(Cite as: 48 FR 10395, *10401)
Guarantees. Between 1973 and 1977, REXFOR and its subsidiaries received a number of loans and a loan guarantee from the
government of Quebec at interest rates inconsistent with commercial considerations. We consider these loans and loan
guarantee to have been targeted to a specific company. Accordingly, we preliminarily determine that these loans and loan
guarantee confer a subsidy on REXFOR.
To calculate the subsidy for the loans and the loan guarantee made by the government of Quebec to REXFOR, we compare the
principal and interest a company would pay a normal commercial lender in any given year with amounts actually repaid in that
year. For purposes of these preliminary determinations, we included deferral of principal and interest payments in our subsidy
calculations.
The benchmark rate used was the chartered banks' prime rate in Canada as published in the OECD Financial Statistics. After
calculating the payment differential in each year of the loan, we then calculated the present value of this stream of benefits in the
year the loan was made, using the secondary market bond yield for Canadian government bonds, as published in the OECD
Financial Statistics, as the discount rate.
We allocated the benefits from these loans and loan guarantee over the total sales of the producers of softwood lumber and shakes
and shingles and calculated a subsidy of 0.004 percent ad valorem.
(Cite as: 48 FR 10395, *10401)
(b) Grants. Between 1977 and 1981, REXFOR received a number of grants from the government of Quebec for the production
of softwood lumber. We consider grants made to REXFOR by the government of Quebec to have been targeted to a specific
company. Accordingly, we preliminarily determine that these grants confer a subsidy on REXFOR.
We calculated the benefit to REXFOR in accordance with the grant methodology described in the "Analysis of Programs" section of
this notice. We allocated the benefit received over the total sales of the producers of softwood lumber, and calculated a subsidy of
0.001 percent ad valorem.
(c) Loss Coverage. In two instances, the government of Quebec covered operating losses sustained by REXFOR in connection
with two of its subsidiaries which respectively produce softwood lumber (Scieries Chic-Chocs) and all the products under
investigation (Samoco). In both instances, the amounts received exceeded the losses sustained by REXFOR. In the case of Scieries
Chic-Chocs, the excess of the funds received over the loss incurred was used to purchase fixed assets; in the case of Samoco, the
excess was transferred into REXFOR's retained earnings.
We preliminarily determine that loss coverage confers a subsidy. We expensed those portions of the grants used to cover actual
operating losses in the year in which they were received. We treated the excess amounts as grants and allocated them over 15
years, the average useful life of capital assets of
(Cite as: 48 FR 10395, *10401)
sawmill plants and equipment. We allocated the benefit received over the total sales of the producers of softwood lumber (in the
case of Scieries Chic-Chocs) and of the producers of the products under investigation (in the case of Samoco), and calculated a
subsidy of 0.02 percent ad valorem.
(d) Equity Purchases. The government of Quebec has made equity purchases of REXFOR under two different sections of the
REXFOR Act. Under section 6 of the REXFOR Act, the proceeds from Quebec's equity purchases are made available to REXFOR
for "general investment" purposes to be used as the company sees fit. Under section 7, the proceeds from Quebec's purchases
of REXFOR stock are specifically directed by the government of Quebec to be used for loans to or equity purchases in third
companies which may or may not be subsidiaries or affiliates of REXFOR, some of which produce softwood lumber or shakes and
shingles.
(i) After analyzing REXFOR's financial statements since 1973, especially the company's debt position and rate of return on equity,
we conclude that the government of Quebec's section 6 equity infusions into REXFOR were not inconsistent with commercial
considerations. Therefore, we preliminarily determine that government equity purchases in REXFOR that were not specifically
directed do not confer a subsidy.
(ii) With regard to government equity purchases made pursuant to section 7 that were specifically directed, but not to producers
of the products under
(Cite as: 48 FR 10395, *10401)
investigation, we preliminarily determine that these purchases did not confer subsidies on the products under investigation.
(iii) With regard to equity purchases made by the government of Quebec pursuant to section 7 that were specifically directed
to producers of the products under investigation:
Where the proceeds were used by REXFOR to make equity infusions in subsidiaries, affiliates or unrelated companies, we must
consider whether these infusions were made on terms inconsistent with commercial considerations.
Our analysis of these companies leads us to conclude, based on financial data contained in the responses and REXFOR's annual
reports, that REXFOR's equity purchases in these companies were in fact not inconsistent with commercial considerations.
Accordingly, we preliminarily determine that these equity purchases do not confer subsidies within the meaning of the Act on
producers of the products under investigation.
There were no loans made by REXFOR pursuant to section 7 that were specifically directed to producers of the products under
investigation, for which principal was still outstanding during *10402
(Cite as: 48 FR 10395, *10402)
the period for which we are measuring subsidization.
b. FRI Tax Abatement Program. The Tax Abatement Program (TAP) is one of two programs under the aegis of the Fonds de
Relance Industrielle (FRI) of Que>= 1bec, which provided assistance to producers of the products under
(Cite as: 48 FR 10395, *10402)
investigation. The second FRI program, i.e., the Industrial Incentives Fund, is discussed below in the section titled "Programs
Preliminarily Determined Not to Confer Subsidies."
The FRI is a fund, administered by the Ministe>=2re de l'Industrie, du Commerce et du Tourisme of Quebec with the
assistance of Revenu Quebec, which grants financial aid to businesses in order to promote economic recovery.
Under the TAP, firms can deduct 25 percent of the cost of approved capital investments up to a maximum of 50 percent of taxes
payable to the province, with an overall limit per company of Canadian $500,000 for the life of the program. Companies located
in the metropolitan area of Montreal are excluded from this program. Since this program is limited to companies located
within specific regions, we preliminarily determine that it confers subsidies.
Producers of the products under investigation received tax savings under this program. In the GOC responses, the government of
Quebec reported the aggregate tax savings for these producers over the period from 1977 to 1981. We divided this amount by
five (the number of years reported) to obtain an estimate of the 1981 savings, because this was the best information available.
Because taxes are normally expensed in the year paid, we allocated these 1981 savings over the total sales value of producers of
the products under investigation, and calculated a subsidy of 0.005 percent ad valorem.
c. SDI Export Expansion Program. The Societe de Developpement
(Cite as: 48 FR 10395, *10402)
Industriel (SDI) was established in 1971 by the Assemblee Nationale (Legislature) of Quebec as a Crown corporation. SDI,
which is wholly owned by the province, is an investment company acting on behalf of the government of Quebec, and as such
grants financial assistance to the private sector in order to promote new business investment, plant expansion or modernization,
and the export of Quebec goods and services.
According to its latest annual report, SDI assistance to the private sector comes in several forms: "subsidies" or grants, loans or
loan guarantees, total or partial assumption of the interest on loans, partial forgiveness of loans, and acquisition of capital stock
(the latter with the proviso that SDI not hold a majority of any given company's shares).
SDI receives annual budget appropriations voted by the Assemblee Nationale which are used to cover its operating costs and
"subsidies." In fiscal 1981-1982, SDI received Canadian $55.8 million from the Assemblee, of which Canadian $44.9 million
was specifically earmarked for "subsidies." Another government assets deposited with SDI in the amount of Canadian $47.4
million, of which Canadian $32 million is in the form of an endowment. Finally, SDI finances itself, in part, through borrowings on
the capital markets, which amounted to Canadian $74 million as of July 15, 1982.
SDI assistance programs fall under three categories: the Export Expansion Program, which we preliminarily determine to confer a
subsidy for the reasons
(Cite as: 48 FR 10395, *10402)
outlined below, development programs, and financial assistance to manufacturing firms. The latter two categories are described
later in the "Programs Preliminarily Determined Not to Confer Subsidies" section of this notice.
Under the Export Expansion Program, discontinued in May 1982, reimbursements on interest charges were paid to firms
demonstrating high export growth over a five-year period. The maximum amount paid was the lesser of Canadian $250,000, two
percent of export sales value, or the amount of the interest expense incurred in any given year.
Producers of softwood lumber who exported to the United States received funds under this program. We preliminarily determine
this program to confer an export subsidy. Because interest charges are normally expensed in the year paid, we computed the
benefit by allocating the amounts provided by SDI in the 1981-1982 fiscal year to softwood lumber producers over the total sales
value of exports of softwood lumber to the United States, and calculated a subsidy of 0.04 percent ad valorem. Producers of
softwood shakes and shingles and fence did not receive funds under this program during the period for which we are measuring
subsidization.
II. Programs Preliminarily Determined Not To Confer Subsidies
therefore
We preliminarily determine that the Canadian federal and provincial
(Cite as: 48 FR 10395, *10402)
governments are not providing subsidies to manufacturers, producers, or exporters of certain softwood products included in
these investigations under the following programs:
A. Stumpage Programs of the Canadian Federal and Provincial Governments
Petitioner alleges that the stumpage programs of the Canadian federal and provincial governments confer a subsidy on the
products under investigation. In general, "stumpage" refers to standing timber and "stumpage programs" refer to the systems by
which the Canadian governments furnish private firms with the right to cut and remove standing timber from government lands in
exchange for various in-kind and monetary payments by those private firms. (The stumpage programs of the various Canadian
governments are described in further detail in Appendix B of this notice.) In Canada, the overwhelming majority of timber is
owned by the governments, and has been owned by them for over a century. The Canadian governments did not recently acquire
the lands involved and then begin to sell stumpage on those lands at rates below those which prevailed prior to government
ownership.
Petitioner alleges that stumpage programs confer a domestic subsidy. (In a footnote to the petition, petitioner also alleges that
stumpage programs confer an export subsidy.) Petitioner alleges that stumpage programs are
(Cite as: 48 FR 10395, *10402)
provided to a specific industry within the meaning of subsection 771(5)(B) of the Act. Also, rather than alleging that stumpage
programs constitute the provision of a good at preferential rates under subsection 771(5)(B)(ii) of the Act, petitioner alleges that
stumpage programs constitute the assumption of a cost of production within the meaning of subsection 771(5)(B)(iv) of the Act,
Essentially, petitioner claims that "assumption," as used in subsection (iv), should have a broad, all-inclusive meaning,
encompassing any governmental activity that reduces or absorbs production costs on terms inconsistent with commercial
considerations.
Based upon available information, the Department preliminarily determines that stumpage programs of the Canadian federal and
provincial governments do not confer a subsidy on the products under investigation for the following reasons.
Stumpage programs do not confer an export subsidy, because they do not operate and are not intended to stimulate export rather
than domestic sales, and because they are not offered contingent upon export performance. The mere fact that significant
quantities of products made from stumpage are exported to the U.S. does not mean that *10403
(Cite as: 48 FR 10395, *10403)
stumpage programs confer an export subsidy.
Further, stumpage programs do not confer a countervailable domestic subsidy for the following reasons. First, we preliminarily
determine that stumpage programs are not provided only to a "specific enterprise or industry, or group of enterprises or
industries." Rather, they are available within Canada on
(Cite as: 48 FR 10395, *10403)
similar terms regardless of the industry or enterprise of the recipient. The only limitations as to the types of industries that use
stumpage reflect the inherent characteristics of this natural resource and the current level of technology. As technological
advances have increased the potential users of standing timber, stumpage has been made available to the new users. Any current
limitations on use are not due to the activities of the Canadian governments; there is no evidence of governmental targeting
regarding stumpage.
Although nominal general availability of a program does not necessarily suffice to avoid its being considered a possible domestic
subsidy, the Department further preliminarily determines that stumpage is widely used within Canada by more than one
group of industries. Stumpage is cut by the lumber and wood products industries (which manufacture products ranging from
simple "two- by-fours" to window frames), the veneer, plywood and building boards industries, and the pulp and paper industries
(which manufacture products ranging from cardboard boxes to newsprint), each of which requires different types of processing
equipment and uses different channels of trading. Stumpage permits are also held by individual consumers and by industries
producing turpentine, charcoal, wood alcohol, and even food additives (i.e., wood flour, vanillin, and lignin). In this regard, we
note also that, under the classification systems of both Canada and the United States, the lumber and
(Cite as: 48 FR 10395, *10403)
wood products industries and the pulp and paper industries constitute two distinct groups of industries. Therefore, in view of its
general availability without governmental limitation and its use by wide-ranging and diverse industries, we preliminarily
determine that stumpage is not provided to a "specific group of * * * industries."
We note, however, the importance of stumpage's general availability without governmental limitation. Where, on the other hand,
the governments expressly limit programs to the so-called "forest products industries," we have found some domestic subsidies.
Unlike stumpage programs, these types of programs involve the provision of benefits, usually money, that can be used by all
enterprises and all industries. In such cases, the restricitons on availability are due entirely to government direction, and not to
any specific characteristics of the program involved. With respect to these types of programs, we believe that there is sufficient
evidence of governmental targeting to support a preliminary determination that a benefit is conferred upon a "specific group of * *
* industries."
Second, even if stumpage programs were being provided to a "specific group of * * * industries," we preliminarily determine that
they would not confer a domestic subsidy within the meaning of subsection 771(5)(B). In this regard, we preliminarily determine
that Canadian stumpage programs do not provide goods at perferential rates to the producers of the products under investigation
(Cite as: 48 FR 10395, *10403)
within the meaning of subsection 771(5)(B)(ii). As used in that subsection, "preferential" normally means only more favorable to
some within Canada than to others in Canada. [FN1] In this context, it does not mean "inconsistent with commercial
considerations," a distinct term used in subsection 771(5)(B)(i) (which is not applicable with regard to stumpage programs,
because they do not involve the provision of capital, loans, or loan guarantees). We note in this respect that we have preliminarily
found certain programs in the provinces to confer subsidies under subsection (ii) as the perferential provision of "goods or
services," bcause the goods or services were provided on preferential terms (see, e.g., deferral of stumpage payments in the
"Programs Preliminarily Determined to Confer Subsidies" section of this notice).
FN1 There may be other cases in which the number of users of a good or service may be so limited that the preferentiality test may
need to be examined further.
Petitioner claims that stumpage programs fall under subsection (iv) as the assumption of production costs on terms inconsistent
with commercial considerations. Insofar as subsection (iv) may apply, we preliminarily determine that Canadian stumpage
programs do not "assume" a cost of production. We believe that the most reasonable interpretation of "assumption" is that it refers
only to government activity which relieves an enterprise or
(Cite as: 48 FR 10395, *10403)
industry of a pre-existing statutory or contractual obligation. Otherwise, subsection (iv) would embrace all of the activities
described in preceding subsections (i)-(iii), because the activities described in those subsections could all be regarded as activities
which reduce or absorb--and thereby arguably "assume"--costs of production. Such a broad construction of the term "assumption"
would make subsection (iv) largely redundant of subsections (i)- (iii) and is, as a matter of law, not preferred. Accordingly,
"assumption," as used in subsection (iv), means something other than the universe of governmental activities which could have
the effect of reducing or absorbing a cost of production. Rather, it refers to a specific type of activity. In the financial and legal
terms relevant to subsection 771(5)(B)'s list of domestic subsidies, and "assumption" is the relief from a pre-existing statutory or
contractual obligation.
Under this interpretation, stumpage programs do not constitute the assumption of a cost of production, because the Canadian
governments do not relieve the producers of any pre-existing statutory or contractual obligations. To the contrary, the
government impose a cost for the stumpage, which they have owned themselves for well over a century. These imposed costs
include not only cash payments, but also in-kind services, such as road building, silviculture, and forest managment provided by
the companies cutting the stumpage.
(Cite as: 48 FR 10395, *10403)
Even if "assumption" were construed more broadly, we preliminarily determine, based upon available information in the record of
these investigations, that Canadian stumpage programs have not effectively reduced, and thereby "assumed," a cost of production.
Petitioner claims that because there is an allegedly unified North American market for softwood lumber, shakes and shingles and
fence, the Department should compare Canadian stumpage prices to prices for stumpage in the United States. We disagree. First, it
has been the Department's policy not to use cross-border comparisons in establishing commercial benchmarks. Second, the
absence of an international market price for stumpage makes any other comparative analysis unjustifiable. Third, while there may
be a unified North American market for each of the products under investigation, there is not a unified market and a unified price
for stumpage, because each individual stand of timber is unique due to a variety of factors, such as species combination, density,
quality, size, age, accessibility, and terrain and climate. Because of these factors, a common *10404
(Cite as: 48 FR 10395, *10404)
price for stumpage does not exist. Stumpage prices vary substantially both regionally and locally within Canada and the
United States, even within a mill's timber supply area. For example, a publication called Timber-Mart South publishes stumpage
prices for the southeastern United States. This publication covers thirteen states, each divided into three regions, and lists
separate prices for each species within each region of each state. Thus, it is not reasonable to
(Cite as: 48 FR 10395, *10404)
compare Canadian prices with U.S. prices.
In the absence of a market price for stumpage--either within Canada or elsewhere--with which Canadian stumpage prices may
reasonably be compared, we could alternatively determine whether Canadian stumpage prices reflect "true market value."
The value of stumpage derives from a number of factors, including the price of the end products made from it, and not from any
intrinsic value of the standing timber. Thus, a reasonable basis for determining the "true market value" of stumpage is to calculate
its residual value based upon the end-product price.
Under the residual value approach, the seller makes allowances for normal profit and risk factors and deducts manufacturing
costs from the end-product price to determine the minimum price for stumpage below which it will not sell. Any additional
amount collected over and above the minimum price will be "economic rent." The practical significance of economic rent is that
its decline does not reduce the supply of timber, and therefore it does not interfere with the efficient allocation of natural
resources or the operation of market forces. If the price of timber is high, one can then obtain a higher rent from the resource, but
the higher price of timber is not the result of higher rent.
The evidence we have thus far supports the conclusion that the residual value approach, as well as the competitive bid approach,
is used in Canada.
(Cite as: 48 FR 10395, *10404)
For example, residual valuation is used in British Columbia and Ontario. Thus, based upon information currently available, it
appears that the Canadian governments are using methods of valuation that are a reasonable means of valuing their timber
(indeed, these methods are used by the United States Forest Service). Accordingly, one cannot find that Canadian stumpage
programs assume a cost of production, even if that term is interpreted broadly.
As implied above, a comparison of Canadian stumpage prices with U.S. prices would be arbitrary and capricious in view of: (1) The
wide disparity between quality and accessibility of the standing timber in the U.S. and throughout Canada; (2) the significant
in-kind payments which are required generallly in Canada in addition to monetary payments, but not generally in the United
States; and (3) the fact that in recent years prices in the U.S. usually have been bid anywhere between two to five years in advance
of use, without having taken into account the decline in the housing industry. We are not convinced that there is a rational basis to
adjust for these significant differences.
If, alternatively, one believes that there is a rational basis for adjustments, the record of these investigations includes studies
showing that once appropriate adjustments are made to take into account these differences, Canadian prices for standing timber
do not vary significantly from U.S. prices. Indeed, in some cases the Canadian price may be higher. Therefore, even if one were to
use U.S. prices as a benchmark, there is evidence in the
(Cite as: 48 FR 10395, *10404)
record which establishes that the Canadian governments do not assume costs of production through their stumpage programs.
For these reasons, we preliminarily determine that Canadian stumpage programs do not assume a cost of producing the products
under investigation.
In conclusion, based upon currently available information, we preliminarily determine that Canadian stumpage programs do not
confer a subsidy within the meaning of the Act, because they are not provided to a "specific enterprise or industry, or group of
enterprises or industries," and because they do not confer a domestic subsidy within the meaning of subsection 771(5)(B).
B. Federal Programs
1. Deductible Inventory Allowance. The federal Income Tax Act authorizes a deduction equal to three percent of the opening
value of inventories held for sale or for the production of goods for sale. This deduction is available on equal terms to all
businesses holding inventories for sale throughout Canada.
We preliminarily determine that the deductible inventory allowance does not confer countervailable benefits because it is not
limited to a specific industry groups of industries or to companies in specific regions.
2. Capital Cost Allowances. The federal Income Tax Regulations provide for a capital cost allowance for businesses throughout
Canada that purchase
(Cite as: 48 FR 10395, *10404)
qualifying assets used in abating water or air pollution, manufacturing or processing, or conserving energy. These companies
receive a full write-off over three years with a cumulative maximum deduction of 25 percent in the first year, 75 percent in the
second year and 100 percent in the third year. This is the only method of depreciation allowed for these properties, and they are
depreciated according to this schedule regardless of use by industrial sector.
We preliminarily determine that these capital cost allowances do not confer countervailable benefits because they are not limited
to a specific industry, group of industries or to companies in specific regions.
3. Export Credit Insurance. Petitioner alleges that the GOC covered export credit insurance losses incurred by the Export
Development Corporation (EDC). EDC is a Canadian Crown corporation providing financial services to Canadian exporters and
foreign buyers to develop Canada's export trade. One of EDC's services is export credit insurance. EDC maintains its own
commercial operation as well as a separate operation on behalf of the government. Exports to the United States are insured solely
through the EDC's commercial operation.
EDC has never incurred a fiscal year loss on its commercial operation, although there has been a downward trend in earnings.
Although EDC does not maintain separate financial accounting systems for each of its services, the GOC responses state that the
premiums charged by EDC are based on the perceived risk of the transaction and the need to cover its administrative expenses. In
(Cite as: 48 FR 10395, *10404)
this regard, EDC allocates 38 percent of current premium revenue to cover future claims. Furthermore, premium rates were
raised twice in the last two years. During the period October 1, 1977 through September 30, 1982, claims paid on insured
shipments of softwood lumber totaled Canadian $110,603 while premiums totaled Canadian $298,015.
The GOC is the sole stockholder in EDC. During 1981, the GOC purchased an additional Canadian $40 million in EDC shares;
however, the major portion of EDC's capitalization is long-term debt payable to non-government lenders. All of EDC's earnings are
retained. Dividends were not disbursed.
Based upon our review of available information, it appears that the petitioner's allegation pertains to export credit insurance
losses sustained by EDC in its operation on behalf of the GOC and not in its commercial operation. Since exports to the United
States are insured solely through EDC's commercial operation and since it appears that export credit insurance premiums charged
by EDC are sufficient to cover long-term operating costs and *10405
(Cite as: 48 FR 10395, *10405)
losses in its commercial operations, we preliminarily determine that EDC's export credit insurance does not confer an export
subsidy within the meaning of the Act.
4. Federal Employment Programs.--A. Local Employment Assistance Program. The Local Employment Assistance Program
(LEAP), administered by the Canadian Employment and Immigration Commission (CEIC), aims to increase the self- sufficiency of
chronically un- or under-employed workers through grants for job
(Cite as: 48 FR 10395, *10405)
creation and worker training. As LEAP assistance was not limited to a specific industry, group of industries or to companies in
specific regions, we preliminarily determine that these grants did not confer any countervailable benefits upon the producers of
the products under investigation.
b. Worksharing Program. The purpose of the Worksharing Program, which is also administered by the CEIC, is to avert temporary
layoffs during short-term economic downturns by reducing workweeks, taking steps so that available work is shared, and
providing unemployment benefits when no work is available. Employees of producers of the products under investigation
received benefits under this program.
It appears that this program was funded under section 37 of Canada's Unemployment Insurance Act by contributions from
employers and employes, as well as from the federal government. Eligibility was not limited to a specific industry, group of
industries or to companies in specific regions. Therefore, we preliminarily determine that the Worksharing Program did not
confer any counteravailable benefits to producers of the products under investigation.
5. Regional Development Incentives Program (RDIP)--Loan Guarantees. The RDIP, administered by DREE, as described in the
"Programs preliminarily Determined to Confer Subsidies" section of this notice, provides loan guarantees to manufacturers whose
capital investment projects for establishing new facilities or expanding or modernizing existing facilities will create jobs and
economic
(Cite as: 48 FR 10395, *10405)
opportunities in areas designated as economically disadvantaged.
Under the loan guarantee program, DREE insures ultimate payment of losses related to approved loans at a cost of one percent of
the balance of guaranteed principal per annum. No defaults have occurred, and loans are made on terms not inconsistent with
commercial considerations.
We preliminarily determine that no benefit is being provided by RDIP loan guarantees, as all loans to producers of products under
investigation were contracted at a rate of interest above the average Canadian commercial rate of interest based on the chartered
banks' prime lending rate as reported in the OECD Financial Statistics.
6. Enterprise Development Program. The Enterprise Development Program (EDP) was established in 1977 to provide loans, loan
insurance and contributions to manufacturers (individuals, firms or corporations in Canada engaged in a manufacturing or
processing activity) and, in the case of loan insurance, to private lenders to assist in projects of product development or
enhancement, or for other types of productivity initiatives. The program is administered by one national and ten regional
Enterprise Development Boards (one in each province), in conjunction with the federal Department of Industry, Trade and
Commerce.
Enterprise Development Regulations provide a listing of the qualifying purposes for which any loan, loan insurance or
contribution may be issued, and
(Cite as: 48 FR 10395, *10405)
state that a regional board may exercise and perform the powers, duties and functions of the Board under the regulations in
respect of:
T2 Any loan, insurance or contribution made where the total amount of any such loan, insurance or contribution does not
exceed Canadian $200,000, the aggregate liability of the manufacturer does not exceed Canadian $200,000 and the dollar
volume of sales of the manufacturer did not exceed Canadian $5,000,000 in its fiscal year immediately preceding the application
for the loan, insurance or contribution.
T2 Any loan or insurance where the total amount of any such loan or insurance does not exceed Canadian $50,000 and the
aggregate liability of the manufacturer does not exceed Canadian $200,000, except as a result of the making of such loan or the
provision of such insurance.
T2 Any contribution where the total amount of the contribution does not exceed Canadian $20,000 and the aggregate liability
of the manufacturer does not exceed Canadian $200,000, except as result of the making of such contributions.
Loan insurance and contributions are preliminarily determined not to confer subsidies and are discussed below, while loans
provided under EDP are discussed in the "Programs Preliminarily Determined Not to Be Used" section of this notice.
a. EDP Loan Insurance. The GOC provides loan insurance under the EDP to
(Cite as: 48 FR 10395, *10405)
private lenders for loans to companies for approved productivity projects. The private lender pays a fee of one percent per
annum, twice yearly, on the outstanding obligation for the insurance. This charge is usually passed on to the loan recipient. The
insurance allows the lender to recover up to 90 percent of the actual loss it experiences on defaulted loans after all security has
been realized.
Companies participating in this program first negotiate a loan insurance agreement with the Enterprise Development Board and
then go to the private market to negotiate a loan. Loans vary in duration from 3 to 10 years, with the repayment schedule being
set by the lender. All loans, according to the GOC, are obtained at commercial interest rates.
Loan insurance may be provided under EDP on loans made by a private lender to a manufacturer, individual, firm or corporation
in Canada if a loan is required to enable the manufacturer to meet changing competitive circumstances and if the provision of
loan insurance is necessary to encourage private lending at normal commercial rates.
The GOC states in its responses that producers of the products under investigation received loan insurance under the EDP. We
preliminarily determine that the provision of the loan insurance is not limited to a specific enterprise or industry, group of
enterprises or industries, or to companies in specific regions, and therefore does not confer a subsidy.
(Cite as: 48 FR 10395, *10405)
b. EDP Contributions. Under EDP the GOC shares the cost of approved projects with companies. Audits are conducted to verify
that expenditures were made for the intended purpose. Contributions are administered in accordance with the terms and
conditions approved by the Treasury Board. The funds are available to manufacturers in any industry or region for a project
which represents a significant departure from a company's traditional productivity improvement practices and has an existing
potential for productivity gains but demonstrated uncertainty as to benefits. The cost of any feasibility study and implementation
of the results thereof should represent a significant burden on the company's resources. In addition, the manufacturer must be
capable of implementing the results of the study.
All contributions provided to producers of the products under investigation were to assist in the cost of outside consultants to
examine the feasibility of improving productivity of manufacturing operations.
*10406
(Cite as: 48 FR 10395, *10406)
We preliminarily determine that contributions given under the EDP are not limited to a specific enterprise or industry, group of
enterprises or industries, or to companies in specific regions, and therefore do not confer a countervailable benefit to producers
of the products under investigation.
7. Transportation Programs.--a. Rail Freight Rates. There are 33 common carrier companies providing rail transportation
services in Canada, almost half
(Cite as: 48 FR 10395, *10406)
of which are U.S. subsidiary lines. Of the Canadian lines, two companies-- Canadian National (CN) and Canadian Pacific (CP)--are
engaged in countrywide transport. Their combined trackage comprises 89 percent of the total railway trackage in Canada.
CP is a privately owned company, while CN is a Canadian Crown corporation. Laws and regulations governing railway operations
and freight rates are promulgated by the federal government and administered by the Canadian Transport Commission.
Both Canadian and U.S. railroads offer three types of rates: class rates, commodity rates, and contract rates. In Canada,
"agreed charges" is the term applied to contract rates for intra-Canadian shipments. Rail shipments within Canada that do not
fall under agreed charges generally move under commodity rates. At the present time, class rates apply to very little rail traffic.
International rail shipments move under rates established jointly by the U.S. and Canadian rail companies involved.
The petitioner alleged that agreed charges are a domestic subsidy because they are below "tariff rates" and because they apply
only to "forest (wood) products." According to the GOC's responses, there are a total of 277 agreed charges in effect for a large
number of different commodities, such as foodstuffs, automobiles, appliances and petroleum products. Ten of these agreed
charges cover shipments of lumber, shakes and shingles, and fence.
(Cite as: 48 FR 10395, *10406)
The responses also state that agreed charges are rates agreed upon after arm's-length negotiations between the Canadian
railway(s) and the shippers. Agreed charges are renegotiated every year and reflect such variables as market and modal
competition, value of the commodity, loadability, and equipment use. Although rates are not calculated on a per car-mile or per
ton-mile basis, revenue figures from 1977 (the latest available published statistics) show that "forest products" generated higher
revenue for the railways than all other commodities both on a per car-mile and per ton-mile basis.
Because there are a number of agreed charges covering a wide range of commodities and because agreed charges are negotiated at
arm's length, we preliminarily determine that agreed charges do not confer benefits which constitute subsidies within the meaning
of the Act.
b. Currency Exchange Rate Tariff (No. 6016A). The currency exchange rate tariff was implemented in 1921 on all rail shipments
between the United States and Canada. Because of currency fluctuations, the railroads agreed that the value of that portion of
the rail haul taking place in the United States should be reflected in U.S. currency and the value of that portion taking place in
Canada should be reflected in Canadian currency. A study was conducted showing that of the total amount of freight charges
collected on international shipments, 60 percent accrued to U.S. railways and 40 percent accrued to Canadian railways. Based on
this study, Canadian railways were authorized to collect a surcharge of 60 percent or to provide a discount of 40 percent on international shipments depending on prevailing
exchange rates. These percentages were calculated to correspond to the average portion of a movement that took place in each
country. Although the Canadian government has not legally mandated the exchange rate tariff since 1967, it is still applied by the
Canadian railroads to all rail traffic between Canada and the United States.
The program works as follows: when U.S. funds are at a premium in relation to Canadian funds, the Canadian railways collect a
surcharge of 60 percent of the current exchange rate differential on any prepaid movement from Canada to the United States
without regard to the industry or region involved. When United States funds are at a discount in relation to Canadian funds, the
shipper who pays in Canadian funds receives a discount of 60 percent of the exchange rate differential. If, however, charges are
paid in the United States, the Canadian shipper must pay a surcharge of 40 percent of the prevailing exchange rate. Because the
sole purpose of the tariff is to adjust for the differences in the value of the two currencies, it applies only to shipments exported to
the United States.
Since 1977, U.S. currency has been at a premium in relation to Canadian currency. Therefore, Canadian shippers have been
paying a surcharge on exports to the United States. Because Canadian shippers have been paying a surcharge,
no benefits are being bestowed through the currency exchange rate tariff on exports of the products under investigation. Based
upon our review of available information, the tariff is not intended nor does it operate to stimulate exports. Rather, it is a
mechanism for maintaining Canadian rail carrier revenue. Therefore, we preliminarily determine that the currency exchange rate
tariff does not confer a subsidy within the meaning of the Act.
c. Fuel Tax Refund. The fuel tax refund is a program which applies to the movement of motor carriers operating in interstate
service within the United States, in interprovincial service within Canada, or in international service between Canada and
the United States. The purpose of this program is to ensure that all states and provinces collect taxes equal to the actual fuel
consumed within each jurisdiction but which has been purchased outside that jurisdiction. The tax refund is applied by each
jurisdiction uniformly on all truck movements regardless of the type of merchandise carried, if any.
Each motor carrier must keep a log of travel to ensure proper payment of tax. Each jurisdiction may have different means of
assessing the tax and the amount of fuel tax refund. Assessments are made on the basis of a motor carrier's log.
The fuel tax refund is simply a mechanism to ensure that each state or province receives proper payment of its share of fuel taxes.
It does not relieve carriers of any tax, nor does it provide any benefits to shipments of
(Cite as: 48 FR 10395, *10406)
the products under investigation. Therefore, we preliminarily determine that the fuel tax refund does not confer a subsidy on the
products under investigation.
C. Federal/Provincial Programs
1. Forestry Subsidiary Agreements.--a. Funding for Long-Term Forest Management Under the Forestry Subsidiary Agreements.
As described in the "Programs Preliminarily Determined to Confer Subsidies" section of this notice, DREE entered into 10-year
GDAs with all provincial governments except PEI. A similar 15-year comprehensive development plan exists for PEI. Forestry
subsidiary agreements are available to any province with a GDA and apparently to PEI as well, and have been negotiated with
seven provinces.
Most of the funding under these agreements is for long-range resource management on public lands and public infrastructure
development. A few other programs are funded under the forestry subsidiary agreements; these are discussed in other sections of
this notice, as appropriate. The long-term forest management activities are conducted by the province on provincial lands, and
apparently do not relieve any *10407
(Cite as: 48 FR 10395, *10407)
companies of obligations incurred in their licensing arrangements.
The benefits from these long-term forest management activities will not be
(Cite as: 48 FR 10395, *10407)
realized until the rotation age, (life span from planting to cutting for a tree) is met. This span is at least 40-60 years in eastern
Canada and 60-80 years in the west. Further, activities under the forestry subsidiary agreements are primarily designed to
help achieve the government's goal of renewing a "sustained-yield" forest. For example, the silvicultural camps facilitate cone
collection for seed supplies of tree nurseries, and soil surveys are for the study of the proper species to plant in certain areas.
These benefits would be attributable to the owner of the resource, the government, not to the short- or medium-term licensee,
which may have its annual allowable yield reduced as a result of these long-term management practices.
Because these benefits will not be bestowed on the products under investigation until well into the future and would be
attributable to the government as owner of the resource, we preliminarily determine the funding of long-term forest management
activities under the forestry subsidiary agreements does not confer a countervailable benefit on producers of the products under
investigation in the period for which we are measuring subsidization.
Under the forestry subsidiary agreements, the federal government makes payments to the provincial governments for the
construction of forest access roads. Although the extraction of wood is one of the primary purposes of building forest roads,
access to mineral resources, recreation, environmental
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