a contractor for logging and harvesting the logs; (2) cash advances or
"decking advance" to the small business tenureholder or to the
independent harvesters; and (3) providing equipment to the harvester to
defray harvesting costs. As explained in the Alberta section, above,
where the sawmill, not the tenure-holding harvester, pays the Crown
directly for the stumpage fee of the harvested timber, there is no
arm's-length sale of a log between the sawmill and the harvester. Under
this arrangement, the stumpage benefit goes directly to the sawmill
paying the stumpage fee, just as if the sawmill were drawing from its
own tenure and contracting out for harvesting and hauling services.
Moreover, the debtor/
[[Page 33209]]
creditor relationship and other aspects of the contractual
relationships further call into question whether transactions between
the parties are at arm's-length, even if log sales were to take place.
The log transactions which the GBC claims were at arm's-length also
involve exchanges of logs between tenure holders with sawmills. These
transactions are mostly volume based exchanges that occur because of
domestic processing requirements under B.C. law. Under these
provisions, major B.C. tenure holders may only dispose of unneeded logs
harvested from their own tenure by swapping these with logs with other
major tenure holders. See B.C. Verification Report. The contracts
involving these logs demonstrate that they merely involve log exchanges
necessitated by government restrictions; they are not freely
negotiated, arm's-length sales of logs. Id.
For the reasons explained above, we preliminarily have concluded
that the B.C. has failed to demonstrate that sawmills purchased Crown
logs in arm's-length transactions during the POR. Therefore, a pass-
through analysis is not warranted.
Ontario
The Canadian parties and the Government of Ontario (GOO) claim that
about 42 percent of the total timber harvested from Crown lands during
the POR, approximately 6.5 million cubic meters, was sold by
independent harvesters in arm's-length transactions during the POR. May
24, 2004, letter at 8. They further state that the GOO provided
detailed information at verification showing that the 25 largest
sawmills in Ontario purchased 4,391,798 cubic meters of Crown softwood
logs from unaffiliated tenure holders during the POR. Id. For the
reasons described below, we preliminarily have determined that the
Canadian parties and the GOO have not demonstrated that the volume of
Crown logs sold by independent harvesters or the volume of Crown logs
purchased by sawmills during the POR involved transactions conducted at
arm's-length.
The GOO requires that the tenure holders in the province enter into
a long-term wood supply agreement with a sawmill. This requirement is
reflected in Section 25 of the Crown Forest Sustainability Act. See GOO
November 12, 2003, Questionnaire Response at ON-59 and ON-60. In
addition, sawmills are typically required also to enter into private
agreements with tenure holders as a condition of entering into a formal
Section 25 supply agreement. Id. The GOO also issues so-called
"commitment letters," which outline wood supply commitments with
sawmills that independent harvesters must meet as a condition of
holding the tenure. The record therefore demonstrates that the
relationship between so-called "independent" harvesters and sawmills
is not at "arm's-length." Rather it is governed largely by provincial
mandates to enter into various arrangements with the mills. Moreover,
we have found once again that, similar to Alberta and B.C., contracts
examined at verification demonstrate that the stumpage fees for the
Crown timber are actually paid for by the sawmills and not the
independent harvesters. See GOO Verification Report. The sawmills
simply pay the harvester for harvesting and haulage costs. Again, in
these transactions the stumpage benefit goes directly to the sawmill
paying the stumpage fee and not the tenure holder. As explained above,
under this type of arrangement, there is no arm's-length sale of a log
between the sawmill and the harvester and we therefore preliminarily
have determined that no pass-through analysis is required for the
transactions reported by Ontario.
For the reasons explained above, we preliminarily have concluded
that Ontario has failed to demonstrate that sawmills purchased Crown
logs in arm's-length transactions during the POR. Therefore, a pass-
through analysis is not warranted.
Manitoba and Saskatchewan
The claims by Manitoba and Saskatchewan and the Canadian parties in
the May 24, 2004, letter that "there is definitive record evidence
demonstrating arm's-length transactions" in both provinces during the
POR are, in fact, merely vague and unsubstantiated assertions.
Manitoba asserts that independent "loggers" harvested 61,583.60
cubic meters of softwood timber during the POR, about 9.2 percent of
the total softwood harvest. MB November 12, 2003, Questionnaire
Response at MB-16. However, Manitoba also states that "the province
has no information on these harvesters' affiliations, if any." MB
November 12, 2003, Questionnaire Response at MB-18. As such, we fail to
see how Manitoba can claim that the reported volume of log sales in
fact were arm's-length transactions.
Saskatchewan merely claims that many licensees without a licence to
operate a sawmill harvested Crown timber during the POR. SK November
12, 2003, Questionnaire Response at SK-34. Saskatchewan reports that
"FPP licensees harvesting 173,766.981 m3 of Crown timber during the
period of review did not have a license to operate a sawmill (or other
type of treatment plant) during the period of review." SK November 12,
2003, Questionnaire Response at SK-35. Saskatchewan also provides a
table listing the volume and value of Crown stumpage harvested by FPP
licenses and indicates which licensees were not licensed to operate a
sawmill or other treatment plant. However, this table provides no
information about the harvesters' affiliations with any of the mills
that ultimately purchased the harvesters' logs. SK November 12, 2003,
Questionnaire Response at Exhibit SK-S-3.
For the reasons explained above, we preliminarily have concluded
that Manitoba and Saskatchewan have failed to demonstrate that sawmills
purchased Crown logs in arm's-length transactions during the POR.
Therefore, a pass-through analysis is not warranted.
Denominator
As noted above, the Department is determining the stumpage
subsidies to production of softwood lumber in Canada on an aggregate
basis. The methodology employed to calculate the ad valorem subsidy
rate requires the use of a compatible numerator and denominator. In the
numerator of the calculation, the Department has included only the
benefit from those softwood Crown logs that entered and were processed
by sawmills during the POR (i.e., logs used in the lumber production
process). Accordingly, the denominator used for this calculation
includes only those products that result from the softwood lumber
manufacturing process.
Consistent with the Department's previously established
methodology, we have included the following in the denominator:
softwood lumber, including softwood lumber that undergoes some further
processing (so-called "remanufactured" lumber), softwood co-products
(e.g., wood chips) that resulted from lumber production at sawmills,
and residual products produced by sawmills that were the result of the
softwood lumber manufacturing process, specifically, softwood fuelwood
and untreated softwood ties.
During the course of this administrative review, we repeatedly
sought information regarding the GOC's sales denominator data for each
of the provinces under review. This includes actual shipment values for
the POR for Quebec, Ontario, Alberta and British Columbia (B.C.),
however, despite our requests that data was not provided for
Saskatchewan and Manitoba.
[[Page 33210]]
Specifically, in our September 12, 2003 initial questionnaire, we
requested the GOC to provide, by province, the total f.o.b. value of
all lumber shipments and sales of co-products (such as wood chips and
sawdust) produced during the softwood lumber manufacturing process
during the POR. Further, in that initial questionnaire, we warned the
GOC that failure to cooperate could result in the use of adverse facts
available:
If you do not act to the best of your ability to comply with our
requests for information, we may use information that is adverse to
your interests in conducting our analysis. Our decisions will be
made on the basis of information received during this proceeding
(including information from you), in light of applicable provisions
of U.S. law.\4\
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\4\ In the subsequent supplemental questionnaires issued to the
GOC regarding denominator issues, we instructed the GOC to follow
the filing requirements outlined in the Department's September 12,
2003, initial questionnaire.
In its November 13, 2003, response to the Department's initial
request for softwood lumber and softwood co-product shipment values,
---------------------------------------------------------------------------
the GOC stated:
As in the investigation, many of the provincial totals are
confidential and cannot be disclosed by Statistics Canada. Those
values, indicated by an "X," are not included in the denominator
totals in Attachment A. In limited circumstances, where the
Statistics Canada data are confidential, Canada has used public
Statistics Canada data to derive estimates for shipment values. See
Exhibit GOC-GEN-5, Table 7 (estimates of Saskatchewan POR softwood
lumber shipments and production, and Saskatchewan and Manitoba POR
co-products shipments) * * *
In the case of lumber shipment values for Saskatchewan, the GOC
used data from the underlying investigation to calculate average unit
values that they projected to the POR using softwood lumber price
indices. The GOC, in turn, multiplied the indexed average lumber unit
values by actual POR volume data for Saskatchewan to arrive at an
estimated POR lumber shipment value. In the case of softwood co-product
shipment values for Saskatchewan and Manitoba, the GOC adopted a
similar approach and estimated values for the two provinces using data
from the underlying investigation. See e.g., GOC-GEN-46 of the GOC's
March 15, 2004, submission. In this manner, the GOC derived estimated
POR shipment values for Saskatchewan and Manitoba.
In our February 6, 2004, supplemental questionnaire, we explained
that if confidentiality restrictions prevent the GOC from providing the
data requested, the GOC should contact the official in charge and also
arrange for the affected producers to provide the necessary information
directly to the Department, for release under administrative protective
order, if necessary.
In its March 8, 2004, response, the GOC claimed that actual POR
lumber shipment values, such as those requested for Saskatchewan and
Manitoba, are confidential and cannot be disclosed under Canadian law.
The GOC further stated that the Department's request that STATCAN
contact companies for confidential information would require months,
not weeks, and if the Department wanted Canada to attempt to collect
such data, a lengthy extension would be necessary.
On March 24, 2004, the Department issued another supplemental
questionnaire to the GOC, specifically related to this confidential
data issue for Manitoba and Saskatchewan. In the supplemental
questionnaire, we reiterated our request that the GOC provide the
actual POR softwood lumber shipment and softwood co-product sales data
for Saskatchewan and Manitoba. We further requested the GOC to provide
a clear and specific explanation as to why it considers the actual POR
shipment values of softwood co-products from Saskatchewan and Manitoba
and actual POR shipment values of softwood lumber from Saskatchewan to
be confidential.
In its April 1, 2004, response, the GOC explained that the actual
values for Saskatchewan and Manitoba co-products shipments, and
Saskatchewan POR softwood lumber shipments are confidential because
disclosure of the data could reveal company-specific information. It
stated that, with respect to Saskatchewan and Manitoba, there are very
few producers. For example, it claimed that in Saskatchewan four Forest
Management Agreement licenses (FMA's) operate only five sawmill
establishments and those establishments use almost 93 percent of all
Crown logs harvested in the province. See page 2 of the GOC's April 1,
2004, response and the GOS's November 12, 2003, response at SK-3. The
GOC also claimed that disclosure of the provincial totals could
potentially reveal the individual shipment information for all or some
of the producers in the province, which would be a criminal violation
of the Statistics Act. See page 2 of the GOC's April 1, 2004,
submission.
Regarding Manitoba, the GOC similarly explained that the province
has only four sawmill establishments accounting for 82 percent of all
softwood sawlogs harvested in the province. See page 2 of the GOC's
April 1, 2004, submission; see also the GOM's November 12, 2003,
questionnaire response at MB-3 to MB-4. The GOC also claimed that
disclosure of provincial totals could reveal the individual shipment
information for some or all of those companies, which would be a
criminal violation of the Statistics Act. See the GOC's April 1, 2004,
submission at page 2.
During verification, we discussed with STATCAN, the GOC agency
responsible for supplying the denominator data, its policies concerning
the release of confidential data. According to STATCAN officials, the
release of confidential data is permitted under section 17(2) of the
Confidentiality Act provided that STATCAN obtains written consent from
the individual or company that provided the information. See page 2 of
the June 2, 2004, Memorandum to Eric B. Greynolds, Program Manager,
from Margaret Ward, Import Compliance Specialist, "Verification of the
Questionnaire Responses Submitted by the Government of Canada and
Statistics Canada," (STATCAN Verification Report). STATCAN officials
stated that they have sought discretionary releases in the past. See
Id. at 2, discussing STATCAN's attempt to obtain company-specific data
from Canadian petroleum companies. We asked STATCAN officials whether
they attempted to obtain permission for a discretionary release of the
denominator data we requested. In particular, we asked whether they
sought a discretionary release for the softwood lumber shipment data
for Saskatchewan and the softwood co-product information for
Saskatchewan and Manitoba. The GOC indicated that it made no effort to
seek a waiver of disclosure from any softwood lumber producers,
including those in Saskatchewan and Manitoba, even though that option
was available to the GOC as detailed in the Canadian Statistics Act at
17 (2)(b). See page 2 and Exhibit 2 of the STATCAN Verification Report.
At the same time that it was refusing to provide the denominator
information repeatedly requested by the Department, the GOC, working in
conjunction with STATCAN and Canadian Customs, filed a three volume
submission on March 15, 2004, containing confidential information from
over 45 producers and importers of subject merchandise. During
verification, officials from Canadian Customs described how, in the
course of a ten to fifteen day period, they managed to contact and
receive written consent to disclose confidential information from
approximately 50 companies. See page 4 of the June 2, 2004, Memorandum
to Eric B. Greynolds, Program Manager, from
[[Page 33211]]
Margaret Ward, Import Compliance Specialist, "Verification of the Log
Import Data Submitted by the Government of Canada, Statistics Canada,
and Canada Border Services Agency" (STATCAN and Customs Verification
Report), of which a public version is on file in room B099 of the CRU.
The GOC's March 15, 2004, filing was a voluntary submission filed on
the final day of the new factual deadline purportedly to establish that
log import data from STATCAN and Canadian Customs were inaccurate and,
therefore, unuseable for benchmark purposes.
Furthermore, we note that the GOC released the log import data
included in its March 15, 2004, submission pursuant to Canadian
Customs' disclosure law. The law governing the release of Canadian
Custom's data is similar to the Canadian Statistics Act in that both
allow for the disclosure of confidential information when consent is
received from the person or organization that provided the information.
See section 107(9)(c) of the Canadian Customs Act provided at Log
Import Exhibit 2 of the Log Import Verification report and section
17(2) of the Canadian Statistics Act, which is included in Exhibit 2 of
the STATCAN Verification Report.
Section 776(a) of the Act requires the use of facts available when
necessary information is not available on the record, an interested
party withholds information that has been requested by the Department,
or when an interested party fails to provide the information requested
in a timely manner and in the form required. There can be no doubt but
that the GOC, as the respondent in this aggregate review, is aware that
full and complete lumber shipment value data for each province is
required so that the Department can calculate the denominator. With
respect to the lumber shipment value for Saskatchewan (i.e., lumber
shipments from sawmill establishments), we preliminarily determine that
the GOC, in spite of the Department's explicit and repeated requests,
withheld information requested by the Department. We similarly
determine that, with respect to softwood co-products shipments for
Manitoba and Saskatchewan (i.e., softwood co-products produced during
the softwood lumber manufacturing process by sawmill establishments),
the GOC withheld information requested by the Department. The GOC has
acknowledged that it is withholding the requested information under a
claim of confidentiality and, instead, has provided the Department with
estimates for the shipment values. Consistent with section 776(a) of
the Act, in the absence of the requisite information on the record, we
are resorting to the use of facts otherwise available to determine the
shipment values of these products from Saskatchewan and Manitoba.
Section 776(b) of the Act provides that in selecting from among the
facts available, the Department may use an inference that is adverse to
the interests of a party if it determines that a party has failed to
cooperate to the best of its ability. The Department has found that the
GOC has failed to cooperate to the best of its ability by failing to
make any effort to seek waivers from the small number of affected
companies in Manitoba and Saskatchewan and that an adverse inference is
warranted. The Federal Circuit recently addressed the issue of adverse
facts available in Nippon Steel Corporation v. United States, 337 F.3d
1373, 1379-84 (Fed. Cir. 2003) (Nippon Steel). In interpreting section
776(b) of the Act, the Federal Circuit held that "the statutory
mandate that a respondent act to "the best of its ability" requires
the respondent to do the maximum it is able to do." 337 F.3d at 1382.
As noted above, there can be no doubt but that respondents are
aware that full and accurate lumber value shipment data and co-products
data are necessary for the Department's subsidy calculation. Indeed,
obtaining accurate data to calculate the denominator is central to the
Department's subsidy rate calculation and was an issue throughout the
underlying investigation and the Department's subsequent remand
redetermination.
We base our preliminary finding that the GOC failed to act to the
best of its ability on the fact that the GOC failed to put forth its
maximum efforts to obtain the requested information. Notably, the GOC
expended considerably more effort to obtain information when it
apparently viewed the information as favorable. Specifically, with
respect to the STATCAN import data the GOC was able to contact
approximately 50 firms and obtain confidentiality waivers from a
majority of those firms within a period of ten to fifteen days. Despite
the Department's repeated requests , however, the GOC made no effort to
contact the very small number of companies in Manitoba or Saskatchewan
to seek similar waivers. See page 2 of the STATCAN Verification Report.
Given the GOC's apparent ability to contact and obtain confidential
import data from so many individual companies in such a short time
frame, we reject the GOC's assertion that the Department's request for
STATCAN to contact a limited number of companies for permission to
release an aggregate value for confidential lumber and co-product
shipment information was unreasonable because it would require months,
not weeks, to collect such data, as well as a lengthy extension of any
outstanding questionnaire responses.\5\ The GOC's failure to make any
effort to seek such waivers evidences its failure to put forth its
maximum effort to obtain the requested information when juxtaposed with
its effort to obtain waivers to submit confidential import data to the
Department, i.e., information that it deemed helpful to itself. Given
the similarities in the confidentiality provisions of the Canadian
Customs' disclosure law and the Canadian Statistics Act both of which
permit the GOC to seek waivers permitting disclosure of confidential
information, we reject the GOC's claim that the Canadian Statistics Act
prohibited in all instances the release of the shipment value data
requested by the Department. We therefore conclude that the GOC could
have sought, at the very least, a confidentiality waiver from the major
sawmills in the two provinces without undertaking any undue
administrative burden or requiring any lengthy extension to respond to
the Department's questionnaires. Moreover, during verification, we
asked GOC officials to specify their rationale for labeling as
confidential the lumber shipment data from Saskatchewan and the lumber
and co-product shipment information from Manitoba (e.g., whether the
release of aggregate figures would effectively identify a dominant
producer's production levels in a given province). They failed to
provide a rationale, claiming that the rationale was itself
confidential. See page 2 and 3 of the STATCAN Verification Report.
---------------------------------------------------------------------------
\5\ Our initial request for the shipment values was made in our
September 12, 2003, initial questionnaire and was reiterated
repeatedly until the issuance of our March 24, 2004, questionnaire.
Thus, the GOC had considerably more time to gather the actual POR
shipment data, particularly the lumber and co-product shipment data
for Saskatchewan and Manitoba, than the 10 to 15 day period it spent
soliciting and collecting the company-specific log import data
included in its March 15, 2004, voluntary filing.
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When employing an adverse inference in an administrative review,
the statute indicates that the Department may rely upon information
derived from (1) a final determination in a countervailing duty or an
antidumping investigation; (2) any previous administrative review, new
shipper review, expedited antidumping review, section 753 review, or
section 762 review; or (3) any other information placed on the record.
See section 776(b) of the Act; 19 CFR 351.308(c).
[[Page 33212]]
As adverse facts available, we have relied upon information
supplied by the GOC in its questionnaire responses. To determine the
POR lumber shipment value for Saskatchewan, we are using the softwood
lumber unit price for Manitoba during the POR. This is the lowest unit
price reported in the Prairie Provinces \6\ during the POR. See GOC-
GEN-36 Table 7. We multiplied Manitoba's POR softwood lumber unit
price, 137.52 C$/cubic meter, by Saskatchewan's actual POR lumber
shipment volume, as found in Exhibit 45 Table 2 of the GOC's March 15,
2004, submission, to arrive at a POR softwood lumber shipment value for
Saskatchewan of C$141,233,040.\7\
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\6\ The Prairie Provinces are defined as Alberta, Manitoba, and
Saskatchewan.
\7\ During verification, STATCAN officials presented a packet
containing the minor corrections they found in the course of
preparing for verification. Officials explained that they discovered
that the softwood lumber production and shipment volume information
originally reported in Exhibit 45, table 2 of the GOC's March 15,
2004, submission contained confidential data regarding Saskatchewan,
Prince Edward Island, and the Yukon Territories. STATCAN submitted a
corrected version of the submission in which it redacted the volume
information for the territory and provinces. See Exhibit 1 of the
STATCAN Verification Report. We note that, prior to verification,
the volume figures in question were already in the public domain, as
the GOC had included the figures as part of a submission that was
placed on the public file of the Central Records Unit and served to
all interested parties on the public service list by the GOC.
---------------------------------------------------------------------------
To determine the Saskatchewan POR co-products value, we are using
the 2001 ASM proportion of softwood co-products to softwood lumber
value, 10.28 percent. We note that the 10.28 percent reported for
Saskatchewan represents the lowest ratio calculated for any of the
provinces. We then applied this softwood co-product unit ratio to the
revised POR softwood lumber shipment value for Saskatchewan,
C$141,233,040, to arrive at a POR co-products value for Saskatchewan of
C$14,518,756.51.
Similarly, to determine the Manitoba POR co-products value, we are
using the 2001 ASM proportion of softwood co-products to softwood
lumber value from Saskatchewan, 10.28 percent. We then multiplied the
softwood co-product unit ratio by softwood lumber shipment value for
Manitoba, C$95,883,000, to arrive at a POR co-products shipment value
for Manitoba of C$9,856,772.4. We have found the use of Saskatchewan's
2001 ASM proportion of softwood co-products to softwood lumber value to
be reasonable, given that Manitoba is a neighboring province of
Saskatchewan.
The GOC has also requested that the Department include shakes and
shingles in the denominator as residual products. The Department would
have included softwood shakes and shingles in the denominator, given
that they appear to have resulted from the softwood lumber
manufacturing process, however, at verification, we learned from GOC
officials that shakes and shingles are often treated with chemicals.
See page 9 of the STATCAN Verification Report in which officials
indicate that shakes and shingles are commonly chemically treated.
Although untreated shakes and shingles result from the softwood
manufacturing process, chemically treated shakes and shingles do not.
At verification we learned that the GOC submitted shake and shingle
data at the 5-digit level, in which the data consisted of a single sub-
heading that contained both treated and untreated shakes and shingles.
Thus, the manner in which the GOC presented the shakes and shingles
data left no way of separating the chemically treated shakes and
shingles values from those that were untreated. See Id. at page 9 where
we confirmed that the ASM questionnaire from which the GOC derived the
shake and shingle data does not solicit information for the category
beyond the 5-digit level, making it impossible to run data queries that
would separate chemically treated and untreated shakes and shingles. As
we have no way separately to determine the values of treated and
untreated shakes and shingles in the residual products category, the
Department has not included any shakes and shingles products in the
denominator of the subsidy rate calculations.
In this review, the GOC argues that the denominator used by the
Department should be expanded to include "other softwood products"
produced by non-sawmill wood product producers using inputs obtained
from sawmills. As explained above, the Department's denominator
methodology was designed to include only those products that directly
result from the softwood lumber manufacturing process, and not
everything that simply uses lumber as an input. We have determined that
the products listed by the GOC in the "other softwood products"
category should not be included in the denominator because the products
are outputs of non-sawmill wood product manufacturers that may use
lumber as an input, but are not the direct result of the softwood
lumber manufacturing process. Inclusion of such products is
inappropriate because it is inconsistent with the methodology used to
calculate the numerator. As noted above, allocation of the total
subsidy requires that the numerator and denominator be calculated on a
consistent basis.
Concerning softwood co-products produced by non-sawmill
establishments, we would have included in the denominator those
softwood co-products produced by lumber remanufacturers that resulted
from the softwood lumber manufacturing process. However, the GOC failed
to separate softwood co-products that resulted from the softwood lumber
manufacturing process of lumber remanufacturers from those resulting
from the myriad of other production processes performed by
establishments in the non-sawmill category that have nothing to do with
the production of subject merchandise. Lacking the information
necessary to determine the value of softwood co-products that resulted
from the softwood lumber manufacturing process produced by lumber
remanufacturers during the softwood lumber manufacturing process, we
have preliminarily determined not to include any softwood co-product
values from the non-sawmill category.
Analysis of Programs
I. Programs Preliminarily Determined To Confer Subsidies
A. Provincial Stumpage Programs
In Canada, the vast majority of standing timber that is sold
originates from lands owned by the Crown. Each of the reviewed Canadian
provinces, i.e., Alberta, B.C., Manitoba, Ontario, Quebec and
Saskatchewan,\8\ has established programs through which they charge
certain license holders "stumpage" fees for standing timber harvested
from these Crown lands. These programs, the sole purpose of which is to
provide lumber producers with timber, are described in detail in the
province-specific sections of these preliminary results.
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\8\ In this review, we did not examine the stumpage programs
with respect to the Yukon Territory, Northwest Territories, and
timber sold on Federal land because the amount of exports to the
U.S. is insignificant and would have no measurable effect on any
subsidy rate calculated in this review.
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Legal Framework
In accordance with section 771(5) of the Act, to find a
countervailable subsidy, the Department must determine that a
government provided a financial contribution and that a benefit was
thereby conferred, and that the subsidy is specific within the meaning
of section 771(5A) of the Act. As set forth below, no new information
or argument on the record of this review has resulted in a change in
the
[[Page 33213]]
Department's determinations from Lumber IV that the provincial stumpage
programs constitute financial contributions provided by the provincial
governments and that they are specific. However, there is new
information on the record of this review that was not on the record in
the underlying investigation that has resulted in our preliminary
decision to use different benchmarks against which to measure the
adequacy of remuneration, i.e., to measure the benefit conferred.
Financial Contribution and Specificity
In Lumber IV, the Department determined, consistent with section
771(5)(B)(iii) of the Act, that the Canadian provincial stumpage
programs constitute a financial contribution because the provincial
governments are providing a good to lumber producers, and that good is
timber. The Department noted that the ordinary meaning of "goods" is
broad, encompassing all "property or possessions" and "saleable
commodities." See Issues and Decision Memorandum at 29. The Department
found that "nothing in the definition of the term `goods' indicates
that things that occur naturally on land, such as timber, do not
constitute `goods.' " To the contrary, the Department found that the
term specifically includes "* * * growing crops and other identified
things to be severed from real property." Id. The Department further
determined that an examination of the provincial stumpage systems
demonstrated that the sole purpose of the tenures was to provide lumber
producers with timber. Thus, the Department determined that regardless
of whether the provinces are supplying timber or making it available
through a right of access, they are providing timber. See Issues and
Decision Memorandum, at 29-30. No new information has been placed on
the record of this review warranting a change in our finding that the
provincial stumpage programs constitute a financial contribution in the
form of a good, and that the provinces are providing that good, i.e.,
timber, to lumber producers. Consistent with Lumber IV, we continue to
have found that the stumpage programs constitute a financial
contribution provided to lumber producers within the meaning of section
771(5)(B)(iii) of the Act.
In Lumber IV, the Department determined that provincial stumpage
subsidy programs were used by a "limited number of certain
enterprises" and, thus, were specific in accordance with section
771(5A)(D)(iii)(I) of the Act. More particularly, the Department found
that stumpage subsidy programs were used by a single group of
industries, comprised of pulp and paper mills, and the saw mills and
remanufacturers that produce the subject merchandise. Issues and
Decision Memorandum, at 51-52. This is true in each of the reviewed
provinces. No information in the record of this review warrants a
change in this determination and, thus, the Department continues to
have found that the stumpage programs are specific within the meaning
of section 771(5A)(D)(iii)(I) of the Act.
Benefit
Section 771(5)(E)(iv) of the Act and section 351.511(a) of the CVD
Regulations govern the determination of whether a benefit has been
conferred from subsidies involving the provision of a good or service.
Pursuant to section 771(5)(E)(iv) of the Act, a benefit is conferred by
a government when the government provides a good or service for less
than adequate remuneration. Section 771(5)(E) further states that the
adequacy of remuneration
shall be determined in relation to prevailing market conditions for
the good or service being provided * * * in the country which is
subject to the investigation or review. Prevailing market conditions
include price, quality, availability, marketability, transportation,
and other conditions of * * * sale.
Section 351.511(a)(2) of the CVD Regulations sets forth the hierarchy
for selecting a benchmark price to determine whether a government good
or service is provided for less than adequate remuneration. The
hierarchy, in order of preference, is: (1) Market-determined prices
from actual transactions within the country under investigation or
review; (2) world market prices that would be available to purchasers
in the country under investigation; or (3) an assessment of whether the
government price is consistent with market principles.
Under this hierarchy, we must first determine whether there are
actual market-determined prices for timber sales in Canada that can be
used to measure whether the provincial stumpage programs provide timber
for less than adequate remuneration. Such benchmark prices could
include prices stemming from actual transactions between private
parties, actual imports, or, in certain circumstances, actual sales
from competitively run government auctions. See 19 CFR
351.511(a)(2)(i).
The Preamble to the Regulations provides additional guidance on the
use of market-determined prices stemming from actual transactions
within the country. See "Explanation of the Final Rules"
Countervailing Duties, Final Rule, 63 FR 65348, 65377 (November 25,
1998) (the Preamble). For example, the Preamble states that 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. See 63 FR at 65377.
The Preamble also states that "[w]hile we recognize that
government involvement in the marketplace may have some impact on the
price of the good or service in that market, such distortion will
normally be minimal unless the government provider constitutes a
majority or, in certain circumstances, a substantial portion of the
market. Where it is reasonable to conclude that actual transaction
prices are significantly distorted as a result of the government's
involvement in the market, we will resort to the next alternative in
the hierarchy." \9\
---------------------------------------------------------------------------
\9\ Preamble, 63 FR 65377-78 (emphasis added); see also Hot-
Rolled Carbon Steel Flat Products from Thailand, 66 FR 20259.
---------------------------------------------------------------------------
The guidance in the Preamble reflects the fact that, when the
government is the predominant provider of a good or service there is a
likelihood that it can affect private prices for the good or service.
Where the government effectively determines the private prices, a
comparison of the government price and the private prices cannot
capture the full extent of the subsidy benefit. In such a case,
therefore, the private prices cannot serve as an appropriate benchmark.
In Lumber IV, the Department determined that there were no useable
in-country market-determined prices to use to assess the adequacy of
remuneration under tier one of the regulatory hierarchy. See Issues and
Decision Memorandum at 36-40. Hence, the Department resorted to the
second tier in the hierarchy, i.e., world market prices. Under the
second tier, the Department compared Crown stumpage prices to timber
prices in certain United States border states. Id. at 40-45.
For the reasons discussed below, the Department has determined that
there are no private market prices in the provinces under review that
can serve as benchmarks. Unlike the investigation, however, in this
review we have
[[Page 33214]]
additional information on private timber prices in Canada.
Specifically, we have private stumpage prices from New Brunswick and
Nova Scotia (the Maritimes). We preliminarily have determined that
those prices are an appropriate benchmark, consistent with the first
tier of our regulatory hierarchy. Consequently, for the reasons
discussed below, we have used the private Maritimes' timber prices to
measure the benefit conferred on softwood lumber producers from Crown
stumpage programs.\10\
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\10\ In the current review, petitioners allege that a ban on the
export of logs also provides a countervailable benefit. We did not
address this allegation in the underlying investigation, or in this
review, because any benefit provided through an export log ban would
already be included in the calculation of the stumpage benefit based
upon our selected market-based benchmark prices for stumpage. See
the "Provincial Stumpage Programs Determined to Confer Subsidies"
section of the Issues and Decision Memorandum, at page 26, footnote
5.
---------------------------------------------------------------------------
There Are No Useable First-Tier Benchmarks Other Than the Maritimes
In this administrative review Manitoba and Saskatchewan have not
reported prices for private stumpage sales; B.C., Alberta, and Ontario
provided no usable prices for private stumpage sales; Quebec provided
private stumpage prices charged in its province. However, as discussed
in detail below, although the private prices reported in Quebec are
based upon actual transactions in Canada, record evidence demonstrates
that these prices are not suitable for use as a benchmark within the
meaning of section 351.511(a)(2)(i) of the CVD Regulations.
Provinces of Manitoba and Saskatchewan
With respect to Manitoba and Saskatchewan, there is no province-
specific data upon which to base a first tier benchmark arising from
those provinces.
Province of British Columbia
As noted above, B.C. did not provide private stumpage prices for
the record of this proceeding. Instead, the Province provided prices
from auctions the government administers under the Small Business
Forest Enterprise Program (SBFEP). The Preamble to the CVD Regulations
notes that actual sales prices from government-run competitive bidding
would be appropriate 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 Preamble at 65377. The SBFEP auction is only open
to small businesses that are registered as small business forest
enterprises.\11\ As noted above, prices from a government auction are
an appropriate benchmark only if the government sells a significant
portion of the good or service through competitive bid procedures that
are open to everyone. In Lumber IV, following the guidelines laid out
in section 351.511 of our regulations, we did not rely on these prices
as we found that they were not competitively run because they were not
open to all bidders.
---------------------------------------------------------------------------
\11\ Timber harvested under section 20 of the SBFEP accounts for
8.7 percent of the total provincial softwood harvest and 8.3 percent
of the provincial Annual Allowable Cut (AAC) during POR.
---------------------------------------------------------------------------
Province of Alberta
The private market prices that the GOA submitted cannot 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 reported in Alberta's Timber Damage Assessment (TDA) 2003 update.
See GOA's November 12, 2003, response at Exhibit AB-S-69. Based on the
evidence on the record, Alberta's private timber market prices are in
fact administratively set and do not reflect market determined prices
as required by the CVD Regulations. Thus, we are unable to use these
transactions as benchmark prices.
The TDA prices proffered by Alberta are guidelines established by
the government for the purpose of determining the compensation due to
tenure holders that have had portions of their allocated public forest
felled due to the infrastructure development activities of energy and
mining companies. To compensate for timber which has been felled as a
result of such activities, the energy and mining companies are required
to pay TDA to the tenure holders. The TDA is administratively set
compensation that does not represent a price paid by a harvester for
standing timber. This timber is not harvested for commercial purposes.
In fact, the trees that are cleared by these energy and mining
companies are often left on the ground where they were cut.
Additionally, energy and mining companies have no means to
negotiate this price, which is administratively set by the GOA, on a
transaction-specific basis,\12\ nor are they in the business of
harvesting trees for use as a raw material in lumber production and
many of these trees are not put to any kind of economic use. See GOA's
November 12, 2003, response at Exhibit AB-S-5 and Alberta Verification
Report at page 18. Thus, we determine that the TDA prices do not
reflect a market price for timber in Alberta.
---------------------------------------------------------------------------
\12\ The damage assessment fee was developed through meetings
between tenure holders, the energy and mining companies, and the
GOA. During these meetings, the timber price (i.e., compensation)
which this damage assessment fee is based on was negotiated by the
parties involved. However, once the system was set in place, no
further negotiations have taken place on the topic of price.
---------------------------------------------------------------------------
Moreover, prices derived from an analysis of Commercial Timber
Permit (CTP) and Timber Quota Certificates (CTQ) prices cannot serve as
benchmark prices. Here, the CTP and CTQ benchmark prices are not prices
between private parties, but are prices for Crown timber
administratively set by the GOA. We verified that most CTPs are sold
directly by the government to a small select group of operators or
local loggers rather than through open auctions to any potential buyer.
Id., at page 2. Thus, the price of CTPs reflect no real competition for
the right to harvest timber. Although CTQs, which also confer the right
to harvest, are sold by auction, the actual stumpage fee levied on the
harvested timber is set through adherence to the Timber Management
Regulations (TMR). In addition, the GOA has acknowledged that it has
not allocated any quotas on a competitive basis since October 1995. See
GOA's November 12, 2003, response, Volume 4, Table 25, at Exhibit AB-S-
50. Thus, neither CTPs or CTQs are market-based.
Based on all of this information, we reject private market prices
in Alberta for use as a benchmark in the preliminary results for this
administrative review. Our decision not to use private prices in
Alberta is guided by the Preamble, our regulations, and a reasonable
analysis of the facts on the record.
Province of Ontario
In its November 12, 2003, submission, Ontario provided a survey of
private prices prepared by Demers Gobeil Mercier & Accocies Inc. (DGM).
This pricing data was prepared for the sole purpose of responding to
the Department's questionnaire in this administrative review which
highlights the need to verify the reliability of the data. Moreover, in
Ontario, the private market constitutes only 7 percent of the overall
harvest, with Crown timber accounting for the remaining 93 percent of
the harvest. Where the government dominates the market for a good it is
likely that the government's prices can
[[Page 33215]]
affect private prices for those goods. For these reasons, it is
important for the Department to examine closely whether the private
prices submitted by the province are, in fact, market-determined prices
in accordance with the CVD Regulations. Examining potential benchmark
prices, the Department attempts to ensure the reliability of such
information including the independence of the data and the methodology
used to compile it.
At verification, we attempted to examine the survey methodology,
including the pool and nature of the survey respondents. Ontario,
however, was unable to provide certain underlying data requested by the
Department that goes directly to the independence and reliability of
the survey. See Ontario Verification Report at page 10. Because the
Department was unable to verify the private pricing data to determine
its reliability and accuracy, the data cannot serve to establish a
market benchmark.
Province of Quebec
Throughout the conduct of this proceeding respondents have argued
that the private provincial standing timber market in Quebec is a
competitive market unaffected by the prices charged on Crown lands and,
therefore, can serve as an appropriate benchmark under the first tier
of the adequate remuneration hierarchy. However, based on the
Department's analysis in this administrative review, we have found that
private prices for standing timber in Quebec are unsuitable for use as
a benchmark because the incentives that tenure holders face vis-a-vis
the private market are distorted by a combination of the Government of
Quebec's (GOQ's) administered stumpage system, the relative size of
public and private markets, feed back effects between the private and
public markets, and a non-binding annual allowable cut (AAC).
In this administrative review, the GOQ reported that there were 818
mills (i.e., 78.5 percent of the mills in Quebec) in the "exclusively
private" category during the POR.\13\ In isolation, this statistic
seems significant; however, as discussed in detail below, there are two
related facts that limit its significance. First, sawmills without
access to Crown timber account for a small volume of the total harvest
from private forests. Second, sawmills with access to Crown timber also
dominate the private market.
---------------------------------------------------------------------------
\13\ See Quebec Private Price Documentation Memo illustrating
the data worksheets used to derive these ratios.
---------------------------------------------------------------------------
Sawmills Without Access to Crown Timber Account for Small Harvest
Volume in the Private Forest
The 818 mills that source exclusively from private lands accounted
for only 13.87 percent of the total softwood stumpage sourced from
private wood lots and 1.73 percent of the total softwood processed
during the POR. Although there are a large number of mills in this
category, these mills process relatively minuscule volumes and make up
a limited percentage of the total softwood lumber market in Quebec. On
an individual mill basis, each of the 818 mills, on average, sourced
only 705.5 cubic meters (M\3\) of softwood stumpage from private
forests during the POR. Therefore, on average, each of the 818 mills
from the "exclusively private" category accounted for only 0.50
percent of the total average softwood stumpage harvested by a single
mill in the "exclusively public" category (i.e., 140,370 M\3\) during
the POR.
Sawmills With Access to Crown Timber Dominate the Private Market
Apart from the 818 mills, there are 172 mills that source stumpage
from public, private, and "other" sources.\14\ These 172 mills have
tenure and harvest from provincial Crown lands, but they also source a
portion of their stumpage from private, federal, and "other" lands.
These 172 mills sourced 86.13 percent of the total private stumpage
harvested in Quebec during the POR. Therefore, 86.13 percent of the
total private stumpage harvested in Quebec during the POR was sourced
by mills that also source stumpage from public and/or "other"
sources.
---------------------------------------------------------------------------
\14\ These 172 mills come from two different categories: (1) 94
mills that source stumpage from public and private forests in
Quebec; and (2) 78 mills that source stumpage from public, private,
and "other" forests. "Other" equals sourcing from provinces
outside of Qu[eacute]bec. See Exhibit 119 for further discussion.
---------------------------------------------------------------------------
At the same time, the 94 mills from the "public/private" category
and the 78 mills from the "public/private/other" category, obtained
only a small percentage of their total harvest during the POR from
private lands. Specifically, the 94 mills from the "public/private"
category harvested 87.78 percent of their stumpage from public sources
and 11.70 percent of their stumpage from private sources. The 78 mills
from the "public/private/other" category harvested 42.55 percent of
their stumpage from public sources, 39.10 percent of their stumpage
from "other" sources, and 18.35 percent of their stumpage from
private sources. Thus, the remaining 172 mills in Quebec's private
stumpage market made up the majority of the private stumpage purchases
during the POR (i.e., 86.13 percent), but, more importantly, these
purchases of private stumpage represent less than 19 percent of their
total stumpage sourcing during the POR. The data, therefore, indicate
that the public stumpage market is a much more important sourcing
component of mills in the "public/private" and "public/private/
other" categories, and, not surprisingly, the market on which these
mills focus the majority of their interests and operations.
The ratios above indicate that, on a sawmill-specific basis, the
mills in the "public/private" and "public/private/other" categories
even though they source only a small percentage of their total harvest
from the private market, that they dominate this market. This dominance
is pronounced when analyzed on both a corporate and a regional basis.
At a corporate level, we obtained information from the GOQ
regarding the volume of logs that each sawmill in Quebec is authorized
to consume.\15\ Next, using information obtained from the GOQ, we
grouped the sawmills according to their corporate parent. We found that
the GOQ has authorized six corporations, Compagnie Abitibi-Consolidated
du Canada (Abitibi), Tembec Industries Inc. (Tembec), Domtar Inc.
(Domtar), Kruger Inc. (Kruger), Bowater Produits forestiers du Canada
Inc. (Bowater), and Uniforet Scierie-Pate Inc. (Uniforet), to consume
approximately 60 percent of all standing timber in Quebec in 2002. All
of these corporations operate tenure holding sawmills, many of which
are in the "public/private" and "public/private/other" categories.
Further, five out of six of these corporations operate at least one of
the ten largest sawmills that were authorized to process standing
timber from public and private lands. See, e.g.,
[[Page 33216]]
GOQ's November 12, 2003 response at Exhibit 48.
---------------------------------------------------------------------------
\15\ As explained above, we requested actual consumption volume
data for each of the mills that source stumpage exclusively from the
private forest, but the GOQ claimed it was not able to provide data
for every mill. Instead, the GOQ provided the largest mills from
each of the four sourcing categories. However we also have actual
consumption data on those sawmills sourcing from public and private
forests. See GOQ's November 12, 2003, response at Exhibit 102
(Exhibit 102). Therefore, in sections of these preliminary results,
we are either using authorized consumption as a proxy for each
sawmill/corporation's or its actual consumption during the POR if
the data was included in Exhibit 102. For purposes of illustrating
the dominant role certain sawmills/corporations play in Quebec, we
find that the use of authorized consumption data, where necessary,
is a conservative proxy.
---------------------------------------------------------------------------
At the regional level, even the limited information the GOQ
provided concerning actual consumption by individual sawmills indicates
that within each administrative region, the majority of private
stumpage is processed by one to four tenure holding corporations. For
example, in region 2, Abitibi harvests more private standing timber
than all of the top five sawmills from the "exclusively private"
category combined. See also, Exhibit 102 and 171 of the GOQ's
questionnaire responses and Quebec Private Price Documentation Memo.
The Feed Back Affect
As we have explained in our description of the GOQ's administered
stumpage system, the GOQ's parity technique \16\ is a partial function
of the prices paid by private forest contractors for standing timber on
private lands within the province. Under this system, the MRNFP
conducts surveys regarding the private prices paid by these forest
contractors to derive what it refers to as the Market Value of Standing
Timber (MVST) in the private forest. The GOQ then plugs the MVST into
the parity technique formula to determine the stumpage price for
softwood harvested on Crown lands. Thus, under this arrangement, the
lower the price paid for private stumpage in Qu[eacute]bec by the
forest contractors, the lower the rate charged for public stumpage.
---------------------------------------------------------------------------
\16\ The parity technique system is the process by which the
Ministere des Ressources naturelles de la Faune et des Parcs (MRNFP)
determines what it will charge for stumpage harvested on
Qu[eacute]bec's Crown lands--See the Department's June 2, 2004,
Quebec Verification Report (Quebec Verification Report) at p. 4.
---------------------------------------------------------------------------
According to the GOQ, the private forest contractors included in
the MVST survey are individuals that harvest and take title of private
standing timber.\17\ GOQ officials further stated that the forest
contractors do not necessarily own sawmills. At verification we found
that any prices directly paid for private stumpage by tenure holding
sawmills are not captured in the MVST survey and are therefore not
included in the parity system directly.
---------------------------------------------------------------------------
\17\ See Quebec Verification Report at p. 5-6.
---------------------------------------------------------------------------
Although not directly included in MVST survey data, the GOQ's
administered pricing system does have a significant impact on the
private market. The survey data is based on the prices that private
forest contractors pay to the landowners, which, in turn, reflect the
price that the contractors' customers are willing to pay. Because of
the dominant role that tenure holders in Quebec play in harvesting
timber on private lands, it is reasonable to conclude that tenure
holders exert a disproportionate influence on the price that
contractors pay land owners. This conclusion is consistent with
statements on the record from private wood-lot owners protesting the
GOQ's administration of the public forests. In statements made by the
Federation of Wood Producers of Qu[eacute]bec (FPBQ), an association of
private forest landowners in Quebec, in a presentation before Quebec's
National Assembly, the FPBQ criticized many aspects of the GOQ's
stumpage technique and its negative impact on private land owners that
sell standing timber. Among the FPBQ's complaints was the manner in
which the GOQ conducted its survey of private prices. In addition to
complaining about the sample size used in the survey, the FPBQ urged
the GOQ to include other forms of transactions in the survey, such as
"significant volumes of timber auctioned on public land."\18\
Regarding its call for public auctions, the FPBQ stated that it:
---------------------------------------------------------------------------
\18\ See Quebec Verification Report at Exhibit 16, p. 163.
* * * will make it possible to reduce a prejudice caused by the
current system to private forest producers. Indeed, the forest
industry has an interest in maintaining a low value of standing
trees in private forests, as the determination of this value
---------------------------------------------------------------------------
provides the basis for calculating forest user fees.
Thus, as pointed out by the FPBQ, the market dominance of the small
number of tenure corporations in the "public/private" and "public/
private/other" categories ultimately has an indirect effect on the
prices charged in the public forest.\19\ What the FPBQ's petition
highlights is the fact that, from the private timber market's
perspective, the MRNFP's system for administering the public forests
adversely affects its ability to do business. The Crown presence in the
market negatively impacts the price at which private wood-lot owners
can expect to sell their stumpage and the White Paper is their attempt
to address and mitigate these issues. It also illustrates the non-
market driven priorities which the GOQ's system propagates. In
particular, it is interesting to note that one of the members of the
commission actually directly states that without the GOQ's
intervention, the northern mills' commercial existence would be in
jeopardy. The GOQ's system for administering the public forests places
a high priority on its typical concerns of job creation, retention of
communities, etc. rather than letting the market determine what forest
resources in the province are commercially viable. Thus, the GOQ's
administered pricing system effectively determines the market price for
private standing timber.
---------------------------------------------------------------------------
\19\ The evidence, which supports the argument that the GOQ's
administration of the public forests negatively affect those who
work in Quebec's private stumpage markets due to the MRNFP's system
for administering the stumpage programs on Crown lands, includes
excerpts from a transcript of a meeting that took place before the
Commission Permanente de L'economie et de Travail (the Commission)
in the National Assembly of Quebec on September 2000. This
transcript records the parliamentary proceeding between the FPBQ and
the Commission. Specifically, representatives of the FPBQ were
presenting an August 2000, Brief on Bill 136, and Act amending the
Forest Act and other legislative provisions (i.e., White Paper--see
Quebec Verification Report at Exhibit 16, pages 8-45 and 158-193).
The proceedings and White Paper are the result of petitions which
were circulated among those who are part of the private forests in
Quebec and had nearly 5,000 signatures. The petitions indicated that
there were complaints regarding the concept of residual supply
limits, the parity technique, mill to market adjustments, the access
that private forest owners have to their markets, etc. While one of
the petitions addressed the concerns of those who deal primarily
with hardwood markets, the other petition did not distinguish
between hard or softwood markets. Moreover, the sections of the
parliamentary proceedings (i.e., hearing transcripts) and the White
Paper on the record focus on the MRNFP's administration of the
public forests, the topic of residual volume, the parity technique,
and mill to market adjustments. These areas of concern are common to
both hardwood and softwood markets. Additionally, with respect to
these broad bureaucratic and government run aspects of the MRNFP's
administration of the public forests there is no difference between
how the MRNFP manages the public's hard and softwood stumpage
markets (i.e., the parity technique uses the same methodology for
both hard- and soft-wood species). Also, a number of the signatories
of the petition are organizations that we know have interests in the
softwood markets (see Quebec Verification Report at Exhibit 16,
pages 3-5).
---------------------------------------------------------------------------
Sawmills With Access to Crown Timber Can Avoid Sourcing in the Private
Forest
Further distorting the incentives that Tenure holders face vis-a-
vis the private timber market is the fact that AAC on public lands is
not binding. Thus, tenure holders do not enter the private market
primarily motivated by the need to secure timber supplies. The AAC is
not binding for the following three reasons:
1. Tenure holders can rollover unused AAC allocation to the next
year;
2. Tenure holders are allowed to exceed their AAC allocation in a
given year; and
3. Tenure holders can shift unused portions of their AAC
allocations to other sawmills within the same corporate family.
Data from the GOQ indicates that tenure holding sawmills, on
average, are allotted more public stumpage than they can process in a
given year. For example, for fiscal years 2000-2001
[[Page 33217]]
through 2002-2003, TSFMAs in Quebec harvested, on a weight-average
basis, 95.95, 87.34, and 92.46 percent, respectively, of the stumpage
allotted under the tenure agreements. This trend is also reflected at
the mill level. During verification, we collected information
concerning specific mills consumption from public, private, and other
sources of supply. The information we reviewed indicated that there
were several years in which mills did not process all of the Crown
stumpage they were allocated. See, e.g., Quebec Verification Report at
Exhibit 20, pages 10, 40, 48, 54, and 84.\20\
---------------------------------------------------------------------------
\20\ The details concerning these exhibits contain business
proprietary information.
---------------------------------------------------------------------------
The softwood stumpage volume that is assigned to mills in the
"public/private" and "public/private/other" categories is not
sequential nor is it mandatory. This means that these mills are not
required by law to purchase stumpage from the private market at any
time during the year. In reality, the system relies on the theory that
the MRNFP will be able to accurately estimate a mill's actual needs,
production capacity, and business strategy for purposes of estimating a
mill's residual volume (i.e., AAC). Thus, hypothetically, if the MRNFP
estimates correctly and a mill chooses to only use its public stumpage
allocation (i.e., residual volume/AAC) for a particular year, the mill
will not have enough stumpage supply to meet its production needs for
the year and will have to shut down once it had used up its public
stumpage supply.
Record evidence indicates that even if the MRNFP were to correctly
estimate a company's allocated tenure/AAC in a given year, there are
aspects of Quebec's tenure system that lessens a mill's need to harvest
from private lands. For example, during verification GOQ officials
stated that if an individual mill did not use all of its allocated
tenure in a given year it could "rollover" any unused volume to the
next year (see Quebec Verification Report). Moreover, if a corporate
family of mills did not use up or wanted to shift the annual amount of
residual volume/AAC allocated to them for a given year or any other
period of time, the mills have the ability to "roll-over" any unused
public stumpage for use during the next year or, if applicable, assign
it to another mill within its corporate family should they choose to do
so (see Quebec Verification Report). During verification, we reviewed
documents which showed that sawmills within the same corporation could
and did shift unused tenure allocation amounts to mills with large
production capacities that were in need of additional standing timber.
See, e.g., see verification exhibit 20 at pages 34A, 68A, 69A, 70A,
72A, 73A, 74A, 77A, and 79A).
Another important factor to consider with regard to the MRNFP's
system for allocating AAC is the fact that a mill with tenure can
request revisions to its allocated volume based on numerous factors
that could arise between the regular 5 year review periods. Based on
the statements of GOQ officials and documents we collected during
verification, the MRNFP's non-periodic review of a mill's residual
volume often involves a mill's request for increasing its residual
volume (see Quebec Verification Report). An example of the type of
change that the MRNFP would consider include a mill's addition of more,
improved, or new technology, additional shifts, etc. This change,
according to GOQ officials, is typically effected through
correspondence between the MRNFP and the mill management (see Quebec
Verification Report at Verification Exhibit 20, pages 59A, 61A, 68A,
69A, 70A, 72A, 73A 76A, 77A and 79A). While a number of the documents
included in verification exhibit 20 discuss tenure allocation amounts
on a corporate level, they all illustrate the MRNFP's ability to adjust
residual volume allocations when requests and/or evidence is provided
to effect these changes. Thus, if a mill is able to present the
appropriate argument, it will be able to persuade the MRNFP to change
to its AAC allocation prior to the typical allocation review period
which occurs every 5 years.
Benchmark Characteristics and Price Setting in a Normal Functioning
Market
A true benchmark price for stumpage should reflect bidding by
sawmills that are motivated primarily by the need to secure long-term
timber supplies. When this is the case, sawmills have an incentive to
bid up prices to competitive levels. However, given the timber market
structure and pricing situation in Quebec described above, tenure
holders with sawmills have no such incentive. The desire to secure
timber suppliers is not what primarily motivates them to bid on private
timber because they have access to more timber than they want on public
lands. In fact, because of the GOQ's administration of the parity
technique system and the indirect market feed-back effect described
above, bidding up the price for private timber actually hurts tenure
holders by increasing the price they pay for timber on public lands,
timber that accounts for the vast majority of their total input and
therefore of their total timber costs. As we stated above, the 172
mills from the "public/private" and the "public/private/other"
categories in Qu[eacute]bec's private stumpage market made up the
majority of the private stumpage purchases during the POR (i.e., 86.13
percent), but, more importantly, these purchases of private stumpage
represent less than 19 percent of their total stumpage sourcing during
the POR. Therefore, tenure holders not only have no incentive to bid up
prices for timber on private lands, the GOQ has given them a clear
incentive to bid down those prices to reduce the price they pay for
timber on public lands. This incentive structure, which results from a
combination of the GOQ's administration of the parity technique system,
the relative size of public and private timber markets, the non-binding
AAC, and the pricing formula used to calculate stumpage for provincial
timber, undermines the private market price as a benchmark.
We must emphasize that our conclusion is independent of the
relative price of public and private timber. In the POR, the private
price happened to be slightly higher than the public price, which could
mean that tenure holders bid down prices to the reservation levels of
timber stand owners. But downward price pressure on private timber
prices could also force them below prices on public lands. In any
event, a combination of the indirect market feed-back effect and the
relative size of the public and private timber markets combine to
create a strong incentive for tenure holders to bid down private timber
prices as far as they can, and where public and private timber prices
end up relative to each other is not material. The strong inter-
relationship between the government and private prices, with the
government pricing system creating downward pressure on private prices,
makes the private prices an inappropriate benchmark because they would
not capture the full amount of any benefit from the Crown stumpage
system.
Based on all of this information, we preliminarily have found that
prices of private standing timber are effectively determined by the
Crown prices and are not suitable for use as benchmarks in determining
whether the GOQ sells Crown stumpage for less than adequate
remuneration.
Private Stumpage Prices in New Brunswick and Nova Scotia
Private stumpage prices for New Brunswick and Nova Scotia
(together, the Maritimes) were submitted on the record of this review
by the Government of New Brunswick and petitioners,
[[Page 33218]]
respectively. These prices are contained in separate price surveys
prepared by AGFOR, Inc. Consulting for each of the Maritimes'
governments. See Exhibit 2 New Brunswick's February 28, 2004,
submission (New Brunswick Report) and Exhibit 135, Volume 8 of
petitioners' March 5, 2004, submission (Nova Scotia Report).
Private prices from the Maritime Provinces were not on the record
during the investigation. Therefore, these prices were not considered
by the Department in assessing the adequacy of remuneration from the
provincial stumpage programs in that segment of the proceeding. See
Issues and Decision Memorandum at 38-39. Because private price data for
the Maritimes are on the record of this administrative review, we have
closely examined these prices to determine whether they constitute
market-determined in-country prices under the first tier of our
adequate remuneration hierarchy. See section 351.511(a)(2)(i) of the
CVD Regulations.
Determination of Whether Maritimes' Prices are Market-Determined Prices
In determining whether the Maritimes' price data are usable in our
benefit analysis, we examined the price data reports that contained
these prices. As an initial matter, these reports were prepared by
AGFOR Inc. Consulting on behalf of the Maritimes' governments to
establish the bases for their administered stumpage rates and not to
respond to any allegations raised in this proceeding. Record evidence
indicates that in establishing their Crown stumpage rates, the
Maritimes consider the prevailing prices for stumpage in the private
market and the calculations for the Crown stumpage rates are thus
directly linked to actual market-based transactions in the private
market. This private supply constitutes a significant portion of the
overall market in the Maritimes, accounting for 49.7 percent of the
total harvest in New Brunswick and over 91 percent in Nova Scotia. See
New Brunswick questionnaire response, NB Volume 1 at page 4. See also,
Nova Scotia supplemental questionnaire response dated April 5, 2004, at
page 4.
The New Brunswick Report contains price data for the period July 1,
2002, to November 30, 2002, which coincides with the period covered by
this review. While the Nova Scotia Report contains price data from
1999, we preliminarily determine that this data can be indexed to the
POR using a lumber-specific index reported for the Atlantic Region by
Statistics Canada. See Benchmark Calculation Memorandum dated June 2,
2004, at page 2. Moreover, the survey data appear to be representative
of the private timber markets in the respective provinces. Both
provinces require that Crown stumpage rates be based on the "fair
market value" of standing timber, which is determined by a survey of
agreements reflecting stumpage prices on private forest lands. A new
survey is conducted every five years, and in each of the intervening
years the price survey data is adjusted using forest products
industrial indices. The consultants that collected the prices in these
provinces conducted a wide range of interviews with organizations and
individuals with direct and indirect involvement with the forest sector
to ensure broad coverage of the entire province. For the Nova Scotia
Report, this included interviews with contractors, landowners, group
ventures, and mills with and without Crown tenure allocations. In
addition, the consultants held meetings with the Regional and
Provincial Nova Scotia Department of Natural Resources to gain a broad
perspective of the stumpage situation in the province. The data
contained in the New Brunswick Report--"Assessment of Market Stumpage
Values on Private Lands"--was also collected by consultant interviews
as well as a review of stumpage sale agreements. See New Brunswick
Report. In particular, data is collected from each of the forest
products marketing boards in the province, as well as individual
contractors and woodlot owners. Nothing contained in either the Nova
Scotia or New Brunswick Reports indicates that the private price data
survey were not representative of those prices within the respective
provinces, or that the data do not reflect private, market-determined
prices.\21\
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\21\ Information on the record indicates that the Nova Scotia
and New Brunswick Reports stand in sharp contrast to the DGM Survey
submitted by Ontario. As discussed above, the DGM Survey was
prepared solely for the purpose of this proceeding, could not be
verified, and does not reflect market-determined prices in Ontario.
See the section above, discussing Ontario's private prices.
---------------------------------------------------------------------------
Petitioners claim that the private stumpage prices in the Maritimes
are not suitable benchmark prices to assess the adequacy of
remuneration from the provincial stumpage programs examined in this
administrative review. See petitioners' March 15, 2004, submission.
First, petitioners argue that because the price data contained in the
Nova Scotia Report are from 1999, which is not contemporaneous with the
POR, they cannot be used to measure the benefit from the provincial
stumpage programs. Petitioners also argue that the prices contained in
the New Brunswick Report are not market-determined prices, because,
similar to the situation in Quebec, these prices are tied to, and
distorted by public timber sales in that province. Finally, petitioners
assert that log export restraints operate to suppress log prices in the
Maritime Provinces. For the reasons detailed below, we disagree with
each of petitioners' arguments.
With respect to the Nova Scotia price data, we have already noted
above that this data can be indexed to the POR. When comparing data
from different periods, the Department often has had to index data, and
we have preliminarily determined that it is appropriate to do so here.
Petitioner advances no other bases for objecting to the private prices
in Nova Scotia.
Second, petitioners' argument that the private prices contained in
the New Brunswick Report are not market-determined prices because they
are distorted by public timber sales is based on mere assertions and is
not substantiated by record evidence. Petitioners assert that the Crown
lands constitute the majority of forest tenures in New Brunswick and
therefore play a significant role in setting the private timber price.
See petitioners' March 15, 2004, at pages 36-37. Nothing in the record
cited by petitioners supports such a conclusion. First, the forest in
New Brunswick is essentially evenly split between private hands and the
Crown. Thus, unlike the situation in Quebec where 83 percent of the
timber is Crown-owned, the evidence does not indicate that Crown timber
necessarily dominates the market, as petitioners asserts.
The record evidence indicates that the administered stumpage prices
in New Brunswick are based upon private stumpage prices that are
market-determined. See New Brunswick Report. Petitioners argue that a
few large industrial users in New Brunswick, which lease 97.3 percent
of Crown land in New Brunswick, negatively influence private woodlot
owners' ability to charge market prices because they also control about
27 percent of the private timber harvested in the province. Id. at page
37. Although petitioners imply that the situation in the Maritimes is
like that in Quebec, the record does not support such a conclusion. As
discussed above, as a result of certain aspects of the provincial
tenure system in Quebec, the private timber prices are effectively
determined by the government system, and statements by private timber
owners in Quebec support that conclusion. See Quebec Private Prices,
above. The facts concerning the Maritimes differ in key respects from
those in Quebec and there is no evidence to support petitioners'
allegations. Based on the record facts,
[[Page 33219]]
therefore, we find petitioners' assertions do not provide a sufficient
basis to reject private prices in the Maritimes as a benchmark.
With respect to petitioners' log export allegations, they have not
specified any log export restraints on Maritimes' log sales nor is
there any record evidence that would support such an allegation.
For the reasons described above, we preliminarily determine that
the Maritimes' private prices are market-determined prices in Canada,
and are therefore usable under the first tier of our adequate
remuneration hierarchy. 19 CFR 351.511(a)(2)(i).
Application of Maritimes Prices
Having preliminarily found that these prices are in-country,
market-determined prices, we next considered how to apply these prices
in our benefit calculations. As an initial matter, we noted that
harvesters of private timber in Nova Scotia are required to pay C$3.00
per m3 into a Forest Sustainability Fund. Therefore, we added this cost
to the indexed stumpage prices to obtain the average stumpage price for
SPF sawlogs from Nova Scotia. See June 2, 2004, Memorandum to The File
through James Terpstra, Program Manager, concerning Benchmark
Calculation Memorandum (Benchmark Calculation Memorandum).
Alberta, Manitoba, Ontario, Quebec, and Saskatchewan
The Nova Scotia and New Brunswick Reports contain prices for the
general timber species category of eastern SPF.\22\ The species
included in eastern SPF are also the primary and most commercially
significant species reported in the SPF groupings for Quebec, Ontario,
Manitoba, Saskatchewan and a portion of Alberta, accounting for over 90
percent of the entire timber harvest across these provinces. \23\
Although there is some minor variation of the relative concentration of
individual species across provinces, these do not affect comparability
for benchmark purposes. The provinces themselves do not generally
differentiate between these species; rather, they tend to group all
eastern SPF species into one category for data collection and pricing,
e.g., Quebec charges one stumpage price for "SPF." For these reasons,
we have preliminarily determined that the Maritimes" prices for
eastern SPF are comparable to Crown stumpage prices for the SPF species
groupings in Quebec, Ontario, Manitoba, Saskatchewan and a portion of
Alberta. Accordingly, in our benefit calculations we have compared
these prices to the Crown stumpage prices in each of the provinces to
determine whether the Crown prices were for less than adequate
remuneration. Where appropriate, we also compared prices of certain
non-SPF species for which price data is available in the Maritimes. The
actual calculations are discussed in the province-specific sections,
below.
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\22\ This category includes, among other species, white spruce,
black spruce, red spruce, jack pine, and balsam fir which represents
the vast majority of the species harvested in the Maritimes.
\23\ 98% for Quebec, 95% for Ontario, 99% for Saskatchewan, 99%
for Manitoba, and 80% for Alberta (see separate discussion of
Alberta western SPF harvest.)
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British Columbia and Western Alberta
With respect to British Columbia and a small portion of western
Alberta, the most important commercial timber species is western SPF,
where it accounts for more than 68 percent of the harvest in B.C. Two
other commercially significant softwood species groups in B.C. are
douglas fir-larch (fir-larch) and hemlock-amabilis fir (hem-fir), which
account for 22 percent of the B.C. harvest.\24\ In assessing the
comparability of these species to those contained in the Maritimes'
Reports, we note that the majority of all Canadian lumber production is
marketed and sold as one generally recognized and commercially
interchangeable product, "SPF". Indeed, in the antidumping duty
investigation on softwood lumber from Canada a major Canadian lumber
company, Abitibi-Consolidated, Inc., told the Department:
\24\ Western SPF generally includes lodgepole pine, subalpine
fir (true fir), and englemann spruce. November 12, 2003, GBC
Questionnaire Response (Exhibit 1). SPF volume data for Alberta is
based on Verification Exhibit GOA-3. Included in these species
categories are pine, spruce, and spruce and pine.
---------------------------------------------------------------------------
While the precise species mix of a stand of SPF timber in say
British Columbia can vary from that in Quebec (different species do
predominate in the different provinces), it is equally true that
species mix may vary in different parts of B.C. and different parts
of Quebec. The point is that because SPF is defined and recognized
as a mix of any of the above-named species, there is no physical
difference between Eastern and Western SPF. A customer ordering SPF
from our Western mills might on one day receive all Alpine Fir, as
might a customer from our Eastern mills. The next day, the same
customer in the West might get a mix of red spruce and lodgepole
pine, while in the East it might be alpine fir and jack pine. The
precise mix will always vary, both in the East and in the West since
SPF is sold as a combination of species.\25\
\25\ Letter from Arnold & Porter LLP to Department of Commerce,
No. A-122-838, B-8 (July 23, 2001), app. to Letter from Dewey
Ballantine LLP to Department of Commerce, No. C-122-839 (July 27,
2001), Att. 4.
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Commercial interchangeability is thus an important factor in assessing
the comparability of our benchmark prices to those Crown stumpage
prices that account for the predominant species located in B.C. and
western Alberta. On this basis, we have preliminarily determined that a
comparison of the Maritimes' prices to those in B.C. and Western
Alberta is appropriate for benchmark purposes. However, record evidence
also indicates that there are differences in values between eastern and
western SPF because trees in the West are generally larger, and yield
more and better quality lumber. Therefore, we have adjusted the
benchmark prices to account for the higher value trees in B.C. and
western Alberta.\26\
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\26\ In addition to this cited record evidence, there are
various measures of the greater diameter of western trees. See
Calculation Memorandum for B.C. at Appendix 2.
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Specifically, to account for these differences, we derived ratios
estimating the value differences between eastern SPF and the
predominant western timber, i.e., western SPF, fir-larch and hem-fir.
Lacking market-determined prices for these commercially significant
species, we accounted for these value differences by using a ratio of
market-determined stumpage prices in the United States of eastern SPF
and the predominant western timber.\27\ Stumpage is the best measure of
this difference because it reflects both the relative value of the wood
and the relative harvesting cost; thus, to the extent that there are
different values and harvesting conditions and costs between harvesting
regions for eastern and western timber, they would be reflected in
market-determined stumpage prices.
---------------------------------------------------------------------------
\27\ See Benchmark Calculation Memorandum, which contains the
actual ratios applied to the benchmark prices.
---------------------------------------------------------------------------
Additional record evidence reflects the same general magnitude of
this difference between the value of eastern and western timber
species. Specifically, we examined the ratio of stumpage charges for
eastern SPF in Quebec and charges for western SPF in B.C. as well as
the ratio between Maritimes' eastern SPF stumpage prices and those
charged under the B.C. small business auction program.\28\ Each of
these ratios are detailed in the Benchmark Calculation Memorandum,
which is in the public file in the CRU.\29\
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\28\ Id.
\29\ Id.
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Description of Provincial Stumpage Programs
Below, we describe the stumpage programs for each of the provinces
and
[[Page 33220]]
provide the calculated preliminary ad valorem subsidy rate for these
programs.
1. Province of Alberta
The province of Alberta provides stumpage under three main tenure
arrangements: (1) Forest Management Agreements (FMAs), (2) Timber Quota
Certificates (quotas), and (3) Commercial Timber Permits (CTPs). FMAs
are mainly used by integrated and larger timber companies, quotas are
mainly used by medium-sized companies, and CTPs are primarily used by
smaller companies.
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 is an area-based agreement which includes the
obligation to manage, on a sustained yield basis, the timber within the
agreement area. There were no new FMAs issued during the POR. Existing
FMAs accounted for 62 percent of the billed volume in Alberta during
the POR.
FMAs are provided to companies that require the security of a long-
term tenure. 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,
management and planning, holding and protection, environmental
protection, inventory costs, and any other obligations required by the
Department of Alberta Sustainable Resource Development (ASRD). Under
the FMA tenure arrangement, negotiations have led to an agreement to
use regulation rates on many FMAs (i.e., the rates set out in the
Timber Management Regulation (the TMR)). Since 1994, dues for
coniferous timber harvested under the authority of an FMA and consumed
in sawmills usually are paid at the general rates of timber dues as set
out in the TMR. FMAs generally have agreed to pay regulation rates for
pulpwood as well. The timber dues paid by FMA holders can also be
negotiated between the ASRD and the FMA holder.
A quota certificate 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. Quota holders are responsible for road
construction and maintenance, reforestation (basic and levy),
environmental protection costs, and operational planning. In addition,
quota holders are responsible for preparing General Development Plans
(GDPs) and Annual Operating Plans (AOPs) for ASRD approval, including
road layout and reforestation plans. Quotas 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 price. The quota provides the
allocation of timber to be harvested and the underlying coniferous
timber license (CTL) provides the actual cutting authority for the
quota. The quota gives the holder license to harvest specific species
and maintain utilization standards. There were 9 quotas issued during
the POR. The next renewal of quotas will occur during 2006 based on the
20 year cycle. Quotas accounted for 26 percent of the billed volume for
the POR.
A CTP is a short-term (averaging 2-3 years) tenure arrangement 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 CTP
includes a bid price on top of the minimum auction price, other costs
related to in-kind services, and the TMR rate for timber dues. 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. There were 410 CTPs
issued during the POR, of which 141 CTPs were sold competitively.
The administered price for non-negotiated 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 1,000 board feet of kiln-
dried, 2x4, Standard and Better, western SPF 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.\30\ 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.\31\ Column 1 provides a range of C$/1,000 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 billed volume of softwood timber. The
timber dues are determined after the product has been produced. In
addition, Schedule 6 covers the timber dues for timber used to make
veneer.
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\30\ Table Part A covers the first 107,296 m3 of
roundwood, while Part B covers excess over 107,296 m3 of
roundwood. Roundwood products include posts and poles.
\31\ We note that under FMAs, prices 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.
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To derive Alberta's administratively-set stumpage rate that we used
in our calculations, we divided the total timber dues charged to FMA,
quota, CTP, DTA (Deciduous Timber Agreement), and DTP (Deciduous Timber
Permit) tenure holders, during the POR for each species by the total
softwood stumpage billed under each tenure for each species. In this
manner, we obtained a weighted-average stumpage price per species that
was paid by tenure holders during the POR.
Fees and Associated Charges, Silviculture and Adjustments
The provinces reported certain fees and associated charges with
their tenures (e.g., process facility license fees and ground rent),
where applicable. As the ultimate price paid for the harvested timber
reflects these fees and associated charges, we are including them in
the provincial stumpage price, where appropriate.
Silviculture
As discussed above, the Maritimes' benchmark is inclusive of
silviculture charges. Therefore, we consider it appropriate to compare
a provincial price inclusive of silviculture costs and charges, where
applicable.
Adjustments
Based on information in the New Brunswick and Nova Scotia reports,
we determined that there are certain
[[Page 33221]]
obligatory costs associated with Crown tenures that are above or beyond
those incurred by the private Maritime stumpage harvesters that
comprise our benchmark (e.g., certain planning and primary road
building activities).\32\ For these preliminary results, we have
granted certain adjustments to provincial stumpage prices for those
activities that evidence on the record indicates: (1) Were not incurred
by Maritime private stumpage holders; and (2) were legally obligated
costs associated with the tenure in the comparison province.
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\32\ Final Report: Review and Recommendations on the Valuation,
Allocation and Sale of Crown Timber Resources in Nova Scotia, AGFOR
Inc., December 7, 2000, pp. 24-25. Also, Final Report: Assessment of
Market Stumpage Values on Private Lands, AGFOR Inc., February 28,
2003, p. 5.
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We preliminarily have found that certain adjustments to the derived
basic stumpage rate for Alberta are appropriate. Specifically, we
calculated each of the expenses on a per unit basis. We then summed
each of the expenses and added the total unit expenses to the weighted-
average unit stumpage price per species that was paid by TSFMA holders
during the POR. In this manner, we arrived at an adjusted weighted-
average stumpage price per species. Consistent with the methodology
explained above, we made adjustments to Crown stumpage prices in
Alberta for basic reforestation, forest management planning, holding
and protection charges, environmental protection costs, forest
inventory costs, reforestation levy, and primary road construction and
maintenance cost.
Calculation of the Benefit
As explained above, we preliminarily have determined to measure the
benefit from the provincial stumpage programs by comparing the
administered stumpage prices in each of the provinces (after accounting
for the province-specific cost-adjustments) to the private stumpage
prices in the Maritime provinces of New Brunswick and Nova Scotia. For
further information on the applicability of this benchmark, see the
"Private Stumpage Prices in New Brunswick and Nova Scotia" section of
these preliminary results. Because the benchmark prices were higher
than the administered prices in Alberta during the POR, we
preliminarily have determined that the sale of timber in Alberta was
provided for less than adequate remuneration in accordance with
771(5)(E)(iv) of the Act.
To calculate the benefit under this program, we first determined
the per unit benefit for each timber species by subtracting from the
benchmark price the cost-adjusted weighted-average stumpage price per
species. Next, we calculated the species-specific benefit by
multiplying the species-specific per unit benefit by the total species-
specific softwood timber harvest in Alberta during the POR. We then
summed the species-specific benefits to calculate the total stumpage
benefit for the province. To calculate the province-specific subsidy
rate, we divided the total stumpage benefit by Alberta's POR stumpage
program denominator. For a discussion of the denominator used to derive
the provincial rate for stumpage programs, see the "Denominator"
section of these preliminary results. As explained in the "Aggregate
Subsidy Rate Calculation" section of these preliminary results, we
weight-averaged the benefit from this provincial subsidy program by
Alberta's relative share of total exports of softwood lumber to the
United States during the POR. The total countervailable subsidy for the
provincial stumpage programs can be found in the "Country-Wide Rate
for Stumpage" section of these preliminary results.
2. Province of British Columbia
In B.C., the provincial government owns 94 percent of the land, in
contrast to the 5 percent that is privately owned. The GBC's
administrative system that authorizes the granting of rights to harvest
Crown timber in B.C. is set forth in the Forest Act. Under the Forest
Act, access to Crown timber is provided in exchange for paying stumpage
dues and performing certain forestry obligations through the 11 forms
of agreements (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. These three licenses accounted for 68 percent of the Crown
timber harvested during the POR.
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 through the
issuance of Cutting Permits. The licensees are responsible for costs
associated with planning, road building, harvesting, basic
silviculture, payment of stumpage, and annual rent.
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. Section 20 and 23 sales 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, auction sales, 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 Pilot." Under these exceptions, the MPS is
used. The CVP is a means of charging specific stumpage rates 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, given certain assumptions.
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, is a site-specific
econometric model that uses results of the SBFEP section 20 auction
sales of timber to calculate the "upset" (minimum) stumpage rate for
upcoming "competitive" timber sales under sections 20 and 21. The
resulting estimate is then discounted to set the upset price, and the
winning bidder
[[Page 33222]]
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.
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 preliminarily have determined that the
GBC is providing stumpage for less than adequate remuneration.
Fees and Associated Charges Silviculture and Adjustments
As discussed above in the "Province of Alberta" section of this
notice, we preliminarily have found that there are certain costs
incurred by Crown tenure holders that are appropriate to add to the
provincial stumpage price. Therefore, we are making certain adjustments
to the derived basic stumpage rate for B.C. Specifically, we calculated
each of the expenses on a per unit basis. We then summed each of the
expenses and added the total unit expenses to the weighted-average unit
stumpage price per species that was paid by B.C. major tenure holders
during the POR. In this manner, we arrived at an adjusted weighted-
average stumpage price per species. Consistent with the methodology
explained above, we made adjustments to Crown stumpage prices in B.C.
for ground rent, primary road and bridge building and maintenance
costs, deactivation of primary road costs, basic silviculture, and
sustainable forest management costs.
Calculation of the Benefit
As explained above, we preliminarily have determined to measure the
benefit from the provincial stumpage programs by comparing the
administered stumpage prices in each of the provinces (after accounting
for the province-specific cost-adjustments) to the private stumpage
prices in the Maritime provinces of New Brunswick and Nova Scotia. For
further information on the applicability of this benchmark, see the
"Private Stumpage Prices in New Brunswick and Nova Scotia" section of
these preliminary results. Because the benchmark prices were higher
than the administered prices in B.C. during the POR, we preliminarily
have determined that the sale of timber in B.C. was provided for less
than adequate remuneration in accordance with 771(5)(E)(iv) of the Act.
To calculate the benefit under this program, we first determined
the per unit benefit for each timber species by subtracting from the
benchmark price the cost-adjusted weighted-average stumpage price per
species. Next, we calculated the species-specific benefit by
multiplying the species-specific per unit benefit by the total species-
specific softwood timber harvest in B.C. during the POR. We then summed
the species-specific benefits to calculate the total stumpage benefit
for the province. To calculate the province-specific subsidy rate, we
divided the total stumpage benefit for B.C. by the POR stumpage program
denominator. For a discussion of the denominator used to derive the
provincial rate for stumpage programs, see the "Denominator" section
of these preliminary results. As explained in the "Aggregate Subsidy
Rate Calculation" section of these preliminary results, we weight-
averaged the benefit from this provincial subsidy program by B.C.'s
relative share of total exports of softwood lumber to the United States
during the POR. The total countervailable subsidy for the provincial
stumpage programs can be found in the "Country-Wide Rate for
Stumpage" section of these preliminary results.
3. Province of Manitoba
The Government of Manitoba (GOM) states that the province owns 94
percent of the forest lands and the federal government owns one
percent. The remaining 5 percent is private.
The GOM makes standing timber available to those parties that have
purchased harvesting rights. These rights entitle the purchaser to
acquire timber at a price set by the Forestry Branch of the Department
of Conservation, the agency responsible for administering the sale of
standing timber of Crown lands.
In Manitoba, there are three ways to acquire timber cutting rights:
(1) A Forest Management License (FML); (2) a Timber Sales Agreement
(TSA); or (3) a Timber Permit (TP). 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 the sustained yield, the achievement of the
maximum growth potential, a mandated standard of environmental quality,
and the public right of access for recreational and other uses of the
forest. The licensee must submit an annual operating plan and
additional harvesting reports to the Forestry Branch.
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 185 such agreements in effect
during the POR. Similar to the FMLs, the TSA holders must have an
annual operating plan, and 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 where license
holders can only harvest a very small amount of timber. Stumpage must
be paid when the permit is issued. There were 2,902 permits in effect
during the POR.
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 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 an administratively-set base rate for
calculating the stumpage price for TSA holders and TP licensees.
Fees and Associated Charges, Silviculture and Adjustments
As discussed above in the "Province of Alberta" section of this
notice, we preliminarily have found that there are certain costs
incurred by Crown tenure holders that are appropriate to add to the
provincial stumpage price. Therefore, we are making certain adjustments
to the derived basic stumpage rate for Manitoba. Specifically, we
calculated each of the expenses on a per unit basis. We then summed
each of the expenses and added the total unit expenses to the weighted-
average unit stumpage price per species that was paid by major tenure
holders in Manitoba during the POR. In this manner, we arrived at an
adjusted weighted-average stumpage price per species. Consistent with
the methodology explained above, we made adjustments to Crown stumpage
prices in Manitoba for forest renewal charges, primary road costs, and
obligated silviculture costs that were not credited.
[[Page 33223]]
Calculation of the Benefit
As explained above, we preliminarily have determined to measure the
benefit from the provincial stumpage programs by comparing the
administered stumpage prices in each of the provinces (after accounting
for the province-specific cost-adjustments) to the private stumpage
prices in the Maritime provinces of New Brunswick and Nova Scotia. For
further information on the applicability of this benchmark, see the
"Private Stumpage Prices in New Brunswick and Nova Scotia" section of
these preliminary results, above. Because the benchmark prices were
higher than the administered prices in Manitoba during the POR, we
preliminarily have determined that the sale of timber in Manitoba was
provided for less than adequate remuneration in accordance with
771(5)(E)(iv) of the Act.
To calculate the benefit under this program, we first determined
the per unit benefit for each timber species by subtracting from the
benchmark price the cost-adjusted weighted-average stumpage price per
species. Next, we calculated the species-specific benefit by
multiplying the species-specific per unit benefit by the total species-
specific softwood timber harvest in Manitoba during the POR. We then
summed the species-specific benefits to calculate the total stumpage
benefit for the province. To calculate the province-specific subsidy
rate, we divided the total stumpage benefit for Manitoba by the POR
stumpage program denominator. For a discussion of the denominator used
to derive the provincial rate for stumpage programs, see the
"Denominator" section of these preliminary results. As explained in
the "Aggregate Subsidy Rate Calculation" section of these preliminary
results, we weight-averaged the benefit from this provincial subsidy
program by Manitoba's relative share of total exports of softwood
lumber to the United States during the POR. The total countervailable
subsidy for the provincial stumpage programs can be found in the
"Country-Wide Rate for Stumpage" section of these preliminary
results.
4. Province of Ontario
The Government of Ontario (GOO) reported 93 percent of the softwood
harvest comes from Crown lands in Ontario, with 7 percent of softwood
harvest doming from privately owned lands.
In Ontario, lumber producers obtain wood for use in their mills in
five ways: (1) They pay the Government of Ontario stumpage dues and
harvest timber directly from their tenure areas on Crown lands; (2)
they obtain logs from a company that harvested the timber from its
tenure area on Crown lands; (3) they pay stumpage dues and harvest
timber from private timber owners; (4) they purchase logs from a
company that harvested timber from private lands; and (5) they import
logs from the United States.
The Crown forest area, which the GOO refers to as the Area of the
Undertaking, is divided into 54 management units. The GOO makes
standing timber on Crown land available to parties that purchase
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 prices set by the GOO's Ministry of Natural
Resources (OMNR), the agency responsible for administering the sale of
standing timber on Crown lands.
Under the Crown Forest Sustainability Act (CFSA), the GOO allocates
timber harvesting rights in these management units through two main
types of tenure arrangements: (1) Section 26 Sustainable Forest
Licenses (SFLs) and (2) Section 27 Forest Resource Licenses (FRLs). A
section 26 SFL typically covers all of the Crown forest area in a
management unit and conveys the right to harvest all species of tress
found in the tenure area. A section 26 SFL is set for an original 20-
year term, and is extendable indefinitely every five years. Section 27
FRLs are issued for terms up to five years and can be extended for one
year. The GOO reported that section 26 SFL or section 27 FRL does not
convey a right of ownership in land or standing timber, a right to a
secure price for harvested timber, or the right to sell or unilaterally
transfer the license.
The GOO reported that of the 49 section 26 SFLs, 34 are held by
single entity companies and 15 are held by entities comprised of
multiple shareholders, e.g., a combination of timber harvesters and
mill owners. The single entity company or shareholder arrangement which
holds a section 26 SFL is obligated to conduct forest management
planning, information gathering, monitoring, road building, and the
basic silviculture cost (many of which the GOO reimburses) in the
management unit.
The GOO reported that, a section 26 SFL typically covers the whole
management unit and the timber amounts and species to be harvested are
determined through the development of a five-year plan, whereas a
section 27 FRL covers only part of the area of a management unit and
timber amounts and species are specified. Usually, the coverage area of
a section 27 FRL "overlaps" with the area covered by section 26 SFL,
and each license holder has the right to harvest particular stands and/
or species. The GOO reported that, of the 919 section 27 FRLs in
Ontario, 878 are of the "overlapping" variety. The remaining 41
section 27 FRLs are issued for harvesting the timber located in the few
management units for which the GOO has not issued section 26 SFLs, but
rather maintains the forest management responsibilities.
The GOO stated that it does not distinguish between saw logs and
pulp logs. Therefore, the timber harvest data it reported is based on
whether the harvested timber was destined for saw mills or for pulp and
paper mills. The value data reported does not include "in-kind"
services provided by tenure holders, however, the GOO has provided
certain estimates of the total value of services that tenure holders
are obligated to provide.
The GOO reported that integrated and non-integrated firms pay the
same price for stumpage. Stumpage fees are charged after measurement
has occurred, which can occur at the logging site or, most often, at
the destination mill. The mills conduct the actual scaling
(measurement), OMNR conducts scaling audits to ensure accuracy, and the
licensee pays the scaling costs.
The GOO reported that the overall provincial price for stumpage on
Crown lands that it charges is calculated according to four component
charges: (1) The minimum charge, (2) the forest renewal charge, (3) the
forest futures charge, and (4) the residual value charge. Ontario
reports that some of these component charges differ depending on end
product market prices. Ontario contends that prices paid for stumpage
represent only a portion of the value received by the province from
tenure holders, with the additional value coming from "in-kind"
payments, which are discussed in the Ontario adjustments section below.
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 states
that the primary reason for this charge is to generate a secure source
of revenue regardless of market conditions. During the POR, the minimum
charge for 97 percent of Crown timber was set at C$3.44 per cubic
meter, and the minimum charge for three percent of
[[Page 33224]]
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 area. This charge covers
silviculture costs, and, since 1997, has been determined annually for
each management unit and each species within the unit. According to
GOO, the monies collected from each management unit go into the Forest
Renewal Trust Fund for use 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 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 POR, the charge was C$0.48 per cubic meter.
The fourth component of the stumpage charge is the residual value
charge, which is assessed when the price of end-forest products
produced with timber reaches a certain level determined by the OMNR.
For softwood lumber, the RV charge is assessed when the estimated price
a softwood mill receives for lumber exceeds C$364.85 per thousand board
feet. This charge is determined on a monthly basis according to a
formula.
Fees and Associated Charges, Silviculture and Adjustments
As discussed above in the "Province of Alberta" section of this
notice, we preliminarily have found that there are certain costs
incurred by Crown tenure holders that are appropriate to add to the
provincial stumpage price. Therefore, we are making certain adjustments
to the derived basic stumpage rate for Ontario. Specifically, we
calculated each of the expenses on a per unit basis. We then summed
each of the expenses and added the total unit expenses to the weighted-
average unit stumpage price per species that was paid by major tenure
holders in Ontario during the POR. In this manner, we arrived at an
adjusted weighted-average stumpage price per species. Consistent with
the methodology explained above, we made adjustments to Crown stumpage
prices in Ontario for road construction and maintenance costs and
forest management planning.
Calculation of the Benefit
As explained above, we preliminarily have determined to measure the
benefit from the provincial stumpage programs by comparing the
administered stumpage prices in each of the provinces (after accounting
for the province-specific cost-adjustments) to the private stumpage
prices in the Maritime provinces of New Brunswick and Nova Scotia. For
further information on the applicability of this benchmark, see the
"Private Stumpage Prices in New Brunswick and Nova Scotia" section of
these preliminary results, above. Because the benchmark prices were
higher than the administered prices in Ontario during the POR, we
preliminarily have determined that the sale of timber in Ontario was
provided for less than adequate remuneration in accordance with
771(5)(E)(iv) of the Act.
To calculate the benefit under this program, we first determined
the per unit benefit for each timber species by subtracting from the
benchmark price the cost-adjusted weighted-average stumpage price per
species. Next, we calculated the species-specific benefit by
multiplying the species-specific per unit benefit by the total species-
specific softwood timber harvest in Ontario during the POR. We then
summed the species-specific benefits to calculate the total stumpage
benefit for the province. To calculate the province-specific subsidy
rate, we divided the total stumpage benefit for Ontario by the POR
stumpage program denominator. For a discussion of the denominator used
to derive the provincial rate for stumpage programs, see the
"Denominator" section of these preliminary results. As explained in
the "Aggregate Subsidy Rate Calculation" section of these preliminary
results, we weight-averaged the benefit from this provincial subsidy
program by Ontario's relative share of total exports of softwood lumber
to the United States during the POR. The total countervailable subsidy
for the provincial stumpage programs can be found in the "Country-Wide
Rate for Stumpage" section of these preliminary results.
5. Province of Quebec
In Quebec, the provincial government owns approximately 86 percent
of accessible productive forest land, in contrast to private woodlot
owners who own 13 percent of accessible productive forest land. Crown
lands (e.g., government-owned lands) account for approximately 75.5
percent of the total volume of the softwood timber harvest while
private forests account for approximately 14 percent. The remaining
amount of the timber harvest is primarily obtained from lands outside
of Quebec. An additional amount, less than one percent, is procured
from Federal lands located within the Province.
The GOQ's administrative system for granting rights to harvest
stumpage from Crown lands is defined under the legal framework of the
Forest Act, enacted in 1996. Under the Forest Act, access to Crown
timber is provided in exchange for paying stumpage dues and performing
silviculture and other obligations through five types of licenses, as
explained below. The Ministere des Ressources naturelles de la Faune et
des Parcs (MRNFP) is the provincial agency responsible for
administering Quebec's stumpage program and allocating volumes of
timber to be harvested from public lands to tenureholders.
Once the MRNFP has determined the amount of stumpage available for
harvest by a TSFMA holder, the next step is for the MRNFP to calculate
the amount of stumpage dues owed by a TSFMA holder. The price that the
MRNFP charges for stumpage rights varies depending on where the timber
stand is located. In previous years, the MRNFP 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, species mix, etc.
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, in April 2000, the GOQ expanded the number of tariffing
zones to 161 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 five ways through which the MRNFP sells
stumpage rights: Timber Supply Forest Management Agreements (TSFMAs),
Forest Management Contracts (FMCs), Forest Management Agreements (FMA),
Annual Forest Management Permits (AFMPs), and public auctions.
TSFMA licences account for virtually all standing timber harvested
on Crown lands. During the POR, TSFMAs accounted for 98 percent of the
softwood Crown timber harvested. As provided by section 42 of the
Forestry Act, a TSFMA allows the holder to obtain an annual management
permit to supply a wood processing plant or mill.
[[Page 33225]]
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 MRNFP, and as mandated by section 42 of the Forest
Act, 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 Forest Act
mandates the holder of the TSFMA to submit five-year and annual forest
plans for required silviculture activities. TSFMA holders are also
required to contribute to the forest fire protection agency
Soci[eacute]t[eacute] de protection des for[ecirc]ts contre le feu
(SOPFEU), the insect and disease protection agency
Soci[eacute]t[eacute] de protection des for[ecirc]ts 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. During the POR, the GOQ reported
237 TSFMA holders with rights to access softwood timber.
FMCs are similar to TSFMAs in that they are also subject to the
stumpage prices charged by the MRNFP. In addition, holders of FMCs are
responsible for the same types of silviculture activities as those
covered by TSFMAs. The MRNFP usually enters into FMCs with non-profit
organizations or municipalities. FMCs normally cover relatively small
forest areas. During the POR, FMCs accounted for less than one percent
of the softwood Crown timber harvest.
The FMA type of tenure was introduced in June 2001. Under this type
of agreement, the MRNFP may enter into a contract with any legal entity
that does not hold a wood processing plant operating permit and that is
not related to the holder of such permit. Criteria for an FMA is that
forest production is significant in the area under the FMA and the
MRNFP deems the granting of the FMA to be in the public's interest. The
FMA holder is granted the right to harvest timber but is required to
sell the timber to a sawmill. FMA holders have similar obligations like
the TSFMA holder; however, the FMA term is only ten years. Both FMCs
and FMAs are required to sell the timber harvested under their tenure
arrangements to companies with wood processing operating permits or to
apply for authorization to ship the timber outside of Quebec.
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 metallurgical
purposes. The MRNFP 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. Very little
standing timber is harvested under the AFMPs.
The fifth 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
MRNFP has yet to sell any publicly-owned timber under this method.\33\
---------------------------------------------------------------------------
\33\ The GOQ states that timber sales by auction has never been
used in Quebec although authorized by section 96 of the Forest Act.
See Government of Quebec's November 12, 2003, submission at QC-24.
---------------------------------------------------------------------------
Aside from managing the sale of standing timber on Crown lands, the
MRNFP collects information on the price of standing timber in private
forests. Private market prices for standing timber are obtained through
a survey of forest contractors \34\ that purchase standing timber from
private forests. The MRNFP contracts with three forest consultants, who
conduct a census of all purchases of privately-held timber every three
years. Between censuses, the MRNFP conducts a sample from private
purchasers, selected at random representing about 75 percent of the
total population. These surveys are based on actual transactions of
timber from private forest lands of forest contractors and mainly cover
the purchase of trees in the spruce, pine, and fur species group. The
most recent analysis of private stumpage prices in Quebec took place in
2000. Of the 175 companies that purchase standing timber from private
lands, 116 responded to the survey. At verification, we learned that to
be eligible as a survey respondent, a forest contractor had to have
purchased a total of 4000 m\3\ in the last four years and have
purchased at least 1000 m\3\ in the year prior to the survey being
conducted.
---------------------------------------------------------------------------
\34\ A forest contractor is an enterprise that regularly
harvests on private lands and sells the harvested timber to
sawmills. These enterprises specialize in harvesting operations and
usually are not sawmills. Although a sawmill could technically
respond to the survey, respondents have almost entirely been
forestry contractors, joint management organizations, a forestry
consultant and two hardwood sawmills.
---------------------------------------------------------------------------
The GOQ states that the survey used to derive administered stumpage
prices during the POR covered the private forest in its entirety as
well as all 15 territories managed by private wood producers'
syndicates and marketing boards.\35\ Once the survey is complete, the
Institute Statistique Quebec compiles a value for each private forest
territory covered by a syndicate or wood producer's marketing board.
The Institute Statistique Quebec 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
volume for each wood producers' association territory.
---------------------------------------------------------------------------
\35\ 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.
---------------------------------------------------------------------------
The GOQ, as required by the Forestry Act, uses a system called the
parity technique to determine the stumpage value the MRNFP charges to
TSFMA and FMC licences. Under the parity technique, the MRNFP employs a
complex formula which adjusts the private MVST to account for relative
differences that exist between the private MVST and the tariffing zone
to be appraised. The MRNFP then calculates an individual stumpage rate
that will be charged in each tariffing zone.
As explained above, the MRNFP calculates an administered stumpage
price for each tariffing zone. To arrive at the unadjusted administered
stumpage rates used in our stumpage calculations, we divided the total
softwood stumpage fees paid by TSFMA permit holders during the POR,
which accounts for virtually all of the Crown timber harvest in Quebec,
for each species by the total softwood stumpage harvested under TSFMAs
during the POR for each species. In this manner, we obtained an
unadjusted weighted-average stumpage price per species that was paid by
TSFMA permit holders during the POR. According to information submitted
by the GOQ, the softwood stumpage harvested under
[[Page 33226]]
TSFMAs is equal to the total timber harvested for tenure holding lumber
processing plants (i.e., processing plants that produce the subject
merchandise). Therefore, we have not incorporated the stumpage fees
paid by FMC permit holders into the province-wide administered stumpage
rate.
Fees and Associated Charges, Silviculture and Adjustments
As discussed above in the "Province of Alberta" section of this
notice, we preliminarily have found that there are certain costs
incurred by Crown tenure holders that are appropriate to add to the
provincial stumpage price. Therefore, we are making certain adjustments
to the derived basic stumpage rate for Quebec. Specifically, we
calculated each of the expenses on a per unit basis. We then summed
each of the expenses and added the total unit expenses to the weighted-
average unit stumpage price per species that was paid by TSFMA holders
during the POR. In this manner, we arrived at an adjusted weighted-
average stumpage price per species. Consistent with the methodology
explained above, we made adjustments to Crown stumpage prices in Quebec
for contributions to the Forestry Fund, administrative forest planning
costs, and obligated silviculture costs that were not credited. We also
made a negative adjustment for silviculture credits that were for
voluntary activities.
Calculation of the Benefit
As explained above, we preliminarily have determined to measure the
benefit from the provincial stumpage programs by comparing the
administered stumpage prices in each of the provinces (after accounting
for the province-specific cost-adjustments) to the private stumpage
prices in the Maritime provinces of New Brunswick and Nova Scotia. For
further information on the applicability of this benchmark, see the
"Private Stumpage Prices in New Brunswick and Nova Scotia" section of
these preliminary results, above. Because the benchmark prices were
higher than the administered prices in Quebec during the POR, we
preliminarily have determined that the sale of timber in Quebec was
provided for less than adequate remuneration in accordance with
771(5)(E)(iv) of the Act.
To calculate the benefit under this program, we first determined
the per unit benefit for each timber species by subtracting from the
benchmark price the cost-adjusted weighted-average stumpage price per
species. Next, we calculated the species-specific benefit by
multiplying the species-specific per unit benefit by the total species-
specific softwood timber harvest in Quebec during the POR. We then
summed the species-specific benefits to calculate the total stumpage
benefit for the province. To calculate the province-specific subsidy
rate, we divided the total stumpage benefit for Quebec by the POR
stumpage program denominator. For a discussion of the denominator used
to derive the provincial rate for stumpage programs, see the
"Denominator" section of these preliminary results. As explained in
the "Aggregate Subsidy Rate Calculation" section of these preliminary
results, we weight-averaged the benefit from this provincial subsidy
program by Quebec's relative share of total exports of softwood lumber
to the United States during the POR. The total countervailable subsidy
for the provincial stumpage programs can be found in the "Country-Wide
Rate for Stumpage" section of these preliminary results.
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
11.7 million hectares. Of this amount, the GOS states that 52 percent
is considered 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 94
percent of the softwood sawlogs harvested in Saskatchewan during the
POR. Private and federal lands accounted for five and one 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 five 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.
Forest management fees, also referred to as forest renewal fees, are
used to conduct the province's basic silviculture programs, which
include surveys, site preparation, mechanical brushing, cone
collection, chemical brushing, planting, fertilizer, spacing,
administrative costs, seedlings, and other miscellaneous costs.
Four FMAs were in effect during the POR: The Mistik Management FMA,
the L&M Wood Products FMA, the Weyerhaeuser Prince Albert FMA, and the
Weyerhauser Pasquia-Porcupine. The four FMA licensees operate five
different sawmill establishments. Of the four FMAs in Saskatchewan, the
GOS indicates that only one has a facility that includes both a sawmill
establishment and another type of processing plant at the same
location. Specifically, L&M Wood Products FMA at Glaslyn includes both
a sawmill and a treatment plant. According to information submitted by
the GOS, these four FMAs accounted for approximately 93 percent of the
Crown logs that were harvested during the POR. 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. The GOS stated that during the POR, 795 FPPs
were issued with a total volume of 909,691 m\3\. During the POR, FPPs
accounted for
[[Page 33227]]
approximately five 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. TSLs may be
area or volume based. As is the case with FMAs, TSLs must pay
processing facility and forest management fees. According to the GOS,
only one TSL was issued during the POR but there was no harvest under
the authority of the TSL. The only TSL in effect during the POR was
North West Communities.
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 rates 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.
To derive Saskatchewan's administratively-set stumpage rate, we
divided the species-specific stumpage value by the volume harvested to
derive the specie-specific per unit stumpage price. To this stumpage
price we added per unit adjustment costs, in order to derive
Saskatchewan's administratively-set stumpage rate (the total tenure-
related expenses).
Fees and Associated Charges, Silviculture and Adjustments
As discussed above in the "Province of Alberta" section of this
notice, we preliminarily have found that there are certain costs
incurred by Crown tenure holders that are appropriate to add to the
provincial stumpage price. Therefore, we are making certain adjustments
to the derived basic stumpage rate for Saskatchewan. Specifically, we
calculated each of the expenses on a per unit basis. We then summed
each of the expenses and added the total unit expenses to the weighted-
average unit stumpage price per species that was paid by tenure holders
in Saskatchewan during the POR. In this manner, we arrived at an
adjusted weighted-average stumpage price per species. Consistent with
the methodology explained above, we made adjustments to Crown stumpage
prices in Saskatchewan for road costs, processing facilities license
fees, FBP application fees, and forest management.
Calculation of the Benefit
As explained above, we preliminarily have determined to measure the
benefit from the provincial stumpage programs by comparing the
administered stumpage prices in each of the provinces (after accounting
for the province-specific cost adjustments) to the private stumpage
prices in the Maritime provinces of New Brunswick and Nova Scotia. For
further information on the applicability of this benchmark, see the
"Private Stumpage Prices in New Brunswick and Nova Scotia" section of
these preliminary results. Because the benchmark prices were higher
than the administered prices in Saskatchewan during the POR, we
preliminarily have determined that the sale of timber in Saskatchewan
was provided for less than adequate remuneration in accordance with
771(5)(E)(iv) of the Act.
To calculate the benefit under this program, we first determined
the per unit benefit for each timber species by subtracting from the
benchmark price the cost-adjusted weighted-average stumpage price per
species. Next, we calculated the species-specific benefit by
multiplying the species-specific per unit benefit by the total species-
specific softwood timber harvest in Saskatchewan during the POR. We
then summed the species-specific benefits to calculate the total
stumpage benefit for the province. To calculate the province-specific
subsidy rate, we divided the total stumpage benefit for Saskatchewan by
the POR stumpage program denominator. For a discussion of the
denominator used to derive the provincial rate for stumpage programs,
see the "Denominator" section of these preliminary results. As
explained in the "Aggregate Subsidy Rate Calculation" section of
these preliminary results, we weight-averaged the benefit from this
provincial subsidy program by Saskatchewan's relative share of total
exports of softwood lumber to the United States during the POR. The
total countervailable subsidy for the provincial stumpage programs can
be found in the "Country-Wide Rate for Stumpage" section of these
preliminary results.
Country-Wide Rate for Stumpage
The preliminary countervailable country-wide subsidy rate for the
provincial stumpage programs is 8.86 percent ad valorem.
II. Other Programs Determined to Confer Subsidies
Programs Administered by the Government of Canada
1. 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.
A considerable portion of the GOC assistance under FEDNOR is provided
to Community Futures Development Corporations (CFDCs), non-profit
community organizations providing small business advisory services and
offering commercial loans to small and medium enterprises (SMEs).
In Lumber IV, the Department found that the loans provided by the
CFDCs were made on commercial terms and, therefore, did not provide a
countervailable benefit. However, the Department found that FEDNOR
grants provided directly to certain entities
[[Page 33228]]
during the AUL period provided a countervailable subsidy to the
softwood lumber industry. Those grants were all expensed in the year of
receipt. See, Issues and Decision Memorandum. In this review, the GOC
reports additional loans given since the investigation and outstanding
during the POR, as well as one new grant disbursed during the POR.
Consistent with Lumber IV, we preliminarily have determined that
the FEDNOR program is specific within the meaning of section
771(5A)(D)(iv) of the Act, because assistance under this program is
limited to certain regions in Ontario. Furthermore, we preliminarily
have found that FEDNOR provides a financial contribution within the
meaning of section 771(5)(D)(i) of the Act, and confers a
countervailable benefit as set forth under 19 CFR 351.504, through a
grant provided directly to a softwood lumber producer.
With regard to the CFDC loans given since the POI in Lumber IV, we
preliminarily have determined that two loans were given at interest
rates below the benchmark rate and, therefore, confer a benefit within
the meaning of section 771(5)(E)(ii) of the Act and 19 CFR 351.505(a).
Our benchmark interest rates are described in the "Benchmarks for
Loans & Discount Rates" section of this notice.
Consistent with our treatment of FEDNOR grants in Lumber IV, we
have treated the grant received during the POR as non-recurring. In
accordance with 19 CFR 351.524(b)(2), we have determined that the
approved amount of the grant is less than 0.5 percent of total sales of
softwood lumber for Ontario during the POR. Therefore, we have expensed
the benefit from this grant in the year of receipt.
To calculate the countervailable subsidy provided under this
program, we summed the amount of the grant disbursed during the POR and
the interest savings on the loans, and divided the combined amount by
the f.o.b. value of total sales of softwood lumber for Ontario during
the POR. Next, as explained in the "Aggregate Subsidy Rate
Calculation" section of this notice, we multiplied this amount by
Ontario'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.
2. Western Economic Diversification Program Grants and Conditionally
Repayable Contributions (WDP)
Introduced in 1987, the WDP is administered by the GOC's Department
of Western Economic Diversification headquartered in Edmonton, Alberta,
whose jurisdiction encompasses the four western provinces of B.C.,
Alberta, Saskatchewan and Manitoba. The program supports commercial and
non-commercial projects that promote economic development and
diversification in the region. In Lumber IV, the Department found
recurring and non-recurring grants provided to softwood lumber
producers under the WDP to be countervailable subsidies and, because of
the small amounts involved, expensed each grant to the year of receipt.
During the current POR, the WDP provided grants to softwood lumber
producers or associations under two "sub-programs." Under the
International Trade Personnel Program (ITPP), companies were reimbursed
for certain salary expenses. According to the GOC, certain portions of
these grants were expressly dedicated to export promotion in Asian
markets; therefore, the GOC excluded those portions from the reported
disbursement amounts, consistent with Lumber IV. Under the heading of
"Other WDP Projects," the GOC responded that no additional
disbursements were made during the current POR for certain non-
recurring grants examined in Lumber IV. However, one new grant was made
to a softwood lumber producer or association during the POR.
Consistent with Lumber IV, we preliminarily have determined that
the WDP is specific under section 771(5A)(D)(iv) of the Act, because
assistance under the program is limited to designated regions in
Canada. The provision of grants constitutes a financial contribution
within the meaning of section 771(5)(D)(i) of the Act and confers a
benefit as set forth under 19 CFR 351.504.
In accordance with 19 CFR 351.524(c), we are treating the ITPP
grants as recurring benefits. Because the GOC expressly excluded grants
supporting exports to non-U.S. markets, we have attributed the reported
grants to U.S. exports of softwood lumber from the regions eligible for
assistance under this program, i.e., B.C., Alberta, Saskatchewan and
Manitoba.
Consistent with our treatment of "Other WDP Projects" in the
investigation, we are treating this grant as non-recurring. In
accordance with 19 CFR 351.524(b)(2), we have determined that this
grant is less than 0.5 percent of total sales of softwood lumber from
the regions eligible for assistance under this program. Therefore, we
are expensing the benefit from this grant in the year of receipt.
To calculate the countervailable subsidy rate for this program, we
have summed the rates for the ITPP and other WDP sub-projects. Next, as
explained in the "Aggregate Subsidy Rate Calculation" section of this
notice, we multiplied this amount by the four provinces' 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.
3. Natural Resources Canada (NRCAN) Softwood Marketing Subsidies
In May 2002, the GOC approved a total of C$75 million in grants to
target new and existing export markets for wood products and to provide
increased research and development to supplement innovation in the
forest products sector. This total was allocated to three sub-programs
under the administration of NRCAN, a part of the Canadian Forest
Service.
Funding in the amount of C$29.7 million was allocated to the Canada
Wood Export Program (Canada Wood), a five-year effort to promote
Canadian wood exports to offshore markets other than the United States.
Another C$15 million was allocated to the Value to Wood Program (VWP),
a five-year research and technology transfer initiative supporting the
value-added wood sector, specifically through partnerships with
academic and private non-profit entities. In particular, during the
POR, NRCAN entered into research contribution agreements with Forintek
Canada Corp. (Forintek) to do research in better resource use,
manufacturing process improvements, product development, and product
access improvement. The GOC reports that only a portion of the funds
allocated for VWP was disbursed during the POR and the funds were used
solely for research relating to value-added wood products, not softwood
lumber.
Finally, C$30 million was allocated to the National Research
Institutes Initiative (NRII), a two-year program to provide salary
support to three national research institutes: Forintek, the Forest
Engineering Research Institute of Canada (FERIC) and the Pulp & Paper
Research Institute of Canada (PAPRICAN). The GOC reports that neither
PAPRICAN nor FERIC conducts research regarding softwood lumber
production.
Based on our review of the information provided in the responses,
we preliminarily have determined that any assistance provided under the
Canada Wood program would be tied to export markets other than the
United
[[Page 33229]]
States. Therefore, in accordance with 19 CFR 351.525(b)(4), we
preliminarily have determined that the Canada Wood program does not
confer a countervailable subsidy.
With regard to VWP, we have reviewed the projects funded during the
POR and have found that certain of them appear to be related to
softwood lumber. We preliminarily have determined that the grants
provided under the VWP constitute a financial contribution within the
meaning of section 771(5)(D)(i) of the Act and confer a benefit as set
forth under 19 CFR 351.504. Because the VWP grants were limited to
Forintek, which conducted research related to softwood lumber and
manufactured wood products, we preliminarily have determined that they
are specific within the meaning of section 771(5A)(D)(i) of the Act.
Therefore, we preliminarily have determined that the VWP provided a
countervailable subsidy to the softwood lumber industry.
With regard to the NRII, because PAPRICAN's work is limited to pulp
and paper, we preliminarily have determined that none of the funding
PAPRICAN received conferred a countervailable subsidy on the softwood
lumber industry. However, based on our review of the record, we
preliminarily have determined that research undertaken by FERIC
benefits commercial users of Canada's forests. Specifically, FERIC's
research covers harvesting, processing and transportation of forest
products, silviculture operations, and small-scale operations. Thus,
government-funded R&D by FERIC benefits, inter alia, producers of
softwood lumber. Similarly, we have found that Forintek's NRII
operations, which pertain to resource utilization, tree and wood
quality, and wood physics, also benefit, inter alia, softwood lumber.
We preliminarily have determined that NRII grants to FERIC and
Forintek constitute financial contributions within the meaning of
section 771(5)(D)(i) of the Act and provide benefits as set forth under
19 CFR 351.504. We also preliminarily have determined that the grants
are specific within the meaning of section 771(5A)(D)(i) of the Act
because they are limited to FERIC and Forintek, which conduct research
related to the forestry and logging industry, the wood products
manufacturing industry, and the paper manufacturing industry.
Therefore, we preliminarily have determined that FERIC's and Forintek's
NRII funding provided a countervailable subsidy to the softwood lumber
industry.
To calculate the countervailable subsidy rate for this program, we
first examined whether these non-recurring grants should be expensed to
the year of receipt. See, 19 CFR 351.524(b)(2). We summed the funding
approved for Forintek during the POR under the VWP and NRII components,
and divided this sum by the total sales of the wood products
manufacturing industry during the POR. We also divided the funding
approved for FERIC during the POR by the total sales of the wood
products manufacturing and paper industries during the POR. Combining
these two amounts, we preliminarily have determined that the benefit
under the NRCAN softwood marketing subsidies program should be expensed
in the year of receipt.
We then calculated the countervailable subsidy rate during the POR
by dividing the amounts received by Forintek during the POR under the
VWP an NRII components by the total sales of the wood products
manufacturing industry during the POR. We also divided the funding
received by FERIC during the POR by the total sales of the wood
products manufacturing and paper industries during the POR. Combining
these two amounts, we preliminarily have determined the countervailable
subsidy from the NRCAN softwood marketing subsidies program to be 0.01
percent ad valorem.
4. Payments to the Canadian Lumber Trade Alliance (CLTA) & Independent Lumber Remanufacturers Association (ILRA)
In March 2003, the GOC Department of Foreign Affairs and
International Trade (DFAIT) approved a total of C$15 million in grants
under separate agreements with the CLTA and ILRA to underwrite the
administrative and communications costs incurred by these forest
products industry associations as a result of the Canada-U.S. softwood
lumber dispute. The GOC reports that the CLTA is composed of companies
located in Alberta, B.C., Ontario and Quebec, which produce not only
lumber but all types of forest products, while the membership of the
ILRA is made up entirely of value-added wood product manufacturers in
B.C. Of the approved sums, the DFAIT disbursed C$14.85 million to the
CLTA and C$75,000 to the ILRA during the POR.
We preliminarily have determined that this program provided a
financial contribution in the form of a grant within the meaning of
section 771(5)(D)(i) of the Act and conferred a benefit as set forth
under 19 CFR 351.504. Because the program provided grants to two
associations, CLTA and ILRA, we preliminarily have determined that it
is specific within the meaning of section 771(5A)(D)(i) of the Act.
Therefore, we preliminarily have determined that the GOC grants to CLTA
and ILRA provide a countervailable subsidy to the softwood lumber
industry.
To calculate the countervailable subsidy rate for this program, we
first examined whether this non-recurring grant should be expensed to
the year of receipt. See, 19 CFR 351.524(b)(2). Because these grants
underwrote these associations' costs related to the softwood lumber
dispute, we preliminarily have determined that the benefit is tied to
anticipated exports to the United States. See, 19 CFR 351.514(a).
Therefore, we divided the amount approved by total exports of softwood
lumber to the United States during the POR. See, 19 CFR 351.525(b)(4).
Because the resulting amount was less than 0.5 percent, the benefit is
being expensed in the year of receipt.
We then calculated the countervailable subsidy rate during the POR
by dividing the amount received by CLTA and ILRA during the POR by
total exports of softwood lumber to the United States during the POR.
On this basis, we preliminarily have determined the countervailable
subsidy from this program to be 0.23 percent ad valorem.
Programs Administered by the Province of British Columbia
1. Forest Renewal B.C. Program
The Forest Renewal program was enacted by the GBC in the Forest
Renewal Act in June 1994 to renew the forest economy of B.C. 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 were
implemented through three business units: the Forests and Environment
Business Unit, the Value-Added Business Unit, and the Communities and
Workforce Business Unit.
This program provided grants directly to softwood lumber producers
in two ways: (1) as part of ad hoc arrangements between Forest Renewal
B.C. and softwood lumber companies, and (2) as part of established
grant programs to support activities such as business development,
industry infrastructure, training, and marketing. Because direct grant
assistance is provided only to
[[Page 33230]]
support the forest products industry, in Lumber IV, the Department
determined that these grants are specific under section 771(5A)(D) of
the Act. The Department also determined that provision of these grants
constituted a financial contribution within the meaning of section
771(5)(D)(i) of the Act. See Issues and Decision Memorandum. No new
information or evidence has been submitted in this review to cause us
to reconsider these findings.
The Forest Renewal B.C. program also provided funds to community
groups and independent financial institutions, which may in turn
provide loans and loan guarantees to companies involved in softwood
lumber production. In Lumber IV, the Department found that the lumber
producers received no benefit, within the meaning of section
771(5)(E)(ii), from the loans without guarantees and the guaranteed
loans during the POI because the reported interest rates charged on
those loans were equal to or higher than the interest rate charged on
comparable commercial loans. See Issues and Decision Memorandum.
Effective March 31, 2002, the B.C. legislature terminated the
Forest Renewal B.C. program. In the winding-up of operations of the
Value-Added Business Unit under the Forest Renewal B.C. program,
certain disbursements and other "true-up" value-added commitments
were made during the POR. These disbursements were made pursuant to
Contribution Agreements that had been entered into prior to the
termination of the program.
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. To calculate the benefit provided under this program,
we summed the amount of grants provided to all producers/exporters of
softwood lumber during the POR and divided that amount by the f.o.b.
value of total sales of B.C. softwood lumber for the POR. Next, as
explained in the "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. Using this
methodology, we preliminarily have determined the countervailable
subsidy from this program to be 0.01 percent ad valorem.
During the POR, there were Forest Renewal B.C. directed loans and
loan guarantees to softwood lumber producers outstanding under this
program. With respect to these loans and loan guarantees, we
preliminarily have determined that no benefit is provided within the
meaning of section 771(5)(E)(ii) and 771(5)(E)(iii) 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, described in the "Benchmark for Loans and Discount Rate"
section, above.
Many of the land-based activities under the Forest and Environment
Business Unit of the Forest Renewal B.C. program have been continued by
the Forest Investment Account (FIA), which came into effect on April 1,
2002. For further discussion, see the "Land Base Investment Program"
section below. As part of the winding-up operations under the Forest
Renewal B.C. program, in March 2002, the GBC allocated Cn$35 million to
establish the Coast Sustainability Trust. The purpose of the Trust is
to mitigate the adverse effects of government land use planning
decisions that have reduced the annual harvest in the Central Coast,
North Coast, and Queen Charlotte Islands regions. Thus, the Department
will continue to review this program.
2. Forestry Innovation Investment Program (FIIP)
The Forestry Innovation Investment Program came into effect on
April 1, 2002. On March 31, 2003, FIIP was incorporated as Forestry
Innovation Investment Ltd. (FII). FII funds are used to support the
activities of universities, research and educational organizations, and
industry associations producing a wide range of wood products. FII's
strategic objectives are implemented through three sub-programs
addressing: research, product development and international marketing.
In its response, the GBC reports funding it provided to support
product development and international marketing projects connected with
the subject merchandise. The GBC claims that other spending under these
sub-programs did not relate to softwood lumber or to exports to the
United States.
We preliminarily have determined that the FII grants provided to
support product development and international marketing are
countervailable subsidies. The FII grants constitute financial
contributions within the meaning of section 771(5)(D)(i) of the Act and
provide benefits as set forth in 19 CFR 351.504. The grants are
specific because they are limited to institutions and associations
conducting projects related to wood products generally and softwood
lumber, in particular. See, section 771(5A)(D)(i).
Regarding the research sub-program, the GBC reports that it funded
approximately 141 research projects during the POR. The GBC claims that
this research is not specific to softwood lumber and, moreover, that it
involves the government purchase of services.
According to information submitted in the response, investments
made through the research program "are expected to provide a positive
contribution to the government goal of having a leading edge forest
industry that is globally recognized for its productivity,
environmental stewardship and sustainable forest management
practices." Given the focus of this research, we preliminarily have
determined that this research benefits commercial users of B.C.'s
forests and, inter alia, producers of softwood lumber.
Therefore, we preliminarily have determined that the FII grants
provided to support research are countervailable subsidies. These FII
grants constitute financial contributions within the meaning of
771(5)(D)(i) of the Act and provide benefits as set forth in 19 CFR
351.504. The grants are specific within the meaning of section
771(5A)(D)(i) of the Act because they are limited to institutions and
associations conducting research related to the forestry and logging
industry, the wood products manufacturing industry, and the paper
manufacturing industry.
To calculate the benefit from this program, we first determined
whether these non-recurring subsidies should be expensed in the year of
receipt. See 19 CFR 351.524(b)(2). For grants given to support product
development for softwood lumber, we divided the amounts approved by
total sales of softwood lumber for B.C. during the POR. For grants to
support international marketing, we divided the grants approved by
exports of softwood lumber from B.C. to the United States during the
POR. (As explained above, the GBC did not report grants tied to other
export markets.) See 19 CFR 351.525(b)(4). For research grants, we
divided the grants approved by total sales of the wood products
manufacturing and paper industries from B.C. during the POR. Combining
these three amounts, we preliminarily have determined that the FII
benefit should be expensed in the POR.
We then calculated the countervailable subsidy rate during the POR
by dividing the amounts disbursed during the POR. For grants given to
support product development for softwood lumber, we divided the amounts
disbursed by total sales of softwood lumber for B.C. during the
[[Page 33231]]
POR. For grants to support international marketing, we divided the
amounts disbursed by exports of softwood lumber from B.C. to the United
States during the POR. For research grants, we divided the amounts
disbursed by total sales of the wood products manufacturing and paper
industries for B.C. during the POR. We combined these three amounts
and, as explained in the "Aggregate Subsidy Rate Calculation" section
of his notice, we multiplied this total by B.C.'s relative share of
total exports to the United States. On this basis, we preliminarily
have determined the countervailable subsidy from the FIIP to be 0.13
percent ad valorem.
Programs 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 MRNFP and by sawmill operators. The majority of the program funds
come from the MRNFP. However, under the authority of the MRNFP, wood
processing plant operators are charged a fee of C$1.45 for each cubic
meter of timber acquired from private land. This fee provides partial
funding for the PFDP.
According to the GOQ's response, there are approximately 13,000
registered forest landowners that receive financial assistance each
year under the PFDP. The average financial assistance received by a
producer is less than C$3,000 in any given year. According to the GOQ
response, there are approximately 50 sawmills that receive assistance
from the program every year.
In Lumber IV, we found that this program conferred a
countervailable subsidy within the meaning of section 771(5) of the
Act. Consistent with Lumber IV, we preliminarily have determined that
assistance provided under this program is specific under section
771(5A)(D)(i) of the Act because assistance is limited to private
woodlot owners. In addition, we preliminarily have determined that
payments by PFDP constitute a financial contribution under section
771(5)(D)(i) of the Act, providing benefits as set forth in 19 CFR
351.504.
The GOQ argues that no benefit is provided under this program to
sawmill operators because they are required to make contributions to
PFDP for lumber harvested on private land. The GOQ states that the
sawmill operators' contributions were greater than the amount of
silviculture reimbursements the mills received under this program
during the POR.
We have not accepted this claim. Every holder of a wood processing
plant operating permit must pay the fee of C$1.20 for every cubic meter
of timber acquired from a private forest. These fees fund, in part, the
PFDP. The recipients of payments under the PFDP are owners of private
forest land. Thus, the sawmill operators that received assistance under
the PFDP received assistance because they owned private forest land.
Therefore, consistent with Lumber IV, we preliminarily have determined
that the fees paid to harvest timber from private land do not qualify
as an offset to the grants received under the PFDP pursuant to section
771(6) of the Act. Section 771(6) of the Act specifically enumerates
the only adjustments that can be made to the benefit conferred by a
countervailable subsidy and fees paid by processing facilities do not
qualify as an offset against benefits received by private woodlot
owners.
Consistent with Lumber IV, we have treated these payment as
recurring. See, 19 CFR 351.524(c). Thus, to calculate the
countervailable subsidy provided under this program, we summed the
reported amount of grants provided to producers of softwood lumber
during the POR and divided that amount by total sales of softwood
lumber from Quebec for the POR. Next, as explained in the "Aggregate
Subsidy Rate Calculation" section of this notice, we multiplied this
amount by Quebec's relative share of exports to the United States. On
this basis, we preliminarily have determined the countervailable
subsidy from this program to be less than 0.005 percent ad valorem.
III. Programs Determined To Be Not Countervailable
Program Administered by the Government of Canada
1. Human Resources & Skills Development Worker Assistance Programs
(HRSD)
Pursuant to Canada's Employment Insurance Act (EIA), the GOC
provides "Part I" unemployment compensation to workers and "Part
II" retraining and rehiring assistance to workers, employers and third
parties. This support is administered by HRSD (formerly Human Resources
Development Canada), which delegates the delivery of Part II assistance
to the regional authorities. The EIA account is funded by contributions
from workers and employers. The GOC reports that, although it is
authorized to cover any shortfalls in the program, the EIA account is
currently enjoying a surplus.
In April 2002, in recognition of the increased number of unemployed
workers there, HRSD budgeted C$13 million for the British Columbia-
Yukon Region (BC-Yukon). The GOC states that no funds went to any
employers as a result of this. Instead, these funds were to assist
unemployed workers find new work, i.e., to provide Part II assistance.
According to the GOC, Part II assistance is available to all unemployed
workers across Canada. Moreover, the C$13 million did not represent new
funds; these funds were from the EIA account.
In October 2002, the GOC announced that it would provide C$71
million to assist communities and workers affected by the economic
downturn caused by the U.S. imposition of duties on softwood lumber.
This aid package had three components: the Work Sharing While Learning
Initiative (WSWLI), the Increased Referrals to Training Initiative
(IRTI), and the Older Workers Pilot Projects Initiative (OWPPI). Both
WSWLI and IRTI provide Part I payments in regions with at least 10%
unemployment. WSWLI is available for workers scheduled for lay-off but
retained by firms under a restructuring plan. IRTI allows workers to
quit in advance of a scheduled lay-off, and still receive unemployment
compensation if they enroll in retraining programs. OWPPI, which
provides assistance for retraining older unemployed workers, is a pre-
existing program that was slated to end in March 2003. Under the
October 2002 package, it was extended through March 2004.
The GOC reports that no WSWLI funding was actually provided during
the POR, because the only applicant was determined to be ineligible.
Regarding IRTI, the GOC reports that 168 workers were referred for
training, but that only two workers in Nova Scotia were approved to
leave their jobs prior to their layoff dates in order to pursue
retraining. With regard to OWPPI, the GOC indicates that there were
several projects during the POR, but reported only one that possibly
related to softwood lumber. This project involved 18 older logging
industry workers in Newfoundland.
In the investigation, the Department exempted softwood lumber
products from the Maritime Provinces of New Brunswick, Nova Scotia,
Prince Edward
[[Page 33232]]
Island, and Newfoundland. See Notice of Amended Final Affirmative
Countervailing Duty Determination and Notice of Countervailing Duty
Order: Certain Softwood Lumber Products From Canada, 67 FR at 36071
(May 22, 2002) (CVD Order). Accordingly, any benefits provided to
softwood lumber producers located in those provinces are not subject to
this review. Therefore, we have made no finding of countervailability
with respect to the benefits provided to the two workers in Nova Scotia
and the OWPPI project in Newfoundland.
With respect to the retraining assistance provided in the April
2002 package and any retraining assistance that was funded by the
October 2002 package, the petitioners have alleged that this retraining
relieved softwood lumber producers of obligations to retrain workers
that were being laid off. The GOC responds that employers in Canada
face no statutory or regulatory requirements to provide retraining for
workers whose employment is being terminated. Such obligations, if any,
would exist in the contracts negotiated between the companies and their
employees, though it is not customary to include such retraining
obligations in these contracts.
For purposes of these preliminary results, we have accepted the
GOC's statement that it is not customary for companies to include
mandatory retraining for laid off employees as an element of their
labor contracts. Therefore, we preliminarily have determined that
softwood lumber producers do not have an obligation to retrain laid off
workers and, consequently, that softwood lumber producers have not been
relieved of an obligation by virtue of the GOC's retraining programs.
For the final results, we intend to seek further information to
confirm the GOC's claim regarding the retraining obligations that
softwood lumber producers have assumed.
2. Litigation-Related Payments to Forest Products Association of Canada
(FPAC)
In May 2002, the DFAIT allocated C$17 million in grant money to
FPAC in support of FPAC's Canada-U.S. Awareness Campaign (CUSAC). CUSAC
was a public relations campaign in the United States regarding the
softwood lumber dispute between the two nations. The program was
expanded in November 2002 to include advocacy activities such as
lobbying of U.S. legislators. Of the allotted sum, a total of C$14
million was disbursed during the POR.
We preliminarily have determined that this program does not confer
a countervailable subsidy on the production, sale or exportation of
softwood lumber from Canada. The nature of the public relations
campaign was to influence decision makers in the United States
government, not to advertise Canadian lumber or promote sales of
Canadian lumber in the United States. This campaign was an extension of
the advocacy activities undertaken by the GOC on behalf of the
industry.
We preliminarily have determined that this type of action does not
confer a benefit on the production or exportation of the subject
merchandise and, therefore, does not result in a countervailable
subsidy.
Program Administered by the Province of Alberta
1. Timber Damage Compensation for Forest Management Agreement (FMA)Holders
The petitioners allege that the GOA grants FMA holders the right to
compensation from any person who causes loss or damage to any of the
timber or any improvements created by the holder. The petitioners
explain that energy companies damage large quantities of timber while
drilling oil wells, engaging in exploration, or building pipelines on
an FMA territory, and are then required by law to compensate the FMA
holder for the value of the timber damaged. The petitioners argue that
FMA holders do not pay the GOA for the property rights to the standing
timber and, therefore, the compensation is a grant that the GOA has
entrusted or directed the energy companies and others to pay to FMA
holders.
The GOA states that FMA holders are required to pay for all wood
cut within their designated FMA area. This requirement exists even if
the timber is destroyed by industrial operators such as mining or oil
and gas operations. Therefore, according to the GOA, FMA holders are
entitled to compensation from industrial operators that damage the FMA
holders' timber because the FMA holders must pay the GOA for that
timber.
The record evidence indicates that an FMA holder is required to pay
the GOA for the timber within the FMA holder's area regardless of
whether the FMA holder harvests the timber itself or the timber is
damaged or destroyed by a third party. Specifically, section 91(1) of
the Timber Management Regulation states that "the holder of a forest
management agreement is liable to pay timber dues in respect of timber
for which the holder is, under the terms of the forest management
agreement, entitled to compensation from persons other than the
Crown." See GOA's November 12, 2003, submission at Exhibit 12, page
26. Moreover, the Surface Rights Act establishes that industrial
operators are to pay compensation for damage they cause. Finally, there
is no evidence to indicate that industrial operators have been
entrusted or directed to provide a financial contribution to FMA
holders.
Therefore, we preliminarily have found that this program does not
provide a financial contribution within the meaning of section
771(5)(D) of the Act and, thus, is not countervailable.
Programs Administered by the Province of British Columbia
1. Job Protection Commission
The B.C. Job Protection Commission (the Commission) was created in
1991, pursuant to The Job Protection Act (JPA), 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.
In Lumber IV, the Department stated that although some benefits
were provided under the Economic Plans during the POI, we were unable
to quantify the benefits. We also stated that we would further consider
this issue in the context of any administrative review. See Issues and
Decision Memorandum.
Sections 1-19 of the JPA, were terminated by Order In Council of
the GBC on May 2, 2002. However, Section 20 of the Act, which was not
repealed, allows Sections 1-19 to remain in effect "to the extent
necessary" to give any remaining Economic Plans force and effect after
the repeal. The JPA "analyzed and coordinated" funding under the
Credit Enhancement Emergency Fund (CEEF), which was a temporary
program, lasting from 1996 through 1998, through which several
independent lending institutions made loans to companies that were
adversely affected by the insolvency of Evans Forest Products and the
restructuring of Skeena Cellulose Inc. During the POR, there were no
outstanding loans under the CEEF.
There were eight Economic Plans involving subject merchandise
producers, which included commitments that continued after the repeal
of the JPA. The GBC provided information regarding these Economic
Plans, including copies of each such plan that contained outstanding
government loans or loan guarantees
[[Page 33233]]
during the POR, but did not provide loan repayment information. The GBC
states that it was unable to provide loan repayment information because
these are individual loans that are handled directly by the lending
institutions.
Consistent with section 777A(e)(2)(B) of the Act, we are conducting
this review on an aggregate basis because of the extraordinarily large
number of Canadian producers. Given the nature of this program, and the
limited number of potential subsidy recipients (i.e., eight companies),
any benefits under this program are unlikely to have an impact on the
overall rate. Therefore, we preliminarily have determined that it is
not necessary to analyze this program in this aggregate review.
IV. Programs Determined Not To Confer a Benefit During the POR
Program Administered by the Province of Manitoba
1. Timber Damage Compensation for Timber Licensees
The petitioners allege that the GOM, under the Manitoba Forest Act
(MFA), provides its tenure holders (or licensees) with compensation for
the value of all timber cut, damaged, or destroyed in making roads, or
boring or operating any salt, oil, or gas wells, in working quarries or
mines, or as a result, directly or indirectly, of any such operation or
work. The petitioners claim that this extra revenue provided to timber-
licensees is a benefit because the licensees do not pay for this right
to compensation.
The GOM acknowledges that section 20(2) of The Forest Act
authorizes compensation to be paid to timber licensees for damage to
timber incurred as a consequence of boring or operating any salt, oil,
or gas wells, or in working any quarries or mines. However, the GOM
claims that no compensation has ever been paid for such damages to a
timber licensee. Moreover, given the significant amount of the annual
allowable cut that is uncommitted, no licensee in any area that might
be damaged by industrial users would be unable to access its harvest
volume.
Because there is no evidence that timber licensees in Manitoba
receive compensation for damaged timber, we preliminarily have
determined that this program did not confer a benefit, as defined in
section 771(5)(E) of the Act, during the POR and, thus, provides no
countervailable subsidy.
Programs Administered by the Province of Quebec
1. Assistance From the Societe de Recuperation d'Exploitation et de
Developpement Forestiers du Quebec (Rexfor)
SGF Rexfor, Inc. (Rexfor) is a corporation all of whose shares are
owned by the Societe Generale de Financement du Quebec (SGF). SGF is an
industrial and financial holding company that finances economic
development projects in cooperation with industrial partners. Rexfor is
SGF's vehicle for investment in the forest products industry.
Rexfor receives and analyzes investment opportunities and
determines whether to become an investor either through equity or
participative subordinated debentures. 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. Consistent with Lumber IV, we have not analyzed equity
investments by Rexfor because (1) there was no allegation that Rexfor's
equity investments were inconsistent with the usual investment practice
of private investors, and (2) there is no evidence on the record
indicating that Rexfor's equity investments conferred a benefit.
Also, consistent with Lumber IV, we examined whether Rexfor's
participative subordinated debentures, i.e., loans, conferred a
subsidy. Because assistance from Rexfor is limited to companies in the
forest products industry, we preliminarily have determined that this
program is specific under section 771(5A)(D)(i) of the Act. The long-
term loans provided by Rexfor qualify as a financial contribution under
section 771(5)(D)(i) of the Act. To determine whether the single loan
outstanding to a softwood lumber producer during the POR provided a
benefit, we compared the interest rates on the loan from Rexfor to the
benchmark interest rates as described in the "Benchmarks for Loans and
Discount Rates" section of this notice. See, 771(5)(E)(ii) of the Act.
Using this methodology, we preliminarily have determined that no
benefit was provided by this loan because the interest rates charged
under this program were equal to or higher than the interest rates
charged on comparable commercial loans.
In Lumber IV, the Department noted that one of the loans provided
by Rexfor was to a company that subsequently entered bankruptcy
negotiations with Rexfor and other creditors. As the settlement with
the creditors was subsequent to the POI in Lumber IV, the Department
did not examine this issue and did not determine whether this debt
elimination conferred a countervailable subsidy.
In order for the Department to make such a determination, it is our
practice to analyze the subject country's bankruptcy law and procedures
to determine if bankruptcy protection is available to all types of
companies and if the company in question received special or
differential treatment during the bankruptcy proceeding. See, Final
Affirmative Countervailing Duty Determination and Final Negative
Critical Circumstances Determination: Carbon and Certain Alloy Steel
Wire Rod from Germany, 67 FR 55808 (August 30, 2002) and accompanying
Issues and Decision Memorandum at Comments 6 and 8. In this
administrative review, the record contains no information on Canada's
bankruptcy law or the specific bankruptcy proceeding involving the
company in question. Therefore, we are not able to determine from the
information on the record whether the process followed in eliminating
this debt conferred a subsidy.
Lacking this information, we have also examined whether the debt
forgiveness would confer a benefit during the POR. To do this, we
divided the amount forgiven by the total sales of softwood lumber from
Quebec during the POI. We used the POI denominator because it was the
most contemporaneous with the time of the bankruptcy settlement, which
was prior to the POR. Because the amount of the debt forgiveness was
smaller than 0.5 percent of the value of sales of softwood lumber for
Quebec in the POI, any benefit would be expensed prior to the POR. See
19 CFR 351.524(b)(2).
On this basis, we preliminarily have found that the debt
forgiveness by Rexfor did not confer a benefit in the POR and, thus,
provides no countervailable subsidy.
2. Assistance Under Article 28 of Investissement Quebec
Assistance under Article 28 is administered by Investissement
Quebec, a government corporation. In Lumber IV, the Department
investigated assistance from the GOQ under Article 7, which was
administered by the Societe de Developpement Industriel du Quebec
(SDI). Article 28 supplanted Article 7 in 1998. Under Article 7, SDI
provided financial assistance in the form of loans, loan guarantees,
grants, assumption of interest expenses, and equity investments to
projects that would significantly promote the development of Quebec's
economy.
[[Page 33234]]
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 fundamentally in the same manner as
Article 7.
During the POR, there was one outstanding loan under Article 28.
There were no outstanding loans under Article 7. No other assistance
was provided to softwood lumber companies under Article 7 or Article
28.
To determine whether this loan 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 28 loan to the
benchmark interest rates described in the "Benchmarks for Loans and
Discount Rates" section of this notice. Using this methodology, we
preliminarily have determined that no benefit was provided by this loan
because the interest rates and fees charged under this program were
equal to or higher than the interest rates charged on comparable
commercial loans.
V. Other Programs
Program Administered by the Province of British Columbia
1. "Allowances" for Harvesting Beetle-Infested Timber
The petitioners allege that the GBC provides cash to, or offsets
the costs of, Canadian lumber producers through "allowances" made for
the harvesting of beetle-infested timber.
The GBC stated in it's response that it's does not maintain a
separate program that provides countervailable subsidies to tenure-
holders harvesting Crown timber in areas affected by the mountain pine
bark beetle infestation. According to the GBC, the B.C. stumpage system
merely accounts for certain additional costs incurred in logging
beetle-infested stands. For those interior tenure-holders incurring
such additional costs, as specified in Section 4.1.1 of the Interior
Appraisal Manual, the Ministry of Forests, Revenue Branch, estimates
the incremental costs and adds those to the standard (i.e., industry
average) cost estimates that otherwise apply.
In the Memorandum to Melissa G. Skinner, "New Subsidy
Allegations," dated February 6, 2004 (on file in the CRU), we stated
that during the course of this proceeding, we would investigate whether
this allegation should be examined as a separate program or whether it
should be included in our analysis of the Provincial Governments'
stumpage programs. Based on our analysis of the record, we
preliminarily have determined that any "allowances" provided in
regard to harvesting beetle-infested timber are included in the
Department's stumpage subsidy rate calculations.
2. Land Base Investment Program (LBIP)
In April 2002, the GBC enacted the Forest Investment Account (FIA)
to develop a globally recognized and sustainable managed forest
industry resource. To achieve this goal, the FIA created the LBIP, with
the main purpose of promoting strategic investments to maintain and
improve the B.C. forest resource. The LBIP's strategic objectives are
implemented through projects undertaken in seven component areas:
Strategic Resource Planning, Stand Establishment and Treatment,
Infrastructure, Restoration and Rehabilitation, Information Gathering
and Management, Gene Resource Management, and Training and Extension.
According to the GBC's response the LBIP is focused on land-base
activities that are materially identical to the land-base activities of
Forest Renewal B.C. The GBC further points out that the Department
determined not to investigate the land-base activities of Forest
Renewal BC in Lumber IV.
The Department confirmed at verification the GBC's claim regarding
the similarity of the two programs. Therefore, we are not including the
LBIP in this administrative review.
VI. Programs Determined Not To Be Used
Program Administered by the Government of Canada
1. Canadian Forest Service Industry, Trade & Economics Program (CFS-
ITE)
Program Administered by the Province of British Columbia
1. Payments Associated With Tenure Reclamation Protected Area Forest
Compensation Act
Program Administered by the Province of Quebec
1. Export Assistance Under the Societe de Developpement Industrial du
Quebec/Investissement Quebec ("SDI")
Preliminary Results of Review
In accordance with 777A(e)(2)(B) of the Act, we have calculated a
single country-wide subsidy rate to be applied to all producers and
exporters of the subject merchandise from Canada, other than those
producers that have been excluded from this order. This rate is
summarized in the table below:
------------------------------------------------------------------------
Producer/exporter Net subsidy rate
------------------------------------------------------------------------
All Producers/Exporters................ 9.24%
ad valorem
------------------------------------------------------------------------
If the final results of this review remain the same as these
preliminary results, the Department intends to instruct CBP to assess
countervailing duties as indicated above. The Department also intends
to instruct CBP to collect cash deposits of estimated countervailing
duties of 9.24 percent of the f.o.b. invoice price on all shipments of
the subject merchandise from reviewed companies, entered, or withdrawn
from warehouse, for consumption on or after the date of publication of
the final results of this review.
Public Comment
Pursuant to 19 CFR 351.224(b), the Department will disclose to
parties to the proceeding any calculations performed in connection with
these preliminary results within five days after the date of
publication of this notice. Pursuant to 19 CFR 351.309, interested
parties may submit written comments in response to these preliminary
results. Case briefs must be submitted within 30 days after the date of
publication of this notice, and rebuttal briefs, limited to arguments
raised in case briefs, must be submitted no later than seven days after
the time limit for filing case briefs. Parties who submit argument in
this proceeding are requested to submit with the argument: (1) A
statement of the issues, and (2) a brief summary of the argument. Case
and rebuttal briefs must be served on interested parties in accordance
with 19 CFR 351.303(f). Please note that an interested party may still
submit case and/or rebuttal briefs even though the party is not going
to participate in the hearing.
In accordance with 19 CFR 351.310, we will hold a public hearing,
if requested, to afford interested parties an opportunity to comment on
these preliminary results. Any requested hearing will be held at the
U.S. Department of Commerce, 14th Street and Constitution Avenue, NW.,
Washington, DC 20230. Individuals who wish to request a hearing must
submit a written request within 30 days of the publication of this
notice in the Federal Register to the Assistant Secretary for Import
Administration, U.S. Department
[[Page 33235]]
of Commerce, Room 1870, 14th Street and Constitution Avenue, NW.,
Washington, DC 20230.
Requests for a public hearing should contain: (1) The party's name,
address, and telephone number; (2) the number of participants; and, (3)
to the extent practicable, an identification of the arguments to be
raised at the hearing. An interested party may make an affirmative
presentation only on arguments included in that party's case or
rebuttal briefs.
This administrative review is issued and published in accordance
with section 751(a)(1) and 777(i)(1) of the Act (19 U.S.C. 1675(a)(1)
and 19 U.S.C. 1677f(i)(1)).
Dated: June 2, 2004.
John J. Jochum,
Assistant Secretary for Import Administration.
[FR Doc. 04-13072 Filed 6-10-04; 8:45 am]