[Federal Register: June 7, 2005 (Volume 70, Number 108)]
[Notices]
[Page 33088-33116]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr07jn05-29]
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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.
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 April 1, 2003,
through March 31, 2004. 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 7, 2005.
FOR FURTHER INFORMATION CONTACT: Stephanie Moore at (202) 482-3692, or
Robert Copyak at (202) 482-2209, AD/CVD Operations, Office 3, 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 (CVD)
determination and CVD order on certain softwood lumber products from
Canada (67 FR 37775, May 30, 2002). On May 3, 2004, the Department
published a notice of opportunity to request an administrative review
of this CVD order.
[[Page 33089]]
See Antidumping or Countervailing Duty Order, Finding, or Suspended
Investigation; Opportunity to Request Administrative Review, 69 FR
24117 (May 3, 2004). 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 requests for review covering an estimated 263
individual companies.\1\ On June 25, 2004, we initiated the review
covering the period April 1, 2003, through March 31, 2004. See 69 FR
39409.
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\1\ Of these 263 company-specific requests, 116 were for zero/de
minimis rate reviews under 19 CFR 351.213(k)(1).
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On July 30, 2004, we 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). See the memorandum to
James J. Jochum, Assistant Secretary for Import Administration, from
Jeffrey May, Deputy Assistant Secretary for Import Administration,
entitled, ``Methodology for Conducting the Review,'' dated July 30,
2004, which is a public document on file in the Central Records Unit
(CRU) in room B-099 of the main Commerce building. The Department
further determined that it was not practicable to conduct any form of
company-specific review. Id.
On September 8, 2004, we issued our initial questionnaire to the
GOC as well as to the Provincial Governments of Alberta (GOA), British
Columbia (GOBC), Manitoba (GOM), New Brunswick (GONB), Newfoundland
(GON), Nova Scotia (GONS), Ontario (GOO), Prince Edward Island (GOPEI),
Quebec (GOQ), and Saskatchewan (GOS).
On September 30, 2004, we extended the period for completion of
these preliminary results until May 31, 2005, 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 58394 (September 30,
2004).
On November 22, 2004, the GOC, GOA, GOBC, GOM, GONB, GON, GONS,
GOO, GOPEI, GOQ, and GOS submitted their initial questionnaire
responses.
From February through May 2005, we issued a series of supplemental
questionnaires to the GOC, GOBC, GOA, GOS, GOM, GOO, GOQ, GONS, and
GONB. The Federal and Provincial Governments of Canada responded to all
supplemental questionnaires in a timely manner.
Pursuant to 19 CFR 351.301, the deadline for interested parties to
submit factual information is 140 days after the last day of the
anniversary month. However, both petitioners' and the Canadian parties
requested that the Department extend this due date. After a series of
extensions, we established that the deadline for interested parties to
submit factual information would be March 2, 2005. Accordingly, the due
date for submitting rebuttal and/or clarifying information was extended
to March 15, 2005. Both petitioners and the Canadian parties submitted
factual information by the March 2 and March 15 deadlines.
Period of Review
The period of review (POR) for which we are measuring subsidies is
April 1, 2003, through March 31, 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
[[Page 33090]]
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 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
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) (Preliminary Determination); see also 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) (Final Determination). 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 are for less than adequate remuneration. See, e.g., ``Recurring
and Non-Recurring Benefits'' section of the March 21, 2002, Issues and
Decision Memorandum the accompanied the Final Determination (Final
Determination Decision Memorandum); see also Notice of Preliminary
Results of Countervailing Duty Administrative Review: Certain Softwood
Lumber Products from Canada, 69 FR 33204 (June 14, 2004) (Preliminary
Results of 1st Review). For the reasons described in the program
sections, below, the Department continues to find that Canadian
provinces sell Crown timber for less than adequate remuneration to
softwood lumber producers in Canada. Pursuant to 19 CFR 351.524(c)(1),
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
[[Page 33091]]
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 19 CFR 351.524, 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. However, under 19 CFR
351.524(b)(2), 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).
We have preliminarily determined to expense all grants under non-
stumpage programs in the year of receipt.
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 we are not examining individual companies, for those programs
requiring 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, small and medium enterprise (SME) rate, three-month corporate
paper rate, and one-month bankers' acceptance rate, as reported by the
Bank of Canada. For long-term debt, the GOC provided quarterly implied
rates calculated from long-term debt and the interest payments made on
long-term debt as reported by Statistics Canada (STATCAN). Based on
these rates, we derived simple averaged POR rates for both short-term
and long-term debt.
Some of the reviewed programs provided long-term loans to the
softwood lumber industry with variable interest rates instead of fixed
interest rates. Because we were unable to gather information on
variable interest rates charged on commercial loans in Canada, we have
used as our benchmark for those variable loans the rate applicable to
long-term fixed interest rate loans for the POR as reported by the GOC.
Aggregate Subsidy Rate Calculation
As noted above, this administrative review is being conducted on an
aggregate basis. We have used the same methodology to calculate the
country-wide rate for the programs subject to this review that we used
in the Final Determination and Notice of Final Results of
Countervailing Duty Administrative Review and Rescission of Certain
Company-Specific Reviews: Certain Softwood Lumber Products from Canada,
69 FR 75917 (December 20, 2004) (Final Results of 1st Review).
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 ``Numerator and Denominator Used for
Calculating the Stumpage Programs' Net Subsidy Rates'' 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 Final Determination and the
Final Results of the 1st Review, these weight-averages of the subject
merchandise do not include exports from the Maritime Provinces or sales
of companies excluded from the countervailing duty order.\4\ We then
summed these weight-average subsidy rates to determine the country-wide
rate for all provincial Crown stumpage programs.
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\4\ The Maritime provinces are Nova Scotia, New Brunswick,
Newfoundland, and Prince Edward Island.
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Other Programs
We also examined a number of non-stumpage programs administered by
the Canadian Federal Government and certain Provincial Governments in
Canada. To calculate the country-wide rate for these programs, we used
the same methodology employed in the first administrative review. For
federal programs that were found to be specific because they were
limited to certain regions, we calculated the countervailable subsidy
rate by dividing the benefit by the relevant denominator (i.e., total
production of softwood lumber in the region or total exports of
softwood lumber to the United States from that region), and then
multiplying that result by the relative share of total softwood exports
to the United States from that region. For federal programs that were
not regionally specific, we divided the benefit by the relevant
country-wide sales (i.e., total sales of softwood lumber, total sales
of the wood products manufacturing industry (which includes softwood
lumber), or total sales of the wood products manufacturing and paper
industries).
For provincial programs, we calculated the countervailable subsidy
rate by dividing the benefit by the relevant sales amount for that
province (i.e., total exports of softwood lumber from that province to
the United States, total sales of softwood lumber in that province, or
total sales of the wood products manufacturing and paper industries in
that province). That result was then multiplied by the relative share
of total softwood exports to the United States from that province.
Where the countervailable subsidy rate for a program was less than
0.005 percent, the program was not included in calculating the country-
wide countervailing duty rate.
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\5\ The denominators used for non-stumpage programs are
discussed below in the individual program write-ups.
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Numerator and Denominator Used for Calculating the Stumpage Programs'
Net Subsidy Rates\5\
1. Aggregate Numerator and Denominator
As noted above, the Department is determining the stumpage
subsidies to the 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 final results of the first review, the Department
explained that in the numerator of the net subsidy rate calculation,
the Department
[[Page 33092]]
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). See ``Denominator'' section of the December
13, 2004, Issues and Decision Memorandum that accompanied the Final
Results of 1st Review (Final Results of 1st Review Decision
Memorandum). Accordingly, the denominator used for the final
calculation included only those products that result from the softwood
lumber manufacturing process. Id. For purposes of these preliminary
results, we continue to calculate the numerator and denominator using
the approach adopted in the final results of the first review.\6\
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\6\ In the case of Alberta and British Columbia, it was
necessary to derive the volume of softwood Crown logs that entered
and were processed by sawmills during the POR (i.e., logs used in
the lumber production process). Our methodology for deriving those
volumes is described in the Calculation of Provincial Benefits
section of these preliminary results.
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Consistent with the Department's previously established
methodology, we included the following in the denominator: softwood
lumber, including softwood lumber that undergoes some further
processing (so-called ``remanufactured'' lumber), softwood co-products
(e.g., wood chips and sawdust) that resulted from softwood 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.
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 producers in
the remanufacturing 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 of 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. See Final Results of 1st Review Decision Memorandum
at Comment 16.
2. Adjustments to Account for Companies Excluded from the
Countervailing Duty Order
In the investigation, we deducted from the denominator 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); see also Notice of Final Results
of Countervailing Duty Expedited Reviews of the Order on Certain
Softwood Lumber from Canada, 69 FR 10982 (March 9, 2004). In the final
results of the first review, we removed the sales of companies excluded
from the countervailing duty order from the relevant sales denominators
of our country-wide rate calculations. See ``Excluded Companies''
section of the Final Results of 1st Review Decision Memorandum.
In its case briefs submitted for consideration in the final results
of the first review, the GOC argued for the first time in that
proceeding that, for the numerator and denominator to match, the
Department must also reduce the numerator to account for any de minimis
benefits received by the excluded companies.\7\ See, e.g., Final
Results of 1st Review Decision Memorandum at Comment 15. We agreed with
the GOC in principle. Id. However, because the GOC first raised the
issue in its case briefs, the Department was unable to solicit the
information from the excluded Canadian parties regarding the
appropriate numerator. Thus, we placed the exclusion calculations from
the underlying investigation and expedited reviews on the record of the
first review. Id. We then multiplied the countervailable volumes of
logs and lumber reported by the excluded companies by each subject
provinces' weight-average unit benefit. The resulting products were
then removed from provincial stumpage benefit of each of the
corresponding province. See Final Results of 1st Review Decision
Memorandum at Comment 15.
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\7\ Though excluded from the countervailing duty order, many
companies involved in the exclusion and/or expedited review
processes received de minimis levels of countervailable benefits.
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In the current review, we requested benefit and sales data, on an
aggregate basis for each province, as they pertained to the excluded
companies during the POR. [bsol] page 2 of our April 8, 2005
supplemental questionnaire. The GOC, GOO, and GOQ responded that they
did not have the requested POR sales data. See page 2 of the GOC's
April 28, 2005 questionnaire response. Regarding the benefit
information we requested, the GOQ and GOO stated that the excluded
companies in their respective provinces did not harvest Crown timber
during the POR. The GOC stated the same with respect to the excluded
companies in the Yukon Territories. Id. at page 6. The GOC, GOO and GOQ
further claimed they did not have any information regarding the volume
of lumber and/or Crown logs purchased by the excluded companies during
the POR.
Pursuant to our prior practice and, as discussed above, 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. Because we lack POR sales data from the
excluded companies, we have, consistent with our approach in the final
results of first review, indexed the excluded companies' sales data to
the POR using province-specific lumber price indices obtained from
STATCAN. We then subtracted the indexed sales data of the excluded
companies from the corresponding provincial denominators. See
Preliminary Results of 1st Review, 69 FR at 33207 and the ``Excluded
Companies'' section of the Final Results of 1st Review Decision
Memorandum.
Because the Canadian parties have stated that the excluded
companies did not acquire Crown timber during the POR and because they
have not provided any other additional benefit data from the companies,
we have not adjusted the aggregate numerator data from the relevant
provinces.
3. Pass-through
In the first administrative review, the Canadian parties claimed
that a portion of the Crown timber processed by sawmills was purchased
by the mills in arm's-length transactions with independent harvesters.
The Canadian parties further claimed that such transactions must not be
included in the subsidy calculation unless the Department determines
that the benefit to the independent harvester passed through to the
lumber producers. In the first review, we determined that Alberta,
British Columbia (B.C.), Manitoba, Ontario, and Saskatchewan each
failed
[[Page 33093]]
to substantiate this claim. See Preliminary Results of 1st Review, 69
FR at 33208, 33209 and Comments 10 and 11 of the Final Results of 1st
Review Decision Memorandum.
The basis of our determination in the first administrative review
was that transactions cannot be considered arm's-length transactions if
they are characterized by limitations that constrain buyers and sellers
of harvested Crown timber or other conditions that render those sales
ineligible for the pass-through analysis. The limitations and other
conditions we identified include (1) government-imposed appurtenancy
and local processing requirements; (2) government-mandated wood supply
agreements; (3) the structure of certain log purchase agreements; (4)
fiber exchanges between Crown tenure holders; and (5) the payment of
Crown stumpage fees by sawmills for logs purchased from independent
harvesters. Thus, the starting point of our analysis was to examine
whether in these log sale transactions the ability of a buyer or seller
to bargain freely with whomever they chose was encumbered by government
mandates or other conditions that render those sales not at arm's-
length or otherwise ineligible for the pass-through analysis. If a
transaction was conducted under the constraint(s) of one or more of
these factors, we determined that it was not conducted at arm's-length
or otherwise is ineligible for a pass-through analysis, and no
adjustment to the stumpage calculation was warranted. For example,
where we found that the sawmills paid the Crown for stumpage fees for
logs acquired from so-called independent harvesters, no pass-through
analysis was warranted because any benefits go directly to the sawmill.
Id.
In anticipation of a similar claim in this administrative review,
we requested in the initial questionnaire that each of the Canadian
provinces report, by species, the volume and value of Crown logs sold
by independent harvesters to unrelated parties during the POR. See
e.g., page III-22 of the Department's September 8, 2004, initial
questionnaire. In response to the Department's original questionnaire,
the Canadian parties provided two sets of information for us to
analyze. The GOA, GOBC, British Columbia Lumber Trade Counsel (BCLTC),
and GOO each provided an ``aggregate'' claim (with accompanying
information) of the amount of Crown timber that was obtained by the
sawmills through arm's-length transactions. The Ontario Lumber
Manufacturers Association (OLMA) also provided company-specific
transaction data and supporting information for us to analyze with
respect to Ontario and Manitoba. Regarding Quebec, the GOQ asserted
that the Department would have to conduct a pass-through analysis
before it included any softwood log volumes harvested under Forest
Management Contracts (FMCs) and Forest Management Agreements (FMAs).\8\
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\8\ The GOM and GOS did not claim that their sawmills purchased
Crown logs in arm's length transactions. See page MB-69 of the GOM's
November 22, 2004 questionnaire response and page SK-99 of the GOS's
November 22, 2004 questionnaire response. Therefore, we have
preliminarily concluded that a pass-through analysis is not
warranted for Manitoba and Saskatchewan.
---------------------------------------------------------------------------
We have reviewed and considered all of the information provided on
the record of this administrative review. We determine that none of the
provinces or parties provided any new information regarding their
aggregate claims which warrants a change in or departure from the
methodology we used in the first administrative review. As in the first
administrative review, we determine that Alberta, B.C., Manitoba,
Ontario, and Saskatchewan each failed to provide the information
necessary to demonstrate that the transactions included in their
respective ``aggregate'' claims were in fact conducted at arm's length.
Consistent with our determination in the first administrative review,
we also determine that no pass-through analysis is warranted for many
of the transactions, e.g., where the sawmill paid the stumpage fee
directly to the Crown, and for fiber exchanges between Crown tenure
holders. We therefore preliminarily determine that changes to the
subsidy calculation based on the provinces' ``aggregate'' claims are
not warranted.
However, for purposes of these preliminary results, we
preliminarily determine that, based our analysis of the company-
specific data and information provided by the OLMA, a reduction in the
Ontario subsidy benefit is warranted. Our analysis and preliminary
findings with respect to these claims are detailed, by province, below.
a. Alberta
In the first review, the GOA claimed that the numerator of
Alberta's provincial subsidy rate calculation should be reduced to
account for fair-market, arm's length sales of Crown logs between
unrelated parties. The GOA based its claim on a survey of TDA
transactions that was conducted by a private consulting firm hired by
the GOA. See Preliminary Results of 1st Review, 69 FR at 33208. In the
final results of the first review, the Department found that it is
common for sawmills in Alberta to enter into agreements where a tenure-
holding independent harvester will supply timber to the sawmills but
the sawmill will pay the stumpage directly to the GOA. Id.; see also
Final Results of 1st Review Decision Memorandum at Comment 11.
Accordingly, we found that in such transactions, known as ``delegation
of signing authority'' or SA agreements, any stumpage benefit would go
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. We therefore found that the GOA failed to
substantiate that the volumes in the TDA survey were free of any
volumes associated with SA agreements and, thus, the GOA's pass-through
claim was not warranted. Id.
In the current review, we stated that for any pass-through claim,
the GOA had to provide a breakdown by species of the total volume and
value that it claims did not pass-through to the purchasing sawmill.
See page III-22 of our September 8, 2004 questionnaire. We also
instructed the GOA not to include in its pass-through claim any
purchases for which the mills paid the stumpage fee to the Crown. Id.
The GOA claimed in its initial questionnaire response that ``at
least by 1.7 million cubic meters of softwood logs were purchased by
Alberta mills in arm's length, cash only transactions with unrelated
parties.'' See page XII-1 and AB-S-76 of the GOA's November 22, 2004
questionnaire response. As in the first review, the GOA based its
contention on the TDA survey, as updated for the POR. We note that the
updated TDA survey and the GOA's questionnaire responses do not
indicate whether the volumes it analyzed were subject to SA agreements.
See page 45 of the GOA's April 8, 2005 supplemental questionnaire
response.
In fact, regarding the TDA survey, the GOA stated that ``Alberta
does not have access to the detailed information on log sales collected
on a company-by-company basis by the independent private consultant . .
.'' hired by the GOA to conduct the TDA survey. See page XII-2 of the
GOA's November 22, 2004 questionnaire response.
Given the GOA's failure to indicate whether the sales in the TDA
survey were made pursuant to SA agreements, and the GOA's statement
that it lacked access to company-specific data collected by the
consultant it hired to conduct the TDA survey, we asked the GOA to
respond to the pass-through
[[Page 33094]]
questions contained in our initial questionnaire without reliance on
the TDA survey. See page 9 of our March 16, 2005 supplemental
questionnaire. In particular, we instructed the GOA to:
. . . breakout all data on arm's length log transactions and
include information regarding the volume, value, species, corporate
affiliations of the parties subject to the transaction, {as well
as{time} a chart identifying whether or not the transaction is subject
to a delegation of signing authority (SA) agreement.
Id. The GOA responded that it did not maintain or collect such
information as any part of its normal function and that it had no means
on its own to respond to our pass-through questions aside from the TDA
survey. See page 45 of the GOA's April 8, 2005 supplemental
questionnaire response.
In our subsequent supplemental questionnaire, we noted the GOA's
claims regarding its inability to respond to our pass-through questions
without reliance on the TDA survey and pointed out that in the
concurrent Section 129 proceeding the GOA was, indeed, able to report
company-specific data separate from the TDA survey in response to the
same pass-through questions.\9\ We therefore asked the GOA to provide
in this review the same type of company-specific data, updated for the
POR. See page 2 of the Department's April 21, 2005 supplemental
questionnaire. In response to our request for company-specific pass-
through information that was not reliant on the TDA survey, the GOA
answered that the Province ``does not keep the information requested
here'' and it reiterated its assertion that the Department should
conduct its pass-through analysis for Alberta using the TDA survey. See
page 2 of its May 2, 2005 questionnaire response.
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\9\ In our April 21, 2005 supplemental questionnaire, we
inadvertently referred to the first administrative review of the
countervailing duty order when we should have instead referred to
the Section 129 proceeding concerning the pass-through issue in the
underlying investigation.
---------------------------------------------------------------------------
The GOA further stated that, ``in an effort to provide some
additional information,'' it contacted PricewaterhouseCoopers LLP (PwC)
to provide a ``limited'' update of the survey that was included in the
pass-through claim the GOA made in the context of the Section 129
proceeding. Id. PWC performed this update of the Section 129 data using
information held by the GOA on volumes of section 80/81 wood
purportedly transferred to tenure-holding sawmills from unrelated
parties. Id.
In regard to the volume represented in the TDA survey, we note that
the GOA failed to indicate whether the sales in the TDA survey were
made pursuant to SA agreements and the GOA explained that it lacks
access to the underlying company-specific data. Regarding the claimed
lack of access, the GOA has been unable or unwilling to demonstrate
that it made reasonable efforts to obtain the necessary company-
specific data. Consequently, we preliminarily find that we are unable
to rely on the TDA survey as a basis for the GOA's pass-through claim.
Regarding the data supplied by the PwC, we note that, by the GOA's
own admission, the data constitutes a ``limited'' survey population
and, thus, does not reflect the total volumes included in the pass-
through claim made by the GOA in this review. See page 2 and Exhibit
AB-S-102 of the GOA's May 2, 2005 supplemental questionnaire response.
Further, the information from PwC does not include any documentation
regarding purchase agreements, as requested in our April 21, 2005
questionnaire.\10\ See pages 1-3 and Exhibit AB-S-102 of the GOA's May
2, 2005 supplemental questionnaire response. Moreover, the information
from PwC lacks any corresponding value information that would enable
the Department to conduct its pass-through analysis on a transaction-
specific basis. Id. The GOA has been unable or unwilling to explain why
it has not supplied the necessary information. Therefore, we
preliminarily determine to reject the information from the PwC as a
basis for the GOA's pass-through claim.
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\10\ As explained above, it is necessary to examine purchase
contacts in order to determine whether they were structured as SA
agreements. In addition, it is necessary to review the purchase
contracts to ensure that the transactions were made at arm's length,
i.e., were not affected by any additional factors we previously
identified, including: (1) limitations on log sales that may be
contained in Crown tenure contracts such as appurtenancy
requirements (2) local processing requirements, or (3) fiber
exchanges between Crown tenureholders.
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Therefore, based on our findings above, we preliminarily determine
that a pass-through analysis for Alberta is not warranted.
b. British Columbia
The GOBC claims that 14.7 million cubic meters of Crown timber, or
22 percent of the total Crown softwood log harvest, was harvested by
so-called independent harvesters, i.e., harvesters that do not own and
are not affiliated with sawmills during the POR. The GOBC further
claims that no subsidy that may be attributable to this harvest volume
passed through to purchasing sawmills and, thus, the volumes should not
be included in the numerator of British Columbia's provincial subsidy
rate calculation. See page BC-XIV-2 of the GOBC's November 22, 2004
questionnaire response. In support of this claim, the GOBC provided
survey data on what were purported to be B.C.'s primary sawmills'
arm's-length log purchases. These data, covering the prior review
period, were originally placed on the record of the first review by the
BCLTC. See ``Norcon Forestry Ltd. Survey of Primary Sawmills' Arm's
Length Log Purchases in the Province of British Columbia,'' which was
placed on the record of this review at Volume IV, Exhibit 24 A, B of
the BCLTC's February 24, 2005 submission (Norcon Study).\11\
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\11\ In its initial questionnaire response, the GOBC claimed
that the BCLTC would provide a Norcon Study updated for the POR of
this review. See page BC-XIV-1 of the GOBC's November 22, 2004
questionnaire response.
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In the first review, the Department found that the transactions in
the Norcon Study involved sales of Crown logs through Section 20
auctions as well as sales to mills by small woodlot owners. See e.g.,
Preliminary Results of 1st Review, 69 FR 33208 and Final Results of 1st
Review Decision Memorandum at Comment 10. In the first review, we
further found that most of the Section 20 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. Id. As explained above,
in the first review, we determined that no pass-through analysis is
warranted where the sawmill or some third-party company pays Crown
stumpage fees for logs purchased from independent harvesters. See Final
Results of 1st Review Decision Memorandum at Comment 10.
In addition to the information in the Norcon Study, evidence
obtained in this review further supports our finding that sawmills pay
the stumpage fee directly to the Crown for logs purchased from so-
called independent harvesters. See Exhibits BC-S-245, 246, and 247 of
the GOBC's April 21, 2005 questionnaire response, which contain source
documents illustrating how sawmills pay for stumpage on Section 20
sales. Thus, under such arrangements, any stumpage benefit would go
directly to the sawmills paying the stumpage fee, just as if the
sawmill were drawing from its own tenure and contracting out for
harvesting and hauling services, thereby eliminating the need for a
pass-through analysis.
[[Page 33095]]
In the prior review, we determined that log sales cannot be
considered to be arm's-length transactions where there are restrictive
government-imposed appurtenancy and local processing requirements that
dictate to the harvester those entities to whom it may sell, thereby
severely hampering the ability of the harvesters to bargain freely with
willing purchasers in the marketplace. See Final Results of 1st Review
Decision Memorandum at Comment 10. However, in this review the GOBC has
stated that amendments to the Forest Act, effective November 2003,
nullified the timber processing and appurtenancy clauses for
replaceable and non-replaceable licenses older than 10 years. For
licenses in effect fewer than 10 years, the timber processing and
appurtenancy clauses will expire with the licenses or be nullified upon
the license's tenth anniversary. Further, the GOBC claims that no new
licenses advertised after November 4, 2003 contain any of these
clauses. See GOBC's November 22, 2004 questionnaire response at BC-III-
11 and GOBC's April 13, 2005 questionnaire response at page 60.
In light of the GOBC's new legislation and because pre-existing
licenses continued to retain the appurtenancy clauses we identified in
the prior review, we requested that the GOBC demonstrate that none of
the tenure agreements for which it claimed no benefits passed through
from the independent harvesters to the sawmills contained any of these
restrictive clauses. In response, the GOBC claimed that the timber
processing and appurtenancy clauses have no impact on the arm's length
transactions and are therefore irrelevant to the Department's pass-
through analysis. As to our request that it demonstrate that none of
the tenure agreements included in its pass-through claim contained any
restrictive clauses, the GOBC claimed that it could not provide such
information because it would be burdensome. See page 61 of the GOBC's
April 13, 2005 questionnaire response. Instead, the GOBC provided some
copies of the types of tenure agreements that may have been held by so-
called independent harvesters during the POR. However, regarding these
agreements, the GOBC provided no information linking the tenure
agreements it submitted to those transactions included in its no-pass-
through claim (e.g., several of the submitted agreements were merely
blank templates). Therefore, for purposes of these preliminary results,
we find that the GOBC has failed to demonstrate that the restrictive
clauses were eliminated as a consequence of the amendments to the
Forest Act. We also continue to disagree with the GOBC that these
restrictions are irrelevant to the pass-through analysis. These
government-imposed restrictions severely limit the ability of buyers
and sellers of logs to bargain freely with whomever they choose or to
bargain on terms that are not encumbered by government mandates.
For the reasons explained above, and the fact that the GOBC has not
submitted any new information that warrants reconsideration of the
Department's prior findings, we preliminarily conclude that the GOBC
has failed to adequately substantiate its pass-through claim, and no
adjustment to the provincial numerator has been made.
c. Ontario
As mentioned above, in response to the Department's initial
questionnaire, the GOO submitted an ``aggregate'' claim of the portion
of the Crown timber processed by Ontario sawmills that was purchased in
arm's-length transactions. The GOO made a claim of no pass-through for
2,459,812 cubic meters or 23.55 percent of the total invoiced volume of
Crown timber entering the largest 25 sawmills in Ontario during the
POR. In support of this claim, the GOO provided a breakdown of log
transactions between the 25 largest mills in Ontario and tenure holders
that do not own a sawmill, and certifications from officials of three
mills each stating that their mill is not affiliated with its timber
suppliers. The OLMA separately submitted company-specific information
for one harvester and eight mills. The information included
transaction-specific data, statements and certification of non-
affiliation, and additional supporting documentation.
For the reasons described below, we preliminarily determine that
the GOO failed to substantiate its ``aggregate'' no-pass-through claim.
Although the Department accepts the three certifications of non-
affiliation provided by the GOO, the GOO's submission is lacking
certifications for the other mills it included in its claim.
Furthermore, in the initial questionnaire, we requested that the GOO
``not include (as part of its claim) any transactions that were made
pursuant to wood supply commitments or purchases for which the mills
paid the stumpage to the Crown rather than the harvester.'' page VI-22
of the Initial Questionnaire at ``Section VI: Questionnaire for the
Province of Ontario. However, the GOO did not delineate the
transactions in which the mills paid the stumpage fees directly to the
Crown or the transactions that were made under a wood supply commitment
letter or a wood supply agreement. See pages ON-237 and ON-238 of Vol.
1 of 19 and exhibit ON-PASS-1 of Vol. 17 of 19 of the GOO's November
22, 2004, initial questionnaire response. Due to these deficiencies, we
are unable to conduct a pass-through analysis using the ``aggregate''
data provided by the GOO. We therefore preliminarily determine that
changes to the subsidy calculation based on the GOO's ``aggregate'' no-
pass-through claim are not warranted.
With respect to the company-specific data and information provided
by the OLMA, we preliminarily determine that these are sufficient for
purposes of conducting a pass-through analysis. We accept the
certifications by the companies that the transactions they reported
were between unaffiliated parties. In addition, the company-specific
data clearly identified those transactions for which the harvesters
(rather than the mills) paid the stumpage fees and those that were not
subject to other restrictions, such as government-mandated wood supply
commitments or fiber exchange agreements. Accordingly, we determine
that a portion of the log sale transactions reported by the OLMA were
conducted at arm's-length and were otherwise not affected by other
conditions during the POR.
For these transactions, we then performed the next step of our
pass-through analysis by examining whether the mill received a
competitive benefit from the purchase of the subsidized logs. This
competitive benefit analysis is guided by the provisions of the
Department's regulation on upstream subsidies. See 19 CFR 351.523.
Under this analysis, a competitive benefit exists when the price for
the input is lower than the price for a benchmark input price. The
Department's regulations provide for the use of actual or average
prices for unsubsidized input products, including imports, or an
appropriate surrogate as the benchmark input price.
We have previously determined that the record in the first
administrative review did not contain any private prices in Ontario
that were suitable for use as benchmarks to measure the adequacy of
remuneration for Crown provided stumpage. See ``Private Provincial
Market Prices'' section and Final Results of 1st Admin Review at
Comments 20, 21. As explained in ``Provincial Stumpage Programs''
below, we have reached the same conclusion
[[Page 33096]]
based on the record in this proceeding. We have also explained in the
first administrative review with respect to British Columbia, that
``stumpage and log markets are closely intertwined and therefore Crown
stumpage prices affect both stumpage and log prices, `` and that
subsidized prices in the stumpage market would result in price
suppression in log markets. Id. at ``B.C. Log Prices Are Not An
Appropriate Benchmark.'' We have reached the same conclusion with
respect to the log markets in Ontario. In Ontario, Crown timber
supplies a dominant portion of the market, and the unit cost of this
supply effectively determines the market prices of logs in Ontario. As
shown on the record in this review and the prior review, the prices
harvesters charge for logs are derived directly from the prices they
pay for stumpage plus harvesting costs. Because of the relationship
between timber (stumpage) and log prices, prices for logs in Ontario
would be suppressed by the subsidized prices in the timber markets. As
such, log prices in Ontario are unsuitable for purposes of measuring
whether a competitive benefit has passed-through in transactions
involving sales of Crown logs.
Instead, we have turned to private stumpage prices in the
Maritimes, which we have determined are market-determined, in-country
prices. However, because we are measuring the competitive benefit for
the sale of subsidized logs, we have derived species-specific benchmark
log prices by combining the unsubsidized Maritimes stumpage prices with
the various harvest, haul, road, and management costs reported by the
GOO.
We then compared the per unit prices listed for each transaction
reported by the OLMA that we determined was eligible for a competitive
benefit analysis with our benchmark log prices. If the price per cubic
meter was equal to or higher than the benchmark price, we determined
that no competitive benefit passed through and the corresponding volume
was excluded from the numerator of our calculations. Where the per unit
price was lower than the benchmark price, and where the difference
between the benchmark and actual log prices was greater than that
province-specific per-unit stumpage benefit (e.g., C$8.74 for Ontario
SPF), we capped the amount of the subsidy considered to have ``passed-
through'' by the province-specific per-unit stumpage benefit. As such,
the amount of the competitive benefit that calculated as was not passed
though in the transaction was never greater than the subsidy granted by
the Crown. The result of these calculations is that only a small
portion of the Crown harvest volume originally included in the
numerator is excluded from the numerator of our revised subsidy
calculations. Accordingly, a small reduction in the Ontario subsidy
benefit is warranted. The calculations are business proprietary. See
the May 31, 2005, Preliminary Calculations Memorandum for Ontario. As
noted above, if we were unable to determine that the transaction
qualified as an arm's-length transaction or was subject to other
conditions (e.g., the stumpage for the log was paid by the harvester),
we did not conduct a competitive benefit analysis and the corresponding
volume associated with these transactions was not excluded from the
subsidy calculation.
d. Manitoba
The Canadian parties and the GOM did not make an ``aggregate''
claim of the portion of the Crown timber processed by Manitoba sawmills
that was purchased in arm's-length transactions. Rather, the OLMA
submitted company-specific information on behalf of Tembec Inc.
We determine that the company-specific data and information
provided by the OLMA are sufficient for purposes of our analysis and
that a portion of the transactions in Manitoba constitute arm's-length
sales of logs by independent harvesters to unaffiliated sawmills during
the POR. We accept the statement that ``with respect to its operations
in Manitoba, Tembec is an independent harvester.'' See page 4 of Volume
1 of the OLMA''s November 22, 2004, submission. In addition, the
information and data provided indicate that the transactions were not
characterized by the limitations which constrain buyers and sellers of
harvested Crown timber from free negotiation, described above.
Accordingly, we determine that a portion of the transactions in
Manitoba constitute arm's-length sales of logs by independent
harvesters to unaffiliated sawmills during the POR.
We applied the same methodology as described above in the Ontario
pass-through section when conducting our competitive benefit analysis.
Because the GOM did not submit any log pricing data on the record, we
derived the species-specific benchmark log price by combining the
private market-determined, in-country Maritime stumpage prices with the
various costs reported by the GOM. Because the GOM did not report
certain harvesting costs and hauling costs, we used, where necessary,
harvesting and hauling costs placed on the record by the GOO as
surrogates. The result of these calculations is that none of the Crown
harvest volume originally included in the numerator is excluded from
the numerator of our revised subsidy calculations. Accordingly, no
reduction in the Manitoba subsidy benefit is warranted. The
calculations contain business proprietary information and, thus, cannot
be discussed in further detail in these preliminary results. Therefore,
for further details, see the May 31, 2005, Preliminary Calculations
Memorandum for Manitoba.
e. Quebec
In the first review, the Department did not include Crown timber
harvested by FMC and FMA licensees in the numerator of Quebec's
provincial subsidy rate calculation. While we acknowledged that
evidence on the record of the first review demonstrated that some of
the timber harvested under FMCs was sold to sawmills during the POR,
such transactions may have included sales of logs from non-sawmill
owning tenure holders to sawmills and, thus, would have required a
pass-through analysis. SeeFinal Results of the 1st Review Decision
Memorandum at Comment 13. Because in the first review we did not
examine the relationship between the harvesters and sawmills or the
terms and conditions of the timber sales in the context of a pass-
through analysis, we found that we were unable to reach a determination
as to whether the volume of timber harvested under FMCs should be
included in the numerator. Id. However, we indicated that we would
reconsider the issue in the course of the second review. Id.
In this review, petitioners assert that the Department must include
in the numerator of the Quebec provincial subsidy rate calculation the
volumes of Crown timber harvested by FMC and FMA licensees on the
grounds that the GOQ has refused to answer the Department's questions
concerning these licensees. See page 112 through 114 of petitioners'
April 29, 2005 submission.
For purposes of these preliminary results, we have included the
volume of Crown timber harvested under the FMC license program in the
numerator of Quebec's provincial subsidy rate calculation. In our
initial questionnaire, we explained to the GOQ that if it wished to
claim that any portion of the reported volume of Crown timber harvested
under the FMC and FMA licences was sold in arm's length transactions
and that any subsidies provided for that portion of timber of the Crown
harvest did not ``pass-
[[Page 33097]]
through'' to purchasing sawmill(s), it had to provide a breakdown, by
species, of the total volume and value of this harvested timber during
the POR. In addition, we instructed the GOQ to respond to a series of
questions regarding the terms and conditions of the transactions
covered by any pass-through claim and to identify any affiliations
between the buyer and seller of the logs in question. See VII-30 of our
September 8, 2005 questionnaire. In its response, the GOQ stated:
At this time, the Gouvernment of Quebec is not claiming that any
portion of the reported volume of Crown harvest was sold in arms'
length transactions. This is not to suggest that there are no such
transactions. To the contrary, the volumes of Crown timber harvested
pursuant to FMCs and FMAs, and subsequently sold in open market
transactions are undoubtedly arm's length transactions. . . Because the
volume of standing timber harvested under FMCs and FMAs is negligible,
the Department's consistent practice has been to base its calculations
on the volumes harvested pursuant to TSFMAs. Adherence to this practice
obviates the need for pass-through analysis in Quebec.
See page QC-157 through QC-158 of the GOQ's November 22, 2004
questionnaire response. The GOQ added that if the Department decided to
include FMC and FMA volumes in its calculations, then it would have to
undertake a pass-through analysis. Id.
In our initial questionnaire, we further asked the GOQ to indicate
the total volume and value of Crown timber billed to any person or
company that did not own or operate a sawmill and was not affiliated
with a sawmill that the GOQ permitted to harvest Crown timber during
the POR. See page VII-6 of our September 8, 2004 questionnaire. In
response, the GOQ provided a list of FMC holders that it claimed did
not own or operate sawmills during the POR. See Exhibit 50 of its
November 22, 2004 questionnaire response. Many of the FMC holders
identified in Exhibit 50 were municipalities. The GOQ also provided
consolidated volume and value harvest data for FMC holders that ``paid
no stumpage'' and those that ``paid stumpage.'' See Exhibit 57 of the
GOQ's November 22, 2004 questionnaire response. However, this exhibit
did not list the volume and value data separately for each FMC holder,
as instructed by our initial questionnaire.
In our initial questionnaire, we also asked the GOQ to identify the
volume and value, by species and grade, of Crown log sales by FMC
holders to companies that own sawmills. See page VII-7 of our September
8, 2004 questionnaire. In its questionnaire response, the GOQ stated:
The requested volume and value data is collected by the {Ministry
of Natural Resources{time} as part of an annual process. The data for
the POR are not yet available. The {Ministry{time} does not know the
specific arrangements entered into by holders of FMCs and FMAs and,
therefore, cannot describe the nature of those agreements or provide
the representative contracts.
See page QC-48 of the GOQ's November 22, 2004 questionnaire response.
FMC Licences
Pursuant to section 102 of the Forestry Act, the GOQ may grant a
FMC license to any ``person.'' See QC-S-13 and page QC-44 of the GOQ's
November 22, 2004 questionnaire response. Thus, FMC license holders may
or may not own sawmills. However, cross-referencing a list of FMC
holders, as provided in Exhibit 32 of the GOQ's November 22, 2004
questionnaire response, with a list of sawmills with GOQ authorization
to consume softwood timber, reveals that several sawmills did hold FMCs
during the POR. For authorized consumption data, see page 55,
Attachment III, of the June 2, 2004 ``Quebec Private Price
Documentation Memo'' from the Preliminary Results of the 1st Review,
which was placed on the record of this review the February 28, 2005
memorandum to the file from Maura Jeffords, Case Analyst.
In addition, evidence indicates that the GOQ often grants FMCs to
municipalities in the province. See page QC-24 of the GOQ's November
22, 2005 questionnaire response and Preliminary Results of 1st Review,
69 FR at 33225. Further, sections 104.2 and 104.3 of the GOQ's Forestry
Act stipulate that the holder of a FMC license must supply standing
timber covered by the license to timber wood processing plants in
Quebec in the amount specified on the license's management permit. This
stipulation is also reflected in the standard language of the FMC
contract. See e.g., page 3 and 10 of the sample FMC contract contained
in Exhibit 31 of the GOQ's November 22, 2004 questionnaire response.
Therefore, based on the information discussed above, we preliminarily
determine that the FMC volume reported by the GOQ includes FMC licenses
held by sawmills as well as softwood log volumes that were sold
directly by government entities in Quebec (e.g., municipalities) to
sawmills.
As explained above, we provided the GOQ an opportunity to
substantiate its claim that Crown logs were sold in arm's length
transactions and that any subsidies did not ``pass-through'' to
purchasing sawmills. We also specifically instructed the GOQ not to
include in its pass-through claim any logs sold directly by government
entities holding FMCs. The GOQ did not do so. Rather, the GOQ reported
the entire volume of timber harvested under FMC licenses, which, apart
from government municipalities, may also include timber harvested by
sawmills with tenure. The volume of timber harvested by government
entities and sawmills with tenure is not be eligible for a pass-through
analysis. The sale by government municipalities of Crown-harvested logs
is no different from the provincial government itself selling the logs
and thus does not involve an ``indirect'' subsidy. Further, timber
harvested by sawmills with tenure would be used by these mills to
produce lumber in their own facilities rather than for the sale of logs
to other sawmills. Because the GOQ did not break out separately the
volume of Crown timber harvested by government entities and sawmills
with tenure from the volume harvested by independent harvesters that
sold logs to sawmills during the POR, we preliminarily determine that a
pass-through analysis is not warranted. Therefore, we have included all
of the FMC harvest volume in the numerator of our subsidy calculations.
Petitioners have further argued that the GOQ's questionnaire
response indicates that no stumpage fees at all were paid for a portion
of FMC harvest volume and that the Department should reflect that lack
of payment in our calculations. See Exhibit QC-S-82 of the GOQ's
November 22, 2004 questionnaire response. We disagree. In cases where
the FMC licensee is a municipality, the municipality collects dues for
the cutting rights, not the GOQ. See QC S--92 of the GOQ's November 22,
2004 questionnaire response. Thus, the information contained in Exhibit
QC-S-82 reflects the FMC harvest volumes sold by government
municipalities and non-profit organizations but not the corresponding
prices charged to the buyers of the logs. Therefore, lacking the price
information for these FMC volumes, as facts available we are applying
the unit prices
[[Page 33098]]
that the GOQ reported for the remaining amount of the FMC volume.
FMA Licenses
We are not including the timber volumes harvested under FMA
licenses in the numerator of our calculations. Under section 84.1 of
the Forest Act, an FMA licensee may not be the holder of a wood
processing permit nor be affiliated with the holder of a wood
processing permit. See QC-S-13 of the GOQ's November 22, 2004
questionnaire response. Although the record does not contain the prices
which the FMA license holders charge their customers for Crown logs
even if the full amount of the subsidy is assumed to pass-through to
its customer, inclusion of this volume in the numerator has no impact
on the portion of the country-wide rate attributable to Quebec.
Therefore, we have not included any of the FMA harvest volume in our
calculations.
Analysis of Programs
I. Programs Preliminarily Determined to Confer Subsidies
A. Provincial Stumpage Programs
In Canada, the vast majority of standing timber sold originates
from lands owned by the Crown. Each of the reviewed Canadian provinces,
i.e., Alberta, British Columbia, Manitoba, Ontario, Quebec and
Saskatchewan,\12\ has established programs through which it charges
certain license holders ``stumpage'' fees for standing timber harvested
from these Crown lands. With the exception of British Columbia, these
administered stumpage programs have remained largely unchanged. Thus,
for a description of the stumpage programs administered by the GOA,
GOS, GOM, GOO, and GOQ, see ``Description of Provincial Stumpage
Programs'' section of the Preliminary Results of 1st Review. Changes to
British Columbia administered stumpage system are discussed below.
---------------------------------------------------------------------------
\12\ 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.
---------------------------------------------------------------------------
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 Department's determinations from the final results of the first
review that the provincial stumpage programs constitute financial
contributions provided by the provincial governments and that they are
specific.
Financial Contribution and Specificity
In the underlying investigation, the Department determined,
consistent with section 771(5)(D)(iii) of the Act, that the Canadian
provincial stumpage programs constitute a financial contribution
because the provincial governments are providing a good to lumber
producers, and that good is timber. The Department further noted that
the ordinary meaning of ``goods'' is broad, encompassing all ``property
or possessions'' and ``saleable commodities.'' See ``Financial
Contribution'' in the Final Determination Decision Memorandum. Further,
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. Id. 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 our findings in the underlying
investigation, we preliminarily continue to find that the stumpage
programs constitute a financial contribution provided to lumber
producers within the meaning of section 771(5)(D)(iii) of the Act.
In the investigation, 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 sawmills and
remanufacturers that produce the subject merchandise. See
``Specificity'' section of the Final Determination Decision Memorandum.
This was true in each of the reviewed provinces. No information in the
record of this review warrants a change in this determination and,
thus, we preliminarily continue to find that the provincial 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 19 CFR 351.511(a) 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.
The hierarchy for selecting a benchmark price to determine whether
a government good or service is provided for less than adequate
remuneration is set forth in 19 CFR 351.511(a)(2). 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 resulting 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 CVD 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
[[Page 33099]]
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. 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.''\13\
---------------------------------------------------------------------------
\13\ Preamble, 63 FR at 65377-78 (emphasis added); see also Hot-
Rolled Carbon Steel Flat Products from Thailand, 66 Fed. Reg. at
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 the first administrative review, the Department determined that
there were no usable private market stumpage prices in the provinces
whose stumpage programs are under review that could serve as
benchmarks. See ``Private Provincial Market Prices'' section of the
Final Results of 1st Review Decision Memorandum. For the reasons
discussed below, the Department continues to find that there are no
private stumpage market prices in the provinces under review that can
serve as first-tier benchmarks in Alberta, British Columbia, Manitoba,
Ontario, Quebec, and Saskatchewan.
There Are No Useable First-Tier Benchmarks in the Subject Provinces
Measuring the Benefit on Stumpage Programs Administered by the GOA,
GOBC, GOO, GOQ, GOM, and GOS
In this administrative review, the GOA reported private price data
and government competitive bid data as reported in Alberta's 2004
Timber Damage Assessment (TDA) update; the GOO provided an updated
survey of private prices prepared by Demers Gobeil Mercier & Associes
Inc. (DGM); the GOQ provided private stumpage prices charged in its
province; and the GOBC provided prices from auctions the government
administers under the B.C. Timber Sales (BCTS) program. As discussed
below, we have preliminarily determined that pricing data reported by
the GOA, GOO, GOQ, and GOBC are not suitable for use as a benchmark
within the meaning of 19 CFR 351.111(a)(2)(i).
Province of Alberta
In response to the Department's request for private timber prices,
the GOA explained that it is not involved in private party transactions
and does not know the process by which private timber is sold. See
GOA's November 22, 2004 response, Volume 1 at page VIII-1. However, the
GOA submitted the TDA as a source of data for arm's-length, cash only
private log sales. See GOA's November 22, 2003 response at Exhibit AB-
S-76. We have examined Alberta's TDA private price data and government
``competitive'' bid data reported in Alberta's TDA 2004 update and
continue to find that the TDA prices are not actual market-determined
prices, as required by the CVD regulations, and, thus, cannot be used
as a benchmark. See Preliminary Results of 1st Review, 69 FR at 33214
and ``Private Provincial Market Prices'' section of the Final Results
of 1st Review Decision Memorandum and at Comment 19.
The GOA explains that the TDA began in the mid-1990's as a means
for mediating disputes between timber operators and other industrial
operators concerning the value of standing timber adversely affected by
industrial operations on timber tenures. Pursuant to these efforts, a
consultant has collected information on log purchases which does not
differentiate between private and Crown sources. The GOA describes the
methodology, stating that ``the values on the {TDA{time} table are
derived by consultants from a two year average of competitive
Commercial Timber Permit (CTP) sales values, as well as the value of
arm's length log purchases, adjusted to stumpage values by backing out
harvesting and haul costs.'' See the GOA's November 22, 2004,
Questionnaire Response at Volume 1, page I-8.
The GOA's response indicates that the methodology used to report
the TDA private timber transaction data for this administrative review
is consistent with and has not changed since the period covered by the
prior administrative review. Id. As previously explained by the
Department, the vast majority of the CTP prices do not reflect
competition for the right to harvest timber and the CTP prices
underlying the TDA calculations do not reflect market determined
prices. See Final Results of 1st Review Decision Memorandum at Comment
19.
There is no new evidence offered by the GOA that would result in a
reconsideration of the Department's decision to reject the use of TDA
as a provincial benchmark. Moreover, due to the fact that the TDA data
does not differentiate private and Crown sources in its survey, there
is no method for the Department to identify the potentially private
transactions captured by the TDA survey (which would only represent a
maximum of 203,041 cubic meters or 2 percent of Alberta's total
softwood sawmill Section 80/81 harvest volume that is reported as
harvested from private lands). See GOA's November 22, 2003 response
Table 1 at Exhibit AB-S-1. Therefore,
based on the record evidence and consistent with the Department's
prior determinations, we find that the TDA prices are not actual
market-determined prices, as required by the CVD regulations, and,
thus, cannot be used as a benchmark. See 19 CFR 351.511(a)(2).
Province of British Columbia
British Columbia did not provide private stumpage prices for the
record of this proceeding. Instead, the Province provided prices from
auctions the government administers under section 20 of the Forest Act.
These auctions were formerly conducted under the Small Business Forest
Enterprise Program (SBFEP). In the investigation and first
administrative review, the Department determined that the auction
prices under the SBFEP program were not suitable for use as benchmarks
in determining whether the GOBC sold Crown timber for less than
adequate remuneration because the SBFEP auctions were only open to
small business forest enterprises. As such, we determined that these
prices did not reflect prices from a competitively run government
auction, as required by our regulations. See 19 CFR 351.511(a)(2)(i)
and the Preamble, 63 FR at 65377; see also the ``Private Provincial
Market
[[Page 33100]]
Prices'' section of the Final Results of 1st Review Decision Memorandum
and Preliminary Results of 1st Review, 69 FR at 33214.
The GOBC has explained in this proceeding that the Forest Act was
amended effective November 4, 2003. The amendments include specific
changes to the section 20 auction program, under which the SBFEP was
replaced by the new B.C. Timber Sales (BCTS) program. The GOBC claims
that pursuant to these changes, section 20 auction prices may serve as
first-tier benchmarks for the November 2003 to April 2004 period to
determine whether Crown timber in British Columbia was sold for less
than adequate remuneration. See GOBC November 22, 2004 Questionnaire
Response, BC-III-1. See also GOBC May 18, 2005 Comments at page 2.
To support its claim, the GOBC highlights an amendment that
eliminated the limitation of section 20 auctions to small businesses.
Before the amendment, section 20 sales under the SBFEP were classified
under three categories. The second and third categories were subsumed
into the new BCTS program largely unchanged, and continue to contain
the same restrictions on participants as before the amendments to the
law. According to the GOBC, the first category, however, was broadened
to include individuals or corporations that own a timber processing
facility. Previously, these participants were excluded. This change
effectively eliminated the restriction of section 20 auction sales to
small businesses allowing them to include all applicants in the
Province. See GOBC November 22, 2004 Questionnaire Response, BC-III-2.
As explained in detail, below, the Department preliminarily
determines that record evidence does not support the use of prices for
Crown timber auctioned under section 20 of the Forest Act, as amended,
as benchmarks to measure the adequacy of remuneration for Crown
stumpage. Firstly, the volume sold at auction does not meet the
standard set out in the Department's Regulations. Secondly, the auction
prices submitted by the GOBC are not market determined prices as they
are effectively limited by Crown stumpage prices paid by Crown tenure-
holding sawmills. The Department's analysis cannot utilize a benchmark
that would reflect any underlying subsidy to determine whether and to
what extent that very subsidy exists.
Section 351.511(a)(2)(i) of the CVD Regulations states that in
measuring the adequacy of remuneration the benchmark may be derived
from actual sales from competitively run government auctions and that,
when choosing from such auction prices, product similarity, quantities
sold, and other factors affecting comparability will be considered. The
Preamble to the CVD Regulations further elaborates on this as it
requires the use of market determined prices which may include actual
sales prices from government-run auctions where such sales are
competitive, account for a significant portion of the total market, and
are based solely on price. See Preamble, 63 FR at 65377. Record
evidence does not support the use of prices for Crown timber auctioned
under section 20 of the Forest Act, as amended, as benchmarks because
the volumes sold under the auctions are not ``significant.'' As such,
these prices do not meet this part of the standard as stipulated in the
CVD Regulations.
Specifically, since the amendments to the Forest Act became
effective, on November 4, 2003, to the end of the POR, on March 31,
2004, participants in the BCTS program, including all auction sales
(i.e., section 20 and section 21), accounted for 7.1 percent of the
total Crown harvest and volume billed, while participants in the newly
``unrestricted'' category 1 auction sales accounted for only 1.1
percent of the total Crown harvest and volume billed. See GOBC April
13, 2005, Exhibit BC-S-225. Thus, the volume of Crown timber sold by
the GOBC through the section 20 auctions during the POR cannot be
considered to represent a ``significant'' portion of the timber sold in
British Columbia during the POR, and the prices from these auctions
therefore do not meet a key requirement for their consideration as
benchmarks for measuring the adequacy of remuneration for government
provided goods.
Our determination that the prices for Crown timber auctioned under
section 20 of the Forest Act, as amended, are not market-determined
prices, but rather reflect prices for administratively-set Crown
stumpage, is based on a number of factors. First, participants in the
auctions included Crown tenure holding sawmills but, most often, were
loggers who then sold the timber to Crown tenure holding sawmills.
Second, the price that Crown tenure holding mills are willing to pay at
auction or, more frequently, to loggers is determined by the price they
pay for Crown stumpage because of the non-binding Annual Allowable Cut
(AAC) in B.C. Third, the price loggers bid at the auctions is limited
by the price they receive from their customers, the largest of whom are
tenure-holding sawmills. Therefore, the auction prices represented
directly or indirectly by sales to Crown tenure-holding sawmills are
effectively determined by Crown stumpage prices. The substantial
presence of valuations by Crown tenure-holding sawmills within the BCTS
prices means that the BCTS auction prices are not market-determined
prices as required in the Department's Regulations and are not useable
as benchmarks for measuring the adequacy of remuneration.
Record information demonstrates that the participants in BCTS
section 20 auctions were primarily logging firms but included some
limited participation by Crown tenure-holding sawmills . In a study
prepared by Susan Athey and Peter Cramton of Market Design Inc, titled
``Competitive Auction Markets in British Columbia,'' (BCLTC Study), the
authors state at pages 6--7, that ``most of the bidders in the auctions
during this time period were not the major timber companies or tenure-
holders, but rather most bidders were logging firms.'' See BCLTC's
March 2, 2005, factual submission. A footnote in the study clarifies
that ``about two-thirds of the 34 Coast tracts were won by log brokers
or market loggers, while about four-fifths of the 142 Interior tracts
were won by log brokers or market loggers.'' Id
The record further shows that a large portion of the Crown timber
purchased in the auctions by loggers was, in turn, sold to Crown
tenure-holding sawmills in the province. The BCLTC Study explains that
because of the nature of the industry in B.C.:
the efficient industry structure has specialized logging firms and
manufacturing firms. The logging firms place bids in BCTS auctions, and
they sell the timber directly to mills, through log markets, or some
combination thereof. Mills occasionally participate in auctions
directly, but this participation is the exception rather than the rule.
Id.
During the course of this proceeding, we specifically asked the
GOBC for additional information concerning the identity of the BCTS
section 20 auctions bidders and the use of the timber obtained from
these auctions. See the Department's requests for information in the
questionnaires to the GOBC, dated March 16, 2005, March 23, 2005, and
April 5, 2005. The GOBC contacted the Department on March 21, March 28,
and on April 8, to advise that it was unable to respond fully to these
questionnaires because of the voluminous data associated with each of
the timber sale
[[Page 33101]]
licences (TSL) associated with the section 20 auctions sales.\14\
---------------------------------------------------------------------------
\14\ TSLs grant the right to harvest timber within a specific
Timber Supply Area or TFL Area. TSLs have a duration of no more than
10 years. TSLs under Section 20 and 23 typically have a one-year
term while TSLs under Section 21 have terms averaging four or five
years.
---------------------------------------------------------------------------
In light of this, the Department requested information from 14
randomly selected TSLs, including a copy of ``payment distribution,''
of the Ministry of Forests (MOF) invoices. The GOBC provided the
requested information for ten of these TSLs, stating that no invoices
were issued during the POR for the remaining four TSLs selected by the
Department. The information from these 10 TSLs shows that the winning
bidders of the Crown timber under BCTS section 20 auctions sold at
least 65 percent of the timber to large Crown tenure holders with
sawmills. See Exhibits BC-S-245 and 246 of the GOBC's April 21, 2005
questionnaire response.
The evidence that the auction winning loggers' principal customers
are large tenure-holding sawmills is supported by the dominance of the
B.C. timber market by the large Crown tenure-holding sawmills. This is
significant to the extent that it limits the loggers' ability to sell
timber bought at the auctions to other customers. Record information
demonstrates that a small number of these large tenure-holding sawmills
harvest the majority of the Crown timber in B.C. For example, the ten
largest licensees by AAC (Canadian Forest Products Ltd., Weyerhaeuser
Company Limited, Slocan Forest Products Ltd., West Fraser Mills Ltd.,
Doman Industries, International Forest Products, Riverside Forest
Products Limited, Weldwood of Canada Limited, Tolko Industries Ltd.,
and Tembec Industries Inc) account for approximately 59 percent of the
Crown harvest and 52 percent of all timber harvested in the province.
See BC-III-14 of the GOBC's November 22, 2004 questionnaire response
and Exhibits BC-S-1 and BC-S-10. These large Crown tenure-holding
sawmills, and the timber harvested from administratively-set Crown
logs, thus dominate a significant portion of the timber market in
British Columbia.
The idea that the customers of loggers bidding at the auctions are
large tenure-holding sawmills is further supported with other
information on the record. For example, West Fraser, a large Crown
tenure-holding sawmill, claims that it purchased logs from market
loggers who won bids in section 20 small business or BCTS auctions; in
such purchases, West Fraser also claims that other sawmills
participated. See BCLTC's February 28, 2005 submission at Appendix C,
page 2. Other sawmills submitted statements that they too purchased
section 20 auction logs from winning bidders. Id. at Appendices B--G.
On the basis of the record information described above showing that
most of the participants in the auctions were loggers who sold most of
the timber bought at auction to Crown tenure-holding sawmills, we
determine that it is reasonable to conclude that most of the Crown
timber sold in BCTS section 20 auctions was ultimately purchased and
used by Crown tenure-holding sawmills.
The AAC in the province effectively limits the amount that Crown
tenure-holding mills are willing to pay for timber from the auctions or
pay to loggers who win bids at the auctions. The AAC in BC is not an
effective limitation on timber supply for Crown tenure-holding
sawmills, as sawmills can just decide to harvest more from their Crown
tenure, the price they pay for auctioned timber would be limited by
what they pay for Crown stumpage. The record shows that these large
Crown tenure-holding sawmills did not exhaust the amount of timber they
could harvest from their tenures during the POR. As such, they were not
forced to obtain timber from other sources, such as the BCTS section 20
auctions, because of a scarcity of available timber on their own
tenure.
Specifically, the Crown tenure-holding sawmills, who hold forest
licenses and tree farm licenses, were allocated 61.0 million cubic
meters of timber or 85 percent of the AAC, which is the annual rate of
timber harvesting specified in each Timber Supply Area (TSA), during
the POR. However, these licensees harvested only 42.4 million cubic
meters or 70 percent of their AAC, a shortfall of 18.6 million cubic
meters. See GOBC's November 22, 2004, Questionnaire Response at BC-S-
139. Moreover, since Crown tenure holders are allowed to overcut their
AAC, even meeting their AAC would not have necessitated their buying
from the auctions as additional timber could have been harvested under
their tenures. See GOBC November 22, 2004, Questionnaire Response at
BC-S-88. The mills' willingness to pay for timber from other sources,
such as the auctions, will be limited by their costs for obtaining
timber from their own tenures.
The price that loggers bid at the auctions is limited by the price
they receive from tenure-holding sawmills because these sawmills are
major purchasers of timber from the loggers and the major producers of
softwood lumber in B.C. That loggers consider the price they will
receive from tenure-holding sawmills and that this price determines
what they bid in the BCTS auctions is demonstrated in the record by the
fact that logging firms negotiate with the Crown tenure holding
sawmills prior to placing a bid in the BCTS auction. See GOBC's
November 22, 2004, Questionnaire Response at BC-IV-43 and April 13,
2005, Supplemental Response at page 47, and GOBC's November 22, 2004,
Questionnaire Response at BC-S-26. See also the BCLTC Study at page 6-
7, which states that:
The BCTS auctions during this time period restricted bidders to
hold no more than three BCTS timber licenses simultaneously. .. In
addition, if a [saw]mill is unable to bid on a tract due to the
restriction, the market loggers participating in the BCTS auctions will
still take into account the mill's valuation for the logs, since the
loggers anticipate being able to sell the harvested logs directly to
the mill or through the log market (where log market prices will
reflect the valuations of all local mills). Thus, a mill's valuation
for the logs is still reflected in the auction prices, even it if does
not bid directly. (Emphasis added.)
As stated previously, our analysis cannot utilize a benchmark that
would reflect any underlying subsidy to determine whether and to what
extent that very subsidy exists. As described above, the prices for
timber auctioned under section 20 are effectively limited by Crown
stumpage prices paid by Crown tenure-holding sawmills. These sawmills
purchase the predominant amount of the timber bought in the auctions by
logging companies at prices that are negotiated with the loggers prior
to the auction in addition to being minor participants in the auctions.
Moreover, the sawmills are in a position to establish these timber
prices in a manner that reflects the prices they pay for Crown stumpage
on their own tenures, i.e., administratively-set prices, because they
are not faced with a scarcity of timber from their tenure.
For these reasons, we preliminarily determine that the prices of
Crown timber auctioned under section 20 of the Forest Act, as amended
during the POR, are effectively limited by prices for administratively-
set Crown timber. As such, these prices cannot serve as benchmarks to
measure the adequacy of remuneration for Crown provided timber, because
they do not reflect
[[Page 33102]]
market-determined prices from competitively run government auctions, a
key requirement of the CVD regulations. See 19 CFR 351.511(a)(2)(i).
Province of Ontario
In the first administrative review, we determined that the prices
for private standing timber in Ontario placed on the record by the GOO
could not be used for benchmark purposes. Specifically, we determined
that the prices reported in a survey prepared by DGM could not be used
as benchmarks because the prices are effectively determined by the
price for public timber. See Preliminary Results of 1st Review, 69 FR
at 33215-33217; and Final Results of 1st Review Decision Memorandum at
Comments 20 and 21.
In this review, the GOO submitted estimates (based on mill return
data) of the volumes of private timber delivered to the various mills
and a survey of prices of standing timber from private lands conducted
by Bearing Point. In addition, the GOO submitted an economic analysis
written by Charles River Associates and a map which shows the
distribution of private forest lands in Ontario.
This new information has not led us to alter our findings from the
first review. As in the prior review, we determine that the prices for
private standing timber in Ontario are effectively determined by the
price for public timber and, thus, cannot be used as benchmarks for
determining whether the GOO sells Crown timber for less than adequate
remuneration.
Information on the record indicates that sawmills in Ontario rely
on Crown timber for the vast majority of their timber supply needs and
use private timber in small quantities. According to mill return data
provided by the GOO, 70 out of 75 mills reported usage of both Crown
timber and timber from private lands, accounting for 99.7 percent of
the total volume reported. See Exhibit ON-SUPP-3 of the GOO's April 15,
2005, supplemental questionnaire response. Also according to data
provided by the GOO, the twenty-five largest sawmills, which account
for about 74 percent of the volume reported, used approximately 10
million cubic meters of Crown timber during POR and less than one half
million cubic meters of private timber. Information provided on the
record by the GOO also indicates that tenure holders in Ontario are
virtually unconstrained in the amount of Crown timber they can obtain.
During the POR, loggers and mills in Ontario harvested only 70 percent
of the annual allowable cut set by the GOO. See exhibit ON-TNR-3 of the
GOO's April 15, 2005, supplemental questionnaire response. In each of
the last four years, the harvest level ranged from as low as 56 percent
to no more than 88 percent of the annual allowable cut. Id.
With no constraints on the amount of Crown timber that sawmills can
obtain, the price that loggers are willing to bid on private stumpage
is dictated by the difference of the expected sale price of the log and
their harvesting costs plus profit. Loggers who sell to tenure-holding
mills cannot expect to charge more for their private logs than the cost
of the logs that the mills can source from their public tenure. The
largest 25 softwood sawmills, producing 92 percent of the lumber in
Ontario, have Crown tenure for which they pay government-set stumpage
prices. See page ON-236 of the GOO's November 22, 2004 initial
questionnaire response. Because the AAC in Ontario is not binding,
mills with public tenure can always harvest more timber from their
tenure and are not driven to the private market by demand that cannot
be met from their tenure-holdings. See Final Results of 1st Review
Decision Memorandum at Comment 20. Their willingness to pay for logs
from other sources will be limited by their costs for obtaining timber
from their own tenures. Therefore, the prices loggers bid for private
stumpage are limited by the public stumpage prices paid by these mills.
For these reasons, the Department finds that the transactions recorded
in the Bearing Point Survey are effectively determined by the Crown
stumpage prices and are, hence, not suitable benchmarks for assessing
adequacy of remuneration.
Our analysis cannot utilize a benchmark that would reflect any
underlying subsidy to determine whether and to what extent that very
subsidy exists. Because the prices in the Bearing Point Survey are
dictated by the price for Crown timber, they are not useable under tier
one of our regulatory hierarchy.
Province of Quebec
In the first administrative review, we concluded that prices for
private standing timber in Quebec could not serve as benchmarks for
determining whether the GOQ sells Crown timber for less than adequate
remuneration because the incentives that tenure holders face vis-a-vis
the private market are distorted. We based our conclusion on the
following factors:
Tenure-holding sawmills have an interest in maintaining a low
value of standing trees in private forests, as this value provides the
basis for calculating Crown timber prices (the Feedback Effect)
Sawmills with access to Crown timber can avoid sourcing in the
private forest because, among other things, the annual allowable cut on
Crown land is not binding.
Tenure-holding sawmills dominate the private market
Sawmills without access to Crown timber account for small
harvest volume in the private forest
See Preliminary Results of 1st Review, 69 FR at 33215-33217. See also
Final Results of 1st Review Decision Memorandum at Comments 22 through
33.
A review of the information on the record of this review has not
led us to alter this finding. Similar to the first administrative
review, the GOQ provided the aggregate sourcing patterns of Quebec's
1,020 softwood sawmills during 2003. The mills were divided into four
categories: mills sourcing exclusively from public sources (purely
public mills), mills sourcing exclusively from private sources (purely
private mills), mills sourcing from public and private sources, and
mills sourcing from public, private, and other (e.g., imports) sources
(public/private/other mills). Analysis of the data provided shows that
purely private mills sourced 534,769 cubic meters of softwood timber
which accounted for only 1.7 percent of the volume of softwood
harvested in the province. See Exhibit 162 of the GOQ's April 19, 2005
supplemental questionnaire response; see also Table 1 of the May 31,
2005, Memorandum to the File from Eric B. Greynolds, ``Quebec Internal
Price Memorandum'' (Quebec Internal Price Memorandum) Further, record
evidence indicates that the average consumption rate of the 819 purely
private mills continues to be small, on average approximately 653 cubic
meters, relative to the 146 dual-source mills, whose consumption rate
was approximately 171,421 cubic meters (a.k.a., mills that source from
public and private sources). Id.
In addition, evidence on the record of this review indicates that
dual-source mills dominate the market for private standing timber. The
146 dual-source mills accounted for 85.9 percent of the private timber
harvested in 2003. Id. At the same time, dual-source mills obtained
only a small percentage of their total harvest during 2003 from private
lands. For instance, public/private/other mills obtained 17.6 percent
of their total harvest from the private forest while public/private
mills sourced just 10.6 percent of their softwood from the private
forest. Id. Thus, the data continue to indicate that
[[Page 33103]]
the public stumpage market is a much more important sourcing component
for dual-source mills and, thus, continues to be the market on which
these mills focus the majority of their interests and operations.
As in the first administrative review, record evidence indicates
that the dominance of the dual-source mills is pronounced at the
corporate level. In Exhibit 120 of its March 15, 2005 questionnaire
response, the GOQ provided actual consumption data for 440 of Quebec's
softwood sawmills.\15\ The data in Exhibit 120 indicate that in 2003
six corporations, whose mills source from both public and private
sources, consumed approximately 54 percent of the total timber harvest,
63 percent of the public harvest, and 31 percent of the private
harvest. See Table 2 of the Quebec Internal Price Memorandum. Further,
sorting the data in Exhibit 120 by private timber consumption indicates
that 20 corporations (15 of which operate dual-source mills) account
for over 70 percent of the private timber harvest. See Table 3 of the
Quebec Internal Price Memorandum. However, while these corporations
consume the majority of private timber in Quebec, private-origin timber
accounts, on a weighted-average basis, for 12 percent of their inputs
while public timber accounts for 83 percent.
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\15\ These mills accounted for nearly all (95 percent) of the
softwood processed in the Province during the POR. Thus, we find
that the data in Exhibit 120 provide a reasonable summary of the
consumption patterns of Quebec's softwood sawmills in operation
during 2003.
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In addition, information on the record of this review indicates
that there have been no changes to Quebec's Forestry Act that would
lead us to alter our previous findings that feedback effects inherent
in the GOQ's administered stumpage system encourage tenure holders to
maintain low prices for private timber. We also continue to find that
sawmills with access to Crown timber can avoid sourcing in the private
forest. Therefore, for purposes of these preliminary results, we find
that private prices for standing timber in Quebec cannot serve as
benchmarks within the meaning of 19 CFR 351.511(a)(2)(i) when
determining whether the GOQ sells Crown timber for less than adequate
remuneration, because these prices are distorted by a combination of
the GOQ's administered stumpage system, the relative size of public and
private markets, feedback effects between the private and public
markets, and a non-binding AAC. See ``Private Provincial Market
Prices'' section of the Final Results of 1st Review Decision
Memorandum.
Provinces of Manitoba and Saskatchewan
With respect to Manitoba and Saskatchewan, the provincial
governments did not supply private market timber prices upon which to
base a first-tier benchmark arising from those provinces.
Private Stumpage Prices in New Brunswick and Nova Scotia May Serve as a
First-Tier Benchmarks in the Subject Provinces
As in the first administrative review, private stumpage prices for
New Brunswick and Nova Scotia (together, the Maritimes) were submitted
on the record of this review by the GONB and GONS, respectively. These
prices are contained in separate price surveys prepared by AGFOR, Inc.
Consulting (AGFOR) for each of the Maritimes' governments. See New
Brunswick AGFOR Report at Exhibit 1 of the GONB's November 22, 2004
questionnaire response. See Nova Scotia AGFOR Report at Exhibit 4 of
the GONS's November 22, 2004 questionnaire response.
In the first administrative review, we determined that private
stumpage prices in the Maritimes constituted market determined, in-
country prices consistent with the first-tier of the adequate
remuneration hierarchy of 19 CFR 351.511(a)(2). Therefore, we used
these prices to assess the adequacy of remuneration of the Crown
stumpage provided by the GOA, GOM, GOO, GOQ, and GOS. See Preliminary
Results of 1st Review, 69 FR at 33218. See also ``Private Stumpage
Prices in New Brunswick and Nova Scotia'' section of the Final Results
of 1st Review Decision Memorandum and at Comments 34, 35, 37, and 38.
As explained in the first administrative review, Maritimes'
stumpage price reports were prepared by AGFOR on behalf of the
Maritimes' governments to establish the bases for their administered
stumpage rates and not for the purpose of this proceeding. Id. Record
evidence further indicated 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. Id. In addition, in the first administrative review, we found
that the private supply standing timber constitutes a significant
portion of the overall market in the Maritimes. See Preliminary Results
of 1st Review, 69 FR at 33218. During the POR of this administrative
review, private supply accounts for 49.2 percent of the total harvest
in New Brunswick and over 89.4 percent in Nova Scotia. See Exhibit 1 of
the GONB's May 2, 2005 submission; see page 2 of the GONS's November
23, 2004 submission.
Although interested parties have contested our use of Maritimes'
private stumpage prices in this review, we find their comments do not
contain any new evidence or argument which would warrant a
reconsideration of our prior finding. For example, the argument that
Maritimes' private stumpage prices do not reflect prevailing market
conditions in the subject provinces is fully addressed in the first
review. See Final Results of 1st Review Decision Memorandum at Comment
38. Thus, 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, and consistent
with our approach in the first administrative review, we have used
Maritimes' private prices to measure the adequacy of remuneration of
the stumpage programs administered by the GOA, GOS, GOM, GOO, and
GOQ.\16\
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\16\ In the first administrative review, we determined that
Maritimes' private prices were not the most appropriate benchmark
for British Columbia. See ``Benchmark Prices for B.C.'' section of
the Final Results of 1st Review Decision Memorandum. We have
continued to adopt this approach in the current review. See
``Maritimes Prices are not the most appropriate Benchmark for
British Columbia'' section of these preliminary results for further
discussion.
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Comparability of Maritimes Standing Timber to Standing Timber in
Alberta, Manitoba, Ontario, Quebec, and Saskatchewan
The Nova Scotia and New Brunswick Reports contain prices for the
general timber species category of eastern SPF.\17\ 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.\18\
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\17\ 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.
\18\ 98 percent for Quebec, 94 percent for Ontario, 99 percent
for Saskatchewan, 99 percent for Manitoba, and 99 percent for
Alberta.
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In the first administrative review, we found that although there is
some minor variation of the relative concentration of
[[Page 33104]]
individual species across provinces, this does not affect comparability
for benchmark purposes. See, e.g., Preliminary Results of 1st Review,
69 FR at 33219; and ``Private Stumpage Prices in New Brunswick and Nova
Scotia'' section of the Final Results of 1st Review Decision Memorandum
and at Comment 38. We further found that 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.'' Id.
In this review, petitioners contend that it is not appropriate to
measure the adequacy of the GOA's administered stumpage system because
a significant portion of Alberta's Crown harvest consists of species
that are made into Western ``SPF'' lumber, which is superior and,
therefore, not comparable to the Eastern ``SPF'' lumber produced from
standing timber harvested in the Maritimes. See page 63 through 69 of
petitioners' April 29, 2005, submission. Petitioners further argue that
it is not appropriate to compare Maritimes' stumpage prices to
Alberta's Crown stumpage prices because there is little commonality
between western and eastern softwood species. Id.\19\
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\19\ Petitioners made similar contentions regarding the
dissimilarity of logs and lumber from the Maritimes and Alberta
during their April 14 and May 5 meetings with members of the Import
Administration staff. See the attachments in the April 14 and May 6,
2005 memorandums to the file from Eric B. Greynolds, Program
Manager, Office of AD/CVD Enforcement III, entitled, ``Meeting with
Counsel to the Coalition for Fair Lumber Imports Concerning the
Upcoming Preliminary Results.''
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We note that petitioners' contentions are premised on the notion
that there is a premium attached to Western ``SPF'' lumber, which
results in a premium for Western ``SPF'' logs. On this point, we note
that petitioners have themselves asserted the opposite. In a submission
to the Department regarding the ruling of the NAFTA dispute settlement
panel, petitioners urged the Department to measure the adequacy of
remuneration of the subject provinces' administered stumpage system
using a U.S.-based log benchmark. See petitioners' August 27, 2003
submission, a public document on file in the CRU. In support of their
argument that the use of a U.S.-based log benchmark would be feasible,
petitioners contended that minimal adjustments would be necessary to
calculate the subsidy benefits for the subject provinces:
Any comparisons based on log prices should be species-specific.
With the exception of the BC Coast, however, the large majority of
Canadian timber falls into the spruce-pine-fir (``SPF'') category,
which is generally recognized as commercially interchangeable.
See page 72 of petitioners' August 27, 2003 submission. They
further stated that because, ''. . . most Canadian lumber . . . is sold
as part of the undifferentiated SPF lumber grouping, timber harvests
are largely simply SPF as well.'' Id. Petitioners went on to cite a
statement made by a major Canadian lumber company, Abitibi-
Consolidated, Inc., in the context of the antidumping investigation in
which it also attested to the interchangeability of eastern and western
SPF lumber. Id. On this basis, petitioners concluded that in
calculating a U.S.-based log benchmark, ``adjustments for species
within the SPF group, therefore, are not necessary.'' Id. Further, in
the context of the antidumping proceeding, the Department also found
eastern and western SPF to be interchangeable. See Notice of
Preliminary Determination of Sales at Less Than Fair Value and
Postponement of Final Determination: Certain Softwood Lumber Products
from Canada, 66 FR 56062 (November 6, 2001), where, in reference to
lumber, the Department stated:
. . . Eastern and Western Spruce-Pine-Fir are identical from the
viewpoints of the markets and with respect to end-use. The ``eastern''
and ``western'' designations are simply a regional distinction which is
irrelevant for purposes of product comparison in this investigation.
Regarding the comparability of the Maritimes to the subject
provinces, in the first administrative review we also determined that
the species maps for SPF demonstrate that the species group's range of
growth stretches from the Maritimes to Alberta. See Final Results of
1st Review Decision Memorandum at Comment 38. We further determined
that record evidence demonstrated that SPF trees are comparable across
their entire growing range as demonstrated by tree diameter, which is
one of the most important characteristics in terms of lumber use. Id.
For example, we found comparable diameters among SPF trees grown from
the Maritimes to Alberta. Id. In particular, we found that at the
easternmost portion of their range, SPF's average diameter at breast
height (DBH) in New Brunswick is 7.78 inches, at the westernmost
portion of their range in Alberta, the DBH is 8.00 inches, and in
Quebec, which accounts for the largest overall harvest, the DBH is
7.91. Id.
In their April 29, 2005 submission, petitioners contend that the
diameter information the Department relied on in the first
administrative review overstated the average diameter of the Maritimes'
standing timber and understated the diameter of the subject provinces,
namely that of Alberta. They argue that if the Department accounts for
biases in the diameter data, it will find that, regardless of the
preponderance of SPF, the Maritimes logs are too small relative to
those of the subject provinces to be used as stumpage benchmark.
The Department continues to rely on the diameter data it relied on
in the first review. We note that petitioners previously stated that:
. . .for sawlog sizes up to the 10-inch diameter class--the vast
bulk of relevant logs in both the U.S. and Canada, outside of the B.C.
Coast--log prices do not substantially vary on a per-unit-basis, as
long as the logs are of a sufficient size and quality to be sold to
sawmills for milling into lumber.
Id. at 73.
For these reasons, we preliminarily determine that Maritimes'
prices for eastern SPF are comparable to Crown stumpage prices for the
SPF species groupings in Quebec,\20\ Ontario, Manitoba, Saskatchewan,
and Alberta. Accordingly, consistent with 19 CFR 351.511(a)(2)(i), we
have compared these market-determined, in-country prices to the Crown
stumpage prices in each of the provinces to determine whether the Crown
prices were for less than adequate remuneration.
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\20\ Consistent with our approach in the first administrative
review, we continue to find that Quebec's SPF basket includes larch.
Accordingly, we constructed an SPF benchmark which includes larch
for Quebec for this review. See, e.g., Final Results of 1st Review
Decision Memorandum at Comment 40.
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Application of Maritimes Prices
Having preliminarily found that the Maritimes' prices are in-
country, market-determined prices, we next consider how to apply these
prices in our benefit calculations.
1. Indexing
The Nova Scotia Report contains price data from 1999. The New
Brunswick Report contains price data for the period July 1, 2002, to
November 30, 2002. In the first administrative review, we indexed the
data in the Nova Scotia Report using using a lumber-specific index
reported for the Atlantic Region by STATCAN. See Preliminary Results
[[Page 33105]]
of 1st Review, 69 FR at 33218.\21\ In the current administrative
review, petitioners have argued that it is incorrect to index stumpage
prices using a lumber price index, especially since the evidence they
submitted on the record purportedly indicates diverging lumber and log
prices. See page 89 of petitioners' April 29, 2005 submission.
Petitioners contend that we should instead rely on indices derived from
log price data from the Atlantic Forestry Review (AFR), a Maritimes-
based publication that reports softwood sawlog prices on a bi-annual
basis, to index the pricing data from Nova Scotia and New Brunswick.
They further argue that if we continue to use the STATCAN index for
Nova Scotia, then we should index the private pricing data in the New
Brunswick Report using a constructed lumber price index derived from
lumber pricing data reported by Madison's Canadian Lumber Reporter
(Madison's), a British Columbia-based lumber reporting publication, on
the grounds that record evidence indicates that the GONB uses the
Madison's publication to set their administered stumpage prices.
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\21\ It was not necessary to index the pricing data in the New
Brunswick Report because it coincided with the POR of the first
administrative review.
---------------------------------------------------------------------------
During the POR, the AFR published price information in July 2003
and January 2004. See the May 31, 2005, Memorandum to the File from
Maura Jeffords, Case Analyst, AD/CVD Enforcement, Office 3 (AFR
Memorandum). The July 2003 publication covered a one-week period in May
2003, while the January publication covered a one-week period in late
November 2003. Id. According to officials at the AFR, their softwood
log price surveys cover approximately 20 respondents, with five to ten
percent of the selection varying between publications. Id. Regarding
Madison's, officials from the publication stated that it does not
collect lumber prices from entities in the Maritime provinces. See the
May 31, 2005, Memorandum to the File from Maura Jeffords, Case Analyst,
AD/CVD Enforcement, Office 3 (Madison's Memorandum).
For purposes of these preliminary results, we have determined to
index the private price data from the New Brunswick and Nova Scotia
Reports using the lumber-specific index reported for the Atlantic
Region by STATCAN. First, information from Madison's indicates that it
does not collect lumber price information for the Maritimes. We further
note that the AFR and Madison's simply contain price information and
are not indices in and of themselves. Thus, to use the publications in
the manner requested by petitioners requires that the Department
construct an index based on limited data. In contrast, the lumber index
from STATCAN is prepared and maintained in the ordinary course of
business and can be incorporated into our calculations without the
added steps that would be necessary to construct an index using the
data from AFR and Madison's. See the May 31, 2005, Memorandum to the
File from Eric B. Greynolds, Program Manager, AD/CVD Enforcement,
Office 3, ``Data on the Statistics Canada Obtained from the Internet
and Placed on the Record.'' Further, STATCAN produces its lumber index
using an established and consistent methodology from year to year that
involves mandatory respondents, including a group of ``must take''
respondents that are included in every survey period. Id. In addition,
STATCAN employs commodity specialists to conduct follow-up inquiries of
outlier, incorrect, or suspicious prices. Id.
Thus, we acknowledge that, in an ideal situation, we would use a
pre-existing stumpage or log index to adjust for price changes in the
Maritime price data. However, in light of the evidence submitted on the
record of this review, we preliminary determine that the constructed
log index proposed by petitioners remains inferior to the lumber price
index from STATCAN.
2. Costs That Must Be Paid in Order to Harvest Private Standing Timber
in New Brunswick and Nova Scotia
In the first administrative review, we found that the pricing data
for New Brunswick and Nova Scotia reflect the prices paid by harvesters
for standing timber and include the value of the timber being purchased
in addition to any landowner costs. See Final Results of 1st Review
Decision Memorandum at Comment 39. We also found that harvesters in the
Maritimes incur additional costs that must be paid in order to be able
to acquire private timber. Specifically, we found that harvesters in
New Brunswick are required to pay silviculture fees as well as
administrative fees to the marketing board operating within the region.
In Nova Scotia, in order to be able to acquire the standing timber, the
registered buyer must either pay for or perform in-kind activities
equal to C$3.00 for every cubic meter of private wood harvested.
Id.\22\ For purposes of these preliminary results, we find there has
been no new information or arguments from interested parties that would
warrant a reconsideration of these findings. Therefore, we added these
costs to the indexed stumpage prices to obtain the average stumpage
price for softwood logs from New Brunswick and Nova Scotia.
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\22\ In the final results of the first review, we also confirmed
that harvesters of private standing timber in Nova Scotia and New
Brunswick do not incur any other charges (i.e., road building/
maintenance costs, fire prevention costs, or land-owner related
costs).
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3. Weighting of Studwood in the Nova Scotia Benchmark
The GONS does not collect harvest volume data by log type (i.e.,
studwood log, sawlog, or treelength log). Thus, in its Nova Scotia
Report, AGFOR used a methodology which allowed it to allocate prices to
the corresponding log type. Specifically, AGFOR, when it constructed
the weighted prices found on page 23 of the AGFOR Nova Scotia Report,
allocated an equal share of the volume to all of the log types
harvested in a given region within Nova Scotia. See, e.g., page 13 and
14 of the October 1, 2004 memorandum to Melissa G. Skinner, Director,
Office of AD/CVD Enforcement 3, from Maura Jeffords, Case Analyst,
Office of AD/CVD Enforcement 3, regarding, ``Verification of the
Questionnaire Responses Submitted by Governments of New Brunswick
(GONB) and Nova Scotia (GONS) and AGFOR Reports Submitted in Reference
to Private Prices in New Brunswick and Nova Scotia,'' (Maritimes
Verification Report), which was placed on the record of this review in
the GOC's March 15, 2005 submission. In the first administrative
review, we determined that it was reasonable to accept AGFOR's
methodology for reporting the Nova Scotia stumpage prices. See Final
Results of 1st Review Decision Memorandum at Comment 37.
Petitioners contend that it is not appropriate to weight the
studwood prices in the manner described above. They argue that lumber
production capacity data for Nova Scotia sawmills contained in a 2003
United States Forest Service (USFS) Survey demonstrate that the
Department's approach in the first administrative review vastly
overstates the amount of studwood in Nova Scotia. They assert that the
data in the USFS survey demonstrate that a weight of 10.3 percent
should be attributed to the studwood prices contained in the Nova
Scotia Report. See petitioners' April 29, 2005 submission at page 97.
First, we acknowledge the difficulty involved in attaching a weight
to the studwood prices contained in the
[[Page 33106]]
AGFOR report. In light of this fact, in these preliminary results we
continue to rely on the approach adopted by AGFOR in the Nova Scotia
Report. As noted in Final Results of 1st Review Decision Memorandum,
AGFOR developed this approach in the ordinary course of business prior
to the initiation of the CVD investigation. Moreover, the Department
found AGFOR's approach to be reasonable in the first administrative
review. Second, regarding the studwood weight that petitioners derived
using mill capacity data from the USFS survey, we note that it is based
on only 8 sawmills and, thus, does not account for dozens of additional
mills in Nova Scotia that produce significant commercial quantities of
lumber.
Benchmark Prices Used for British Columbia
Maritimes' Stumpage Prices Are Not the Most Appropriate Benchmarks for
British Columbia
In the final results of the first review, we concluded that the
Maritimes' private stumpage prices were not suitable as benchmarks for
British Columbia because of the lack of commercial interchangeability
between the species in British Columbia and the eastern SPF species in
the Maritimes. See ``Maritimes Benchmarks Are Not the Most Appropriate
for B.C.'' section of the Final Results of 1st Review Decision
Memorandum. We preliminarily determine that the record does not contain
any new evidence which would warrant a reconsideration of our finding
from the final results of the first review.
B.C. Log Prices Are Not An Appropriate Benchmark
In the final results of the first review, we found that stumpage
and log markets in British Columbia were closely intertwined and
therefore Crown stumpage prices affected both stumpage and log prices.
See ``B.C. Log Prices Are Not An Appropriate Benchmark'' section of the
Final Results of 1st Review Decision Memorandum. We further found that
Crown logs were, in fact, sold in substantial quantities on the log
market. Id. For example, we found that the great majority of wood sold
in B.C. (apart from allocated Crown wood) was purchased by large
integrated tenure-holding producers who purchase wood for their
sawmills following standard purchase contracts that were structured as
log or stumpage purchases. Thus, we determined that these producers
were indifferent as to which form of wood, i.e., either timber or logs,
they purchased for use in softwood lumber production and that the
decision to purchase either timber or logs would instead ultimately
depend on price.
In the final results of the first administrative review, we further
determined that, because these companies simultaneously purchased and
used both forms of wood, they must in principle view the cost of
stumpage and logs as equivalent, i.e., stumpage price plus the cost of
harvesting should equate to the cost of a log. In addition, we
explained that the fact these producers used both timber and logs
throughout the period of the first review to produce softwood lumber
meant that stumpage-log price equivalence was maintained throughout
that review period and that this, in turn, suggested that the timber
and log prices were linked (e.g., low (or high) timber prices means low
(or high) log prices). Id. On this basis, in the final results of the
first review, we determined that there was sufficient record evidence
to conclude that subsidized prices in the Crown stumpage market would
result in price suppression in the sales of Crown logs. Id. For these
reasons, we also determined that B.C. log prices are not market-
determined prices independent from the effects of the underlying Crown
stumpage prices and, therefore, cannot be used to assess the adequacy
of remuneration of B.C.'s stumpage program. For purposes of these
preliminary results, we find that the record does not contain any new
evidence which would warrant a reconsideration of our finding from the
final results of the first review.
U.S. Stumpage Prices Are Not the Most Appropriate Benchmark for British
Columbia
In the first administrative review, we explained that we were
cognizant of the fact that a NAFTA Panel, considering the B.C.
benchmark employed in the underlying investigation, found that standing
timber is not a good that is commonly traded across borders. See
``World Market Prices'' in Final Results of 1st Review Decision
Memorandum. We also explained, in considering U.S. stumpage prices as a
benchmark under our regulatory hierarchy, that using those prices would
require complex adjustments to the available data. We therefore turned
our analysis to U.S. log prices. Id. For purposes of these preliminary
results, we find that the record of this review does not contain any
new evidence that would warrant a reconsideration of our finding from
the final results of the first review.
U.S. Log Prices Are a More Appropriate Benchmark
In the final results of the first administrative review, we found
that U.S. log prices may constitute third-tier benchmarks when
determining the adequacy of remuneration of the GOBC's administered
stumpage program (i.e., a benchmark that is consistent with market
principles under 19 CFR 351.511(a)(2)(iii)). See ``U.S. Log Prices Are
a More Appropriate Benchmark'' in Final Results of 1st Review Decision
Memorandum. In the final results of the first review, we stated that a
market principles analysis by its very nature depends on the available
information concerning the market sector at issue, and must, therefore,
be developed on a case-by-case basis. In this case, we found that using
U.S. log prices is consistent with a market principles analysis,
because (1) stumpage values are largely derived from the demand for
logs produced from a given tree; (2) the timber species in the U.S.
Pacific Northwest and British Columbia are very similar and, therefore,
U.S. log prices, properly adjusted for market conditions in British
Columbia, are representative of prices for timber in British Columbia;
and (3) U.S. log prices are market determined. Id. For purposes of
these preliminary results, we find that the record of the current
review does not contain any new evidence which would warrant a
reconsideration of our finding from the final results of the first
review. We also continue to make the same adjustments to derive the
market stumpage prices for British Columbia. See ``Calculation of the
``Derived Market Stumpage Price'' section below.
Application of U.S. Log Prices
1. Selection of Data Sources
In the final results of the first review, our U.S. log benchmark
for the B.C. Coast consisted of Log Lines prices for Washington and
Oregon, as well as Oregon prices from the Oregon Department of
Forestry. Our U.S. log benchmark prices for the B.C. Interior consisted
of prices from Northwest Management Inc.'s Log Market Report covering
eastern Washington and Northern Idaho (Area 1) and western Montana
(Area 4) as well as prices from the University of Montana's Montana
Sawlog & Veneer Log Report that contains log prices for western
Montana.
In this review, interested parties have submitted updated U.S. log
prices from the four sources covering the same regions listed above.
Interested parties have also submitted additional U.S. log price data
for the current review period
[[Page 33107]]
from the following sources: Oregon Log Market Report, Washington Log
Market Report, Pacific Rim Wood Market Report, Timber Data Company, and
Idaho Department of Lands.
We preliminarily determine to continue to use the U.S. log price
sources listed above for the B.C. Coast and Interior, as updated for
the current POR. In addition, we preliminarily determine to include the
following additional U.S. log price data sources for the B.C. coast:
Oregon Log Market Report, Washington Log Market Report, and Pacific Rim
Wood Market Report (which cover the coast, northwest, and southwest
Oregon and Washington). For the B.C. interior, we preliminarily
determine to include the following additional U.S. log price data
sources: Oregon Log Market Report and Washington Log Market Report
(which cover eastern Oregon, eastern Washington, Idaho, and Montana).
We have preliminarily decided not to use the Western Washington log
prices reported by the Timber Data Company and the Idaho Department of
Lands' ``pond value'' log prices, as prepared by the Timber Data
Company. For additional information concerning our selection of the
additional data sets, see the May 31, 2005, Memorandum to the File
regarding the Preliminary Calculations for the Province of British
Columbia.
2. Derivation of U.S. Log Prices on a Per Unit Basis For Use in
Comparison to Log Prices on the B.C. Coast and Interior
a. Weighting of U.S. Log Price Sources
As explained above, in the final results of the first review, we
used a total of four sources to derive our U.S. log price benchmarks
(i.e., two sources for the B.C. Coast and two sources for the B.C.
Interior). For both the B.C. Coast and Interior, we derived the U.S.
log benchmark prices by taking the average unit price of the two
respective data sources. See the February 28, 2005, Memorandum to the
File regarding the Amended Final Results Calculations for B.C. at Table
3A.
The GOBC argues that if the Department continues to use U.S. logs
as the benchmark for British Columbia, it should calculate simple
averages using a different methodology from the one it employed in the
first administrative review. See GOBC and BCLTC's February 28, 2005
Factual Submission at Vol. 1, p.76. The GOBC asserts that the
methodology employed by the Department in the final results of the
first review overstates the significance of log price data in certain
states based on nothing other than the availability of data for those
states. They argue that it is more appropriate to develop a simple
average for each state within each benchmark area, and then calculate a
simple average of those prices. Id.
We preliminarily find that the GOBC's proposed simple-averaging
methodology creates additional complications and we have not made the
requested changes. For example, some U.S. log data sources report log
prices for regions or areas which include two U.S. states. However, we
welcome comments from interested parties on the simple-average
methodology previously employed and on the GOBC and BCLTC comments on
this issue. We will continue to examine the manner in which we average
the benchmark U.S. log prices used in measuring the adequacy of
remuneration of the GOBC's stumpage programs on the B.C. Coast and
Interior.
b.Conversion of U.S. Log Prices into Canadian Dollar (CAD) / cubic
meter
The U.S. log price data was expressed in U.S. dollars (USD) per
thousand board feet (mbf). Therefore, it was necessary to convert our
benchmark data so that they were expressed in the same currency and
unit of measure as the B.C. administered stumpage prices. In the final
results of the first review, we converted U.S. log price data for the
B.C. Coast using a conversion factor of 6.76 USD / cubic meter. For the
B.C. Interior, we used a conversion factor of 5.93 USD / cubic meter.
We then converted the benchmark prices into Canadian currency based on
the average of the daily USD / CAD daily exchange rate, as published by
the Federal Reserve Bank of New York. For purposes of these preliminary
results, we find that the record does not contain any new evidence
which would warrant a reconsideration of our approach from the final
results of the first review. Therefore, we continue to apply the same
conversion factors and exchange approach that was employed in the final
results of the first review.
Calculation of Provincial Benefits
Adjustment to Administrative Stumpage Unit Price
In the final results of the first review, we established a
methodology for adjusting the unit prices of the Crown stumpage
programs administered by the GOA, GOS, GOM, GOO, and GOQ. See, e.g.,
Final Results of 1st Review Decision Memorandum at Comment 39. Under
this methodology, we focused on those costs that are assumed under the
timber contract (e.g., the Crown tenure agreement) and those costs that
are necessary to access the standing timber for harvesting (but that
may differ substantially depending on the location of the timber).
Where such costs are incurred by harvesters in either the Maritimes or
the subject provinces, we included them in our benefit calculations. We
did not, however, make adjustments for costs that might be necessary to
access the standing timber for harvesting but that do not differ
substantially based on the location of the timber (e.g., costs for
tertiary road construction and harvesting). Because the Maritimes data
reflect prices at the point of harvest, we also did not include post-
harvest activities such as scaling and delivering logs to mills or
market. Id. In this manner, we adjusted the unit stumpage prices of the
GOA, GOS, GOM, GOO, and GOQ such that they were on the same ``level''
as the private stumpage prices we obtained from the Maritimes. We
preliminarily determine that the record does not contain any new
evidence which would warrant a reconsideration of our finding from the
final results of the first review.
1. Province of Alberta
a. Derivation of Administered Stumpage Unit Prices
To derive Alberta's administratively established stumpage rate, we
divided the total timber dues charged to 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.
b. Adjustments to Administered Stumpage Unit Price
Pursuant to the methodology established in the final results of the
first review, we have added the following costs to Alberta's
administered stumpage unit price:\23\
---------------------------------------------------------------------------
\23\ For a description of the derivation of the unit costs added
to the GOA's administered stumpage price, see the May 31, 2005,
Preliminary Calculations Memorandum for Alberta. The derivation of
the unit costs for the GOS, GOM, GOO, and GOQ are also described in
this calculation memorandum. The categories of costs added to the
administered stumpage prices of the GOA, GOS, GOM, GOO, and GOQ are
the same as those used in the final results of the review. See Final
Results of 1st Review Decision Memorandum at Comment 39.
---------------------------------------------------------------------------
Costs for Primary and Secondary Roads (e.g., Permanent
Road Costs in Road Classes 1 Through 4)
Basic Reforestation
Forest Management Planning
Holding and Protection
[[Page 33108]]
Environmental Protection
Forest Inventory
Reforestation Levy
Fire, Insect, and Disease Protection
c. Calculation of the Benefit
To calculate the unit benefit under this program, we compared the
species-specific benchmark prices (the Maritimes private stumpage
prices described above) to the GOA's corresponding adjusted
administered stumpage prices. In this manner, we calculated a unit
benefit for each species group. Next, we calculated the species-
specific unit benefit by the total species-specific softwood timber
billed volume in Alberta during the POR.
Regarding the softwood timber billed volume used in the benefit
calculations, the GOA claims that its stumpage classification system
does not allow the province to isolate the wood volumes going strictly
to sawmills and used to produce lumber. Thus, it is necessary to derive
the volume of softwood Crown logs that entered and were processed by
Alberta's sawmills during the POR (i.e., logs used in the lumber
production process). We performed a similar calculation in the first
administrative review. However, upon identifying additional information
discussed below, we determined that it is necessary to alter our
approach to the calculations for Alberta.
The GOA argues that this volume amount harvested by non-sawmill-
owning tenure holders should not be included in our calculations.
However, by the GOA's own admission, this volume amount includes logs
that were subsequently sold to sawmills. See, e.g., page 8 of the GOA's
May 2, 2005 supplemental questionnaire response. Further, with respect
to this volume amount, the GOA provided no means by which we could
identify the portion of the volume that went to sawmills and the
portion that was exported or went to non-sawmills. Thus, because there
is no way to break out this volume amount and because the GOA has
offered no information on whether any subsidies attributable to this
softwood timber did or did not pass through to any sawmills, we have,
as a starting point, included the entire timber volume in question when
determining the volume of Crown logs to include in the numerator of
Alberta's provincial subsidy rate calculation.
In order to determine the volume of Crown logs that went to
sawmills (a.k.a., ``net-down'' approach), we have slightly revised the
methodology that was used in the first administrative review.
Specifically, we have used the GOA's Section 80/81 timber data from
Table 39, Exhibit AB-S-87 that has not been ``netted down'' as the
basis for Alberta's benefit calculation. This data differs from the
data set reported in the first review (Alberta Verification Exhibit,
GOA-3, AR Table 43, Exhibit AB-S-70) because it represents the Section
80/81 basket category of timber which has not been ``netted down'' to
exclude the volumes from tenure holders who do not own sawmills.
We subsequently added the volumes of certain non-lumber categories
to the Crown Section 80/81 data to capture the universe of timber going
to sawmills which corresponds to the provincial softwood billed volume
identified in the PwC survey and reported by the GOA in Exhibit AB-S-
107. The resulting aggregate Crown softwood billed volume was then
``netted down'' using the ``percentage of survey billed volume as
lumber'' reported in the PwC survey results. This calculation enabled
the Department to derive the Alberta's total Crown stumpage billed
volume on a species-specific basis, which reflects the volume of
provincial stumpage cut by tenure holders and sent to sawmills for
processing into lumber and co-products. For further discussion, see the
Preliminary Calculation Memorandum.\24\ Finally, we summed the species-
specific benefits to calculate the total stumpage benefit for the
province.
---------------------------------------------------------------------------
\24\ We note that this volume of timber is separate from the
volume of timber included in the GOA's pass through claim. For
further information regarding the GOA's pass through claim, see the
``Pass Through'' section of these preliminary results.
---------------------------------------------------------------------------
d. Calculation of Provincial and Country-Wide Rate
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 ``Numerator and Denominator Used for
Calculating the Stumpage Programs' Net Subsidy Rates'' in these
preliminary results. As explained in ``Aggregate Subsidy Rate
Calculation,'' 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 ``Country-Wide Rate for Stumpage.''
2. Province of Manitoba
a. Adjustments to Administered Stumpage Unit Price
The GOM reported average, per unit stumpage prices for the POR.
Thus, our next step was to adjust the per unit stumpage prices pursuant
to the methodology described above in ``Calculation of Provincial
Benefits.'' Specifically, we have added the following costs to
Manitoba's administered stumpage unit price:
Forest Renewal Charge
Forest Management License Silviculture
Costs for Permanent Roads (e.g., Primary and Secondary
Roads)
Forest Inventory
Forest Management Planning
Environmental Protection
Fire Protection.
b. Calculation of the Benefit
To calculate the unit benefit conferred under the GOM's
administered stumpage program, we subtracted from the species-specific
benchmark prices the cost-adjusted weighted average stumpage price per
species. Next, we calculated the species-specific benefit by
multiplying the species-specific unit benefit by the total softwood
timber harvest volume for that species during the POR. We then summed
the species-specific benefits to calculate the total stumpage benefit
for the province.
c. Calculation of Provincial and Country-Wide Rate
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 ``Numerator and Denominator
Used for Calculating the Stumpage Programs' Net Subsidy Rates.'' As
explained in ``Aggregate Subsidy Rate Calculation,'' 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 ``Country-Wide Rate for Stumpage.''
3. Province of Saskatchewan
a. Derivation of Administered Stumpage Unit Prices
To derive Saskatchewan's administratively established stumpage
rate, we divided the total stumpage collections for each species by the
corresponding volume of Crown softwood timber destined to sawmills.
[[Page 33109]]
In this manner, we obtained a weighted-average stumpage price per
species that was paid by tenure holders during the POR.
b. Adjustments to Administered Stumpage Unit Price
Next, we adjusted the administered stumpage unit prices pursuant to
the methodology describe above in ``Calculation of Provincial
Benefits.'' Specifically, we have added the following costs to
Saskatchewan's administered stumpage unit price:
Forest Management Fee
Processing Facilities License Fee
Forest Product Permit Application Fee
Forest Management Activities
Costs for Permanent Roads (e.g., Primary and Secondary
Roads).
c. Calculation of the Benefit
To calculate the unit benefit conferred under the GOS's
administered stumpage program, we subtracted from the species-specific
benchmark prices the cost-adjusted weighted average stumpage price per
species. Next, we calculated the species-specific benefit by
multiplying the species-specific unit benefit by the total softwood
timber harvest volume for that species during the POR. We then summed
the species-specific benefits to calculate the total stumpage benefit
for the province.
d.Calculation of Provincial and Country-Wide Rate
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 ``Numerator and Denominator
Used for Calculating the Stumpage Programs' Net Subsidy Rates.'' As
explained in ``Aggregate Subsidy Rate Calculation,'' 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 ``Country-Wide Rate for Stumpage.''
4. Province of Ontario
a. Derivation of Administered Stumpage Unit Prices
To derive Ontario's administratively established stumpage rate, we
divided the total stumpage collections for each species by the
corresponding volume of Crown softwood timber destined to sawmills. In
this manner, we obtained a weighted-average stumpage price per species
that was paid by tenure holders during the POR.
b. Adjustments to Administered Stumpage Unit Price
Next, we adjusted the administered stumpage unit prices pursuant to
the methodology describe above in the ``Calculation of Provincial
Benefits'' section of these preliminary results. Specifically, we have
added the following costs to Ontario's administered stumpage unit
price:
Forest Management Planning
Construction and Maintenance of Primary and Secondary
Roads
Fire Protection.
b Calculation of the Benefit
To calculate the unit benefit conferred under the GOO's
administered stumpage program, we subtracted from the species-specific
benchmark prices the cost-adjusted weighted average stumpage prices per
species. Next, we calculated the species-specific benefit by
multiplying the species-specific unit benefit by the total softwood
timber harvest volume for that species during the POR. We then summed
the species-specific benefits to calculate the total stumpage benefit
for the province.
c. Calculation of Provincial and Country-Wide Rate
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 ``Numerator and Denominator
Used for Calculating the Stumpage Programs' Net Subsidy Rates.'' As
explained in ``Aggregate Subsidy Rate Calculation,'' 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 ``Country-Wide Rate for Stumpage.''
5. Province of Quebec
To derive Quebec's administratively established stumpage rate, we
divided the total stumpage collections for each species by the
corresponding volume of Crown softwood timber destined to sawmills. In
this manner, we obtained a weighted-average stumpage price per species
that was paid by tenure holders during the POR.
b. Adjustments to Administered Stumpage Unit Price
Next, we adjusted the administered stumpage unit prices pursuant to
the methodology describe above in ``Calculation of Provincial
Benefits.'' Specifically, we have added the following costs to Quebec's
administered stumpage unit price:
Forest Fund
Administrative Forest Planning
Non-Credited Silviculture
Construction and Maintenance of Primary and Secondary
Roads
Fire and Insect Protection
Logging Camps
Silviculture Credits for Non-Mandatory Activities
(Negative Adjustment).
b Calculation of the Benefit
To calculate the unit benefit conferred under the GOQ's
administered stumpage program, we subtracted from the species-specific
benchmark prices the cost-adjusted weighted average stumpage prices per
species. Next, we calculated the species-specific benefit by
multiplying the species-specific unit benefit by the total softwood
timber harvest volume for that species during the POR. We then summed
the species-specific benefits to calculate the total stumpage benefit
for the province.
c. Calculation of Provincial and Country-Wide Rate
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 ``Numerator and Denominator
Used for Calculating the Stumpage Programs' Net Subsidy Rates.'' As
explained in ``Aggregate Subsidy Rate Calculation,'' 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 ``Country-Wide Rate for Stumpage.''
6. Province of British Columbia
a. Derivation of Administered Stumpage Unit Prices
To derive British Columbia's administratively established stumpage
rate, we divided the total stumpage collections for each species for
the Coast and Interior by the corresponding Crown softwood sawlog
volume. In this manner, we obtained a weighted-average stumpage price
per species.
[[Page 33110]]
b. Calculation of the ``Derived Market Stumpage Price''
Consistent with our approach from the final results of the first
review, we calculated a ``derived market stumpage price'' for each
species by using U.S. log prices as the benchmark for standing timber
prices to measure the adequacy of remuneration of B.C.'s administered
stumpage system. See supra section on use of U.S. log prices as B.C.
benchmarks. Specifically, we deducted from the U.S. log prices all B.C.
harvesting costs, including costs associated with Crown tenure for
calendar year 2003. As in the final results of the first review, we
relied on cost data from surveys of major tenure holders prepared by
PwC. Specifically, PwC was engaged by the B.C. Ministry of Forests
(MOF) to collect calendar year 2003 logging and forest management cost
data for the Coast and Interior regions of British Columbia. The cost
data presented by PwC was derived from three separate surveys the MOF's
2004 annual Coast survey and two surveys (one for the Coast and the
other for the Interior) conducted by PwC itself.
In these preliminary results, we have subtracted the following unit
costs from the U.S. log price benchmarks used for the B.C. Coast:
Tree-to-Truck
Hauling
Dump, Sort, Boom, and Rehaul
Crew Transportation Labor
Road Maintenance
Towing/Barging
Helicopter Logging
Camp Operations and Overhead
Road Construction
Head Office, General Administration
Logging Fees and Taxes
Forestry, Engineering, and Fire Protection.
In these preliminary results, we have subtracted the following unit
costs from the U.S. log price benchmarks used for the B.C. Interior:
Tree-to-Truck
Hauling
Dump, Sort, and Boom
Towing/Barging
On-Block Road and Bridge Maintenance
Mainline/Secondary Road and Bridge Maintenance
Post Logging Treatment
Administration/Overhead
Camp Operation
Depreciation, Depletion, and Amortization
Mainline/Secondary Road and Bridge Construction
Mainline/Secondary Road and Bridge Deactivation
On-Block Road and Bridge Construction
On-Block Road and Bridge Deactivation
Protection (Fire, Insect, and Disease Control)
Silviculture and Reforestation.
In the final results of the first review, we subtracted a per unit
profit component from the ``derived market stumpage prices'' used in
the benefit calculations for the B.C. Coast and Interior. Our decision
to include a profit component for the B.C. Coast and Interior was based
on the assumption that our cost data from the PwC survey report of B.C.
logging and forest management costs did not account for any profit that
may have been incurred by independent harvesters. Therefore, based on a
2001 study entitled, ``Ready for Change: Crisis and Opportunity in the
Coast Forest Industry,'' by Dr. Peter H. Pearse (Pearse Study), we
estimated that half of the reported costs for the B.C. Coast was based
on payments from integrated sawmills to independent contractors acting
has harvesters.\25\ Because the ``fee for service'' payments made by
the sawmills already included the independent harvesters' profit, we
only added a profit adjustment for half of the reported costs. In other
words, we reduced the profit rate applied to the ``derived market
stumpage price'' by 50 percent to reflect our finding that half of the
reported survey costs on the B.C. Coast (e.g., those costs attributable
to independent harvesters) already included a profit component. For the
B.C. Interior, we treated the profit component in a similar manner.
---------------------------------------------------------------------------
\25\ The Pearse Study was placed on the record of this review by
the GOBC in its November 11, 2004, questionnaire response at Volume
6, Exhibit BC-S-20.
---------------------------------------------------------------------------
As for the profit rate applied to the ``derived market stumpage
prices,'' in the final results of the first review, we calculated the
adjustment through the average of two profit figures on the record in
the first administrative review: a five (5) percent profit figure for
New Brunswick reported by the Atlantic Canada Opportunities Agency and
a ten (10) percent profit figure for Southeast Alaska that was included
in a submission by the GOBC. Id.
Information available on the record of the current review has led
us to revise the profit methodology employed in the final results of
the first review. In our initial questionnaire, we asked the GOBC to
report for each of the ten largest tenure holders whether any of them
hired independent contractors to conduct any basic silviculture, road
building, forest management, or harvesting activities. See page IV-21
of the Department's September 8, 2004 questionnaire. In response, the
GOBC stated:
In British Columbia, the vast bulk of logging activity, including
road construction, basic silviculture, and other forest management
obligations, is undertaken by independent contractors. In the Interior,
company crews are virtually non-existent--all work is done by contract
and the tenure holders do not perform the work themselves. On the
Coast, there are some company crews for some activities, but much of
the work is done by contractors. Therefore, the cost report prepared by
PricewaterhouseCoopers (PwC) . . . already reflects contractor costs
for the Interior and contractor and some limited company costs for the
Coast.
See page BC-VI-22, Volume I of the GOBC's November 22, 2004
questionnaire response.
Based on the GOBC's statements (e.g., that all work is done by
contract and that the tenure holders do not perform the work
themselves), we find that the cost data contained in the PwC's survey
of the B.C. Interior reflect ``fee for service'' costs and, thus,
already include a profit component. Therefore, we preliminarily
determine that no profit adjustment is appropriate for U.S. log
benchmark prices used in the benefit calculation of the B.C. Interior.
As for the B.C. Coast, we note that the Pearse Study states that
the ``Forest Act requires licensees to employ contractors to log at
least 50 percent of their harvests under Tree Farm Licenses and a
variable percentage--usually 50 percent also--under Forest Licenses.''
See Pearse Study at 15. Further, the GOBC stated in its initial
questionnaire response that logging and harvesting costs attributable
to company crews are ``limited'' and that ``. . .much of the work is
done by contractors.'' See GOBC's November 22, 2004 questionnaire
response. Based on the fact the Forest Act dictates that at least 50
percent of the harvesting activities must be conducted by independent
contractors on the Coast, and in light of the GOBC's statements that
company crew costs for logging activities on the B.C. Coast are limited
(information that was not on the record of the first administrative
review), we preliminarily determine that it is no longer appropriate to
assume that tenure holders harvested half of the logs on the B.C.
Coast. Lacking any other information and, based on the GOBC's
characterization of company crew
[[Page 33111]]
harvesting costs as being ``limited,'' we preliminarily determine that
in-house company crews employed by tenure holders are used 25 percent
of the time on the B.C. Coast and that the remaining amount is
performed by independent contractors. Accordingly, we are assuming that
75 percent of the costs contained in the PwC survey for the B.C. Coast
already contain a profit component and, thus, no profit adjustment is
necessary for those costs.
We have, however, applied a profit component to the remaining 25
percent of the costs contained in the PwC survey for the B.C. Coast.
Based on new information not available on the record of the first
review, we have revised the manner in which we calculated the profit
amount.
In our initial questionnaire, we asked the GOBC to provide the
allowance for profit and risk for each tenure arrangement in effect
which utilizes an appraisal system. See pages IV-12 and IV-13 of our
September 8, 2004 initial questionnaire. In response, the GOBC stated:
There is no allowance for profit and risk in the CVP system. All
tables and formulas used for estimating costs are based upon average
experienced licensee costs, without any additions for profit or risk.
There is no allowance for profit and risk in the MPS. The system is
based on bids from auction sales.
See page BC-IV-26 of the GOBC's November 22, 2004 questionnaire
response. Further in the Log Export Restraint section of our initial
questionnaire, for both domestic and export sales of softwood logs, we
asked the GOBC to provide:
. . . a weighted average value for each of the costs associated
with harvesting and selling the logs during the POR (i.e., logging
costs, inventory, selling expenses, administrative and general
expenses, transportation, marketing, etc.). In addition, what is the
weighted average profit on the sale of softwood logs?
See pages 3--4 of the Log Export Ban Appendix of our September 8, 2004
initial questionnaire. In response, the GOBC stated that, ``the
ministry does not have information on the average profit on the sale of
softwood sawlogs.''
However, in spite of the GOBC's apparent inability to obtain any
information on logging profit, we have managed to obtain publicly
available profit data for the B.C. logging industry from ``Industry
Canada,'' a department of the Canadian federal government, through its
business and consumer site entitled ``strategis.gc.ca.''\26\
Specifically, we obtained a 3.7 percent profit figure for the B.C.
logging industry. This profit figure is an average calculated from
financial data for the year 2002 (the most recent year for which data
is available) from all small businesses (incorporated and
unincorporated) in the B.C. logging industry.\27\ Given that the data
are specific to the industry and province in question, we find it more
appropriate to use the profit data from Industry Canada rather than
continuing to use the profit figures from Southeast Alaska and New
Brunswick. Thus, in keeping with the approach described above, we have
multiplied the per unit B.C. logging profit figure from Industry Canada
by 25 percent and subtracted the resulting product from the per unit
``derived market stumpage price'' for the B.C. Coast.
---------------------------------------------------------------------------
\26\ Strategis (http://www.strategis.gc.ca) offers interactive
financial applications, e.g., building industry profiles for
specific provinces via Performance Plus, a software tool.
\27\ Logging: industry classification 1133 under the
North American Industry Classification System (NAICS).
---------------------------------------------------------------------------
c. Calculation of the Benefit
To calculate the unit benefit per species conferred under the
GOBC's administered stumpage program, we subtracted from the cost-
adjusted, ``derived market stumpage prices'' the corresponding average
administered stumpage prices. Consistent with our approach in the final
results of the first review, we reduced the total Crown harvest to
capture that volume of logs destined to sawmills. Specifically, we
multiplied the Coast and Interior Crown volumes by their respective
percentage of logs entering sawmills for the calendar year 2003, i.e.,
58.1 percent and 85.2 percent, respectively. See GOBC's November 22,
2004 questionnaire response at BC-I-5. Next, we multiplied the species-
specific unit benefit by the Crown volume destined to sawmills. We then
summed the species-specific benefits for the Coast and the Interior to
calculate the provincial benefit.
d. Calculation of Provincial and Country-Wide Rate
To calculate the province-specific subsidy rate, we divided the
total stumpage benefit for British Columbia by the POR stumpage program
denominator. For a discussion of the denominator used to derive the
provincial rate for stumpage programs, see ``Numerator and Denominator
Used for Calculating the Stumpage Programs' Net Subsidy Rates.'' As
explained in ``Aggregate Subsidy Rate Calculation,'' we weight-averaged
the benefit from this provincial subsidy program by British Columbia'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 ``Country-Wide Rate for Stumpage.''
Country-Wide Rate for Stumpage
The preliminary country-wide subsidy rate for the provincial
stumpage programs is 7.97 percent ad valorem.
II. Other Programs Determined to Confer Subsidies
Non-Stumpage Programs Determined To Confer Subsidies
Programs Administered by the Government of Canada
1. Western Economic Diversification Program: Grants and Conditionally
Repayable Contributions
Introduced in 1987, the Western Economic Diversification program
(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 the first administrative review, we found that the provision of
grants under the WDP constitutes a government financial contribution
and confers a benefit within the meaning of sections 771(5)(D)(i) and
771(5)(E) of the Act, respectively. See Preliminary Results of 1st
Review, 69 FR at 33228 and ``Western Economic Diversification Program
Grants and Conditionally Repayable Contributions'' section of the Final
Results of 1st Review Decision Memorandum. Further, we determined that
the WDP is specific under section 771(5A)(D)(iv) of the Act, because
assistance under the program is limited to designated regions in
Canada. On this basis, we found recurring and non-recurring grants
provided to softwood lumber producers under the WDP to be
countervailable subsidies. No new information has been placed on the
record of this review to warrant a change in our finding that the WDP
is countervailable.
During the current POR, the WDP provided grants to softwood lumber
producers or associations under two ``sub-programs,'' the International
Trade Personnel Program (ITPP) and
[[Page 33112]]
``Other WDP Projects.''\28\ Under the ITPP and ``Other WDP Projects,''
companies were reimbursed for certain salary expenses in Alberta,
British Columbia, Manitoba, Saskatchewan.
---------------------------------------------------------------------------
\28\ These are the same two sub-programs analyzed in the first
administrative review.
---------------------------------------------------------------------------
Consistent with our approach in the first administrative review,
where the employee's activities were directed towards exports of
softwood lumber to all markets, we attributed the subsidy to total
softwood lumber exports. See Final Results of 1st Review Decision
Memorandum at Comment 46 and ``Western Economic Diversification Program
Grants and Conditionally Repayable Contributions.'' Where the
employee's activities were directed towards exports of softwood lumber
to the United States, we attributed the subsidy to U.S. exports. Id.
Where the personnel promoted exports to non-U.S. markets, we did not
attribute any of the benefit to U.S. sales. Id. In accordance with 19
CFR 351.524(b)(2), we determine that all ITPP and ``Other WDP Project''
grants were less than 0.5 percent of their corresponding denominator in
the year of receipt.\29\ Therefore, we are expensing all grants
received during the POR under this program to the year of receipt.
---------------------------------------------------------------------------
\29\ We reduced these denominators, where appropriate, to
account for any excluded company sales.
---------------------------------------------------------------------------
To calculate the countervailable subsidy rate for this program, we
summed the rates for the ITPP and ``Other WDP'' sub-projects. Next, as
explained in ``Aggregate Subsidy Rate Calculation,'' we multiplied this
amount by the four provinces' relative share of total exports of
softwood lumber to the United States. We adjusted the provinces' total
exports of softwood lumber to the United States to account for any
excluded company sales. Using this methodology, we determine the
countervailable subsidy from this program to be less than 0.005 percent
ad valorem.
2. Natural Resources Canada (NRCAN) Softwood Marketing Subsidies
In 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:
Canada Wood Export Program (Canada Wood), Value to Wood Program (VWP),
and the National Research Institutes Initiative (NRII). The programs
were placed under the administration of NRCAN, a part of the Canadian
Forest Service.\30\
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\30\ We found the Canada Wood program to be not countervailable
in the first administrative review. See Preliminary Results of 1st
Review, 69 FR at 33229.
---------------------------------------------------------------------------
The VWP is 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 on
efficient resource use, manufacturing process improvements, product
development, and product access improvement.
In the first administrative review, we found that grants provided
to Forintek under the VWP constitute a government financial
contribution and confer a benefit to softwood lumber producers within
the meaning of sections 771(5)(D)(i) and 771(5)(E) of the Act,
respectively. See Preliminary Results of 1st Review, 69 FR at 33229 and
``Natural Resources Canada (NRCAN) Softwood Marketing Subsidies'' in
the Final Results of 1st Review Decision Memorandum. We also determined
that, because VWP grants are limited to Forintek, which conducted
research related to softwood lumber and manufactured wood products, the
program is specific within the meaning of section 771(5A)(D)(i) of the
Act. Id. Consequently, we found the grants under the NRCAN program to
be countervailable.
The NRII is a two-year program that provides salary support to
three national research institutes: the Forest Engineering Research
Institute of Canada (FERIC), Forintek, and the Pulp & Paper Research
Institute of Canada (PAPRICAN). In the first administrative review, we
found that research undertaken by FERIC constitutes a government
financial contribution to commercial users of Canada's forests within
the meaning of section 771(5)(D)(i) of the Act. Id. Further, we found
that FERIC's research covers harvesting, processing, and transportation
of forest products, silviculture operations, and small-scale operations
and, thus, we determined that government-funded R&D by FERIC benefits,
inter alia, producers of softwood lumber within the meaning of section
771(5)(E) of the Act.
Similarly, we found that Forintek's NRII operations, which pertain
to resource utilization, tree and wood quality, and wood physics, also
constitute a government financial contribution and confer a benefit,
inter alia, upon the softwood lumber industry within the meaning of
sections 771(5)(D)(i) and 771(5)(E) of the Act. Id.
In the first administrative review, we determined that because
grants offered under the NRII are limited to Forintek and FERIC,
institutions that conducted research related to the forestry and
logging industry, the wood products manufacturing industry, and the
paper manufacturing industry, the program is specific within the
meaning of 771(5A)(D)(i) of the Act. Id. On this basis, we found the
Forintek and FERIC grants offered under the NRII are
countervailable.\31\ No new information has been placed on the record
of this review to warrant a change in our finding that grants under the
VWP and NRII programs are countervailable.
---------------------------------------------------------------------------
\31\ We found NRII's support of PAPRICAN to be not
countervailable in the first administrative review. See Preliminary
Results of 1st Review, 69 FR at 33229.
---------------------------------------------------------------------------
Consistent with our approach in the first administrative review and
in accordance with section 19 CFR 351.524(b)(2), we first examined
whether the non-recurring grants under the VWP and NRII programs should
be expensed to the year of receipt. Id., 69 FR 33229. We summed the
funding approved for Forintek during the POR under the VWP and NRII
programs, 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 under the NRII program during the POR by the total
sales of the wood products manufacturing and paper industries during
the POR. In both cases, we adjusted the denominators to account for
sales of excluded companies. Combining these two amounts, we
preliminarily determine that the benefit under the NRCAN softwood
marketing subsidies program should be expensed in the year of receipt.
Consistent with our approach in the first administrative review, we
then calculated the countervailable subsidy rate during the POR by
dividing the amounts received by Forintek during the POR under the VWP
and NRII programs by Canada's total sales of the wood products
manufacturing industry during the POR. We also divided the funding
received by FERIC under the NRII during the POR by Canada's total sales
of the wood products manufacturing and paper industries during the POR.
We adjusted these sales amounts to account for any excluded company
sales. See Preliminary Results of 1st Review, 69 FR at 33229. Combining
these two amounts, we
[[Page 33113]]
preliminarily determine the net subsidy rate from the NRCAN softwood
marketing subsidies program to be 0.02 percent ad valorem.
Programs Administered by the Government of British Columbia
1. 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 the first administrative review, we determined that the FII
grants provided to support product development and international
marketing and, thus, constitute a government financial contribution and
confer a benefit within the meaning of sections 771(5)(D)(i) and
771(5)(E) of the Act, respectively. See Preliminary Results of 1st
Review, 69 FR at 33230. Further, we found that 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 projects related to
wood products generally and softwood lumber, in particular. Id. No new
information has been placed on the record of this review to warrant a
change in our finding that grants FIIP are countervailable.
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 (i.e., lumber from primary and secondary
mills as well as ``residual'' products from primary mills) 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. See 19 CFR 351.525(b)(4). As
explained in the first review, the GOBC did not report grants tied to
other export markets. See Preliminary Results of 1st Review, 69 FR at
33230. 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 have preliminarily
determined that the FII benefit should be expensed in the POR.
Consistent with our approach in the first administrative review, we
then calculated the countervailable subsidy rate during the POR by
dividing the amounts disbursed during the POR by their corresponding
sales denominator. For grants given to support product development for
softwood lumber, we divided the amounts disbursed by total sales of
softwood lumber for B.C. during the POR. For grants to support
international marketing, we divided the amounts disbursed by exports of
softwood lumber from B.C. to the United States during the POR. For
research grants, we divided the amounts disbursed by total sales of the
wood products manufacturing and paper industries for B.C. during the
POR. See Preliminary Results of 1st Review, 69 FR at 33230-33231. We
combined these three amounts and, as explained in ``Aggregate Subsidy
Rate Calculation,'' we multiplied this total by B.C.'s relative share
of total exports to the United States. On this basis, we have
preliminarily determined the countervailable subsidy from the FIIP to
be 0.08 percent ad valorem.
2. British Columbia Private Forest Property Tax Program
B.C.'s property tax system has two classes of private forest land--
class 3, ``unmanaged forest land,'' and Class 7, ``managed forest
land'' that incurred different tax rates in the 1990s through the POR.
In the first review, we found that property tax rates for Class 7 were
generally lower than for Class 3 land at all levels of tax authority
for most, though not all, taxes. See ``British Columbia Private Forest
Property Tax Program'' section of Final Results of 1st Review Decision
Memorandum. We further found that the various municipal and district
(a.k.a. regional) level authorities imposed generally lower rates for
Class 7 than for Class 3 land. Id.
The tax program is codified in several laws, of which the most
salient is the 1996 Assessment Act (and subsequent amendments). Section
24(1) of the Assessment Act contains forest land classification
language expressly requiring that, inter alia, Class 7 land be ``used
for the production and harvesting of timber.'' Additionally, Section
24(3) or 24(4) of the Assessment Act, depending on the edition of the
statute, requires the assessor to declassify all or part of Class 7
land if ``the assessor is not satisfied. . .that the land meets all
requirements'' for managed forest land classification. Amendments to
the provision, enacted from 1996 through 2003, retained the same
language stating these two conditions. Thus, the law as published
during the POR required that, for private forest land to be classified
and remain classified as managed forest land, it had to be ``used for
the production and harvesting of timber.''
In the first review, we found that because the tax authorities
impose two different tax rates on private forest land, the governments
are foregoing revenue when they collect taxes at the lower rate, and we
therefore determined that the program constitutes a government
financial contribution as defined in section 771(5)(D)(ii) of the Act.
Id. We also determined that the program confers a benefit in the form
of tax savings within the meaning of section 771(5)(E) of the Act. Id.
Further, we determined that because the Assessment Act expressly
requires that Class 7 land be ``used for the production and harvesting
of timber,'' and additionally requires the assessor to declassify any
Class 7 land not meeting all the Class 7 conditions (of which timber
use was one), the B.C. private forest land tax program is specific as a
matter of law (i.e., de jure specific) within the meaning of section
771(5A)(D)(i) of the Act. Id. No new information has been placed on the
record of this review to warrant a change in our finding that the B.C.
private forest land tax program is countervailable.
Consistent with our approach in the first review, and in accordance
with 19 CFR 351.509(a), we find that the benefit received under this
program is the sum of the tax savings enjoyed by Class 7 sawmill
landowners at the provincial, regional, and sub-provincial (or. local)
levels of tax authority in B.C. Id. With regard to the provincial tax,
the assessed value is calculated as the sum of the land value and a
formulaic valuation of the timber harvested from the land in the prior
year. The tax is levied by applying the tax rate to this assessed
value. The GOBC did not submit data on the timber value. Accordingly,
the Department calculated the tax benefit at the provincial level based
solely on the tax savings conferred upon Class 7 land with sawmills.
We determined the tax benefit at the local level using the data
submitted by the GOBC on local tax rates, and on the value and acreage
of Class 3 and Class 7 land held by sawmill landowners in the various
jurisdictions. Only those jurisdictions with both Class 3 and Class 7
land in the assessment rolls for 2003 and 2004, and whose tax
differential resulted in a tax savings for Class 7 sawmill landowners,
were included in the benefit calculation.
[[Page 33114]]
With regard to a number of regional and hospital district
jurisdictions that are between the provincial and local levels, in the
first review we explained that the GOBC submitted data on their Class 3
and Class 7 tax rates, but did not provide assessment data on land
value and acreage. Id. Consequently, in the first review, to the extent
that any benefit may have accrued at that level, we did not include it
in our calculation. Id. We went on to state that we would re-examine
this aspect of the program in any subsequent review. In this review, we
have sought and obtained assessment data on land value and acreage for
the relevant regions that are between the provincial and local levels.
Using this data, we have determined the benefit at the regional and
hospital districts. However, while the GOBC was able to provide Class 3
and Class 7 tax rates and the value for Class 7 land value for the
relevant regional and hospital districts, it was unable to provide the
land values for Class land 7 with sawmills within those areas.
Therefore, we derived the share of value of Class 7 land with sawmills
at the provincial level for 2003 and 2004 and applied the ratios to the
corresponding Class 7 land values of the regional and hospital
districts. In this manner, we derived the portion of benefit
attributable to Class 7 land with sawmills in the regional and hospital
districts during the POR.
The provincial, regional, and local level benefit amounts were
summed to produce an overall POR benefit amount. Consistent with our
approach in the first review, we used the POR total value of B.C.
sawmill softwood product shipments (i.e., lumber, co-products, and
``residual'' products from primary sawmills) as the denominator, and,
adjusting for B.C.'s share of the total exports to the United States,
we determined the countervailable subsidy under this program to be 0.11
percent ad valorem during the POR.
Programs Administered by the Government of Quebec
Private Forest Development Program
In the first administrative review, we determined that the
provision of grants to producers of softwood lumber under the Private
Forest Development Program (PFDP) constitutes a government financial
contribution and confers a benefit under sections 771(5)(D)(i) and
771(5)(E) of the Act, respectively. See ``Private Forest Development
Program'' in Final Results of 1st Review Decision Memorandum. In
addition, we 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. Id.
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, in the
first administrative review, we 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.
Id. 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. Id. Consistent with our treatment of the PFDP in the first
administrative review, we treated these payments as recurring in
accordance with 19 CFR 351.524(c). Id.
Consistent with our approach in the first administrative review, to
calculate the countervailable subsidy under the PFDP, we first summed
the reported amount of grants provided to sawmills that produce
softwood lumber (and other products) during the POR. Next, we reduced
the total benefit amount to account for any PFDP benefits received by
companies in Quebec that have been excluded from the countervailing
duty order. We then divided the net benefit amount by total sales of
softwood lumber (i.e., lumber from primary mills and in-scope lumber
from remanufacturers), hardwood lumber, and softwood co-products. Id.
We adjusted the sales denominator to account for sales of excluded
companies from Quebec. Next, as explained in ``Aggregate Subsidy Rate
Calculation,'' we multiplied this amount by Quebec's relative share of
exports to the United States, adjusted for sales of excluded companies.
On this basis, we preliminary determine the countervailable subsidy
from this program to be less than 0.005 percent ad valorem.
Programs Determined Not to Confer a Benefit
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).
Assistance in the form of grants is also provided under the FEDNOR
program.
In the underlying investigation and first administrative review, we
determined that grants and loans under the FEDNOR program constitute
government financial contributions to softwood lumber producers within
the meaning of section 771(5)(D)(i) of the Act. See Preliminary Results
of 1st Review, 69 FR at 33228. In addition, we found that grants under
the program confer a benefit to softwood lumber producers under section
771(5)(E) of the Act and that CFDC loans confer a benefit to softwood
lumber producers under section 771(5)(E)(ii) of the Act to the extent
that the amount they pay on CFDC loans are less than the amount they
would pay on a comparable commercial loan that they could actually
obtain on the market. Id. Furthermore, we found that the grants and
loans provided under the FEDNOR program are specific within the meaning
of section 771(5A)(D)(iv) of the Act, because assistance under the
program is limited to certain regions in Ontario. Id. On this basis, we
found the program to be countervailable. No new information has been
placed on the record of this review to warrant a change in our
findings.
In this administrative review, the GOC claims that no grants were
disbursed during the POR. However, it reported several long and short-
term CFDC loans that were outstanding during the POR.
Consistent with our approach in the first administrative review, to
determine the benefit attributable to loans offered under the FEDNOR
program, we compared the long-term and short-term interest rates
charged on these loans during the POR to the long-term and short-term
benchmark interest rates. Id. Our benchmark interest rates are
described in ``Benchmarks for Loans & Discount Rates.'' As the interest
amounts paid on the loans under the FEDNOR program were greater than
what would have been paid on a comparable commercial loan, as indicated
by our benchmark interest rate, we preliminarily determine that this
program did not confer a benefit upon softwood lumber producers in
[[Page 33115]]
accordance with section 771(5)(E)(ii) of the Act during the POR.
2. Payments to the Canadian Lumber Trade Alliance (CLTA) & Independent
Lumber Remanufacturing Association (ILRA)
In March 2003, the GOC's 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.
In the first administrative review, we determined that grants under
this program constitute a government financial contribution and confer
a benefit within the meaning of sections 771(5)(D)(i) and 771(5)(E) of
the Act, respectively. Further, because the program provided grants to
two associations, CLTA and ILRA, we determined that it was specific
within the meaning of section 771(5A)(D)(i) of the Act. See Preliminary
Results of 1st Review, 69 FR at 33229. Accordingly, we determined that
the GOC grants to CLTA and ILRA provided a countervailable subsidy to
the softwood lumber industry. Id. No new information has been placed on
the record of this review to warrant a change in our finding that
grants under the CLTA and ILRA programs are countervailable.
According to the GOC, all grants bestowed under the CLTA and ILRA
were received prior to the POR of the current review. Therefore, we
first examined whether the non-recurring grants should be expensed to
the year of receipt. See 19 CFR 351.524(b)(2). Consistent with the
first administrative review, because the grants underwrote the
associations' costs related to the softwood lumber dispute, we
preliminarily determine that the benefit is tied to anticipated exports
to the United States. See 19 CFR 351.514(a); see also Preliminary
Results of 1st Review, 69 FR at 33229. Therefore, we divided the amount
approved by total exports of softwood lumber to the United States
during the year of approval. We adjusted this sales amount to account
for any exports of softwood lumber to the United States during the POR
by excluded companies. See 19 CFR 351.525(b)(4). Because the resulting
amount was less than 0.5 percent, we have expensed the benefit in the
year of receipt, which prior to the POR. On this basis, we preliminary
determine that the CLTA and ILRA programs did not confer provide
countervailable benefits during the POR of the instant review.
Government of British Columbia
Forest Renewal B.C. Program
The Forest Renewal program was enacted by the GOBC in the Forest
Renewal Act in June 1994 to renew the forest economy of British
Columbia by, among other things, improving forest management of Crown
lands, supporting training for displaced forestry workers, and
promoting enhanced community and First Nations involvement in the
forestry sector. To achieve these goals, the Forest Renewal Act created
Forest Renewal B.C., a Crown corporation. The corporation's strategic
objectives were implemented through three business units: the Forests
and Environment Business Unit, the Value-Added Business Unit, and the
Communities and Workforce Business Unit.
The Forest Renewal B.C. program provides funds to community groups
and independent financial institutions, which may in turn provide loans
and loan guarantees to companies involved in softwood lumber
production.\32\ Effective March 31, 2002, the B.C. legislature
terminated the Forest Renewal B.C. program. However, during the POR,
there remained active Forest Renewal B.C. loans, with interest payments
outstanding during the POR.
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\32\ Grants have also been provided directly to softwood lumber
producers. However, the GOBC has reported that no such grants were
provided during the POR.
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According to the GOBC, Forest Renewal B.C. provided blanket
guarantees with respect to all loans outstanding under the program
during the POR. See page BC-FRBC-19, Volume 33 of the GOBC's November
22, 2004 questionnaire response. Accordingly, we find that the loan
guarantees provided under the program constitutes a government
financial contribution within the meaning of section 771(5)(D)(i) of
the Act. Further, in the first administrative review we found that
because assistance under the Forest Renewal B.C. program was limited to
the forest products industry, the program was specific within the
meaning of section 771(5A)(D) of the Act. No new information has been
placed on the record of this review to warrant a change in our
findings.
To determine whether the active Forest Renewal loans provided
benefits to the softwood lumber industry, in accordance with section
771(5)(E)(ii) of the Act, we compared the interest rates charged on the
Forest Renewal loans to the benchmark interest rates described in
``Benchmarks for Loans and Discount Rates.'' Using this methodology, we
have preliminarily determined that no benefit was provided by the
Forest Renewal loans because the interest rates charged under this
program were equal to or higher than the interest rates charged on
comparable commercial loans.
Government of Quebec
1. Assistance Under Article 28 of Investment Quebec
Assistance under Article 28 is administered by Investissement
Quebec, a government corporation. In the underlying investigation, 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. 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 ``Benchmarks for Loans and
Discount Rates.'' Using this methodology, we have preliminarily
determined that no benefit was provided by this loan because the
interest rates and fees charged under
[[Page 33116]]
this program were equal to or higher than the interest rates charged on
comparable commercial loans.
2. 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 our approach in the underlying
investigation, 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 our approach in the underlying investigation,
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 have
preliminarily 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 ``Benchmarks for Loans and Discount Rates.'' See
771(5)(E)(ii) of the Act. Using this methodology, we have preliminarily
determined that no benefit was provided by this loan because the
interest rates charged under this program were higher than the interest
rates charged on comparable commercial loans.
On this basis, we have preliminarily found that the debt
forgiveness by Rexfor did not confer a benefit in the POR and, thus,
provides no countervailable subsidy.
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............................. 8.18 percent 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 8.18 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 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.
Dated: May 31, 2005.
Susan Kuhbach,
Acting Assistant Secretary for Import Administration.
[FR Doc. E5-2884 Filed 6-6-05; 8:45 am]
BILLING CODE 3510-DS-S