(Cite as: 48 FR 24159, *24180)
Background
Que>=1bec's supply of standing timber is a mixture of deciduous and coniferous species, generally sparsely scattered and
consisting of rather small trees. The vast majority of these timber resources (approximately 90 percent) is located on Crown
lands. Until the early 1970's, the relatively poor quality of Que>=1bec's timber combined with inadequate technology, made it
inefficient and uneconomical for use in the sawmill industry. Consequently, most of Que>= 1bec's timber was used by the pulp and
paper industry, and the only timber allocation system in the province--the timber limit (also known as the forest concession)--had
been set up with the needs of that industry for long-term timber supplies in mind.
Early in the 1970's, however, technological advances in the sawmill industry in the form of sophisticated, computerized
machinery, made it possible to process this timber into lumber and its by-products. As a result of these changes Que>=1bec
started to allocate stumpage under a new system--supply agreements from domanial forests--whose purpose was to increase the
profits dereived from provincial timberlands and to make the the timber resource more accessible to other possible users,
including the sawmill industry.
Accordingly, no additional timber limits have been awarded since 1969; all
(Cite as: 48 FR 24159, *24180)
new concessions since then have been in the form of supply agreements from domanial forests. The province, through the
retrocession or outright revocation of timber limits as they come up for renewal, aims to make domanial forests the only form of
tenure and supply agreements the sole form of allocation of stumpage.
Under both systems, all fees and dues are administratively set by the province through Orders-in-Council, sometimes through
negotiation. There is no system of competitive bidding for stumpage in Que>=1bec. The specific features of both allocation
systems are described below.
Timber Limits
Under the timber limit system, "limit holders" are assigned all rights to standing *24181
(Cite as: 48 FR 24159, *24181)
timber in a given area. Limit holders are responsible for forest management and silviculture within their respective areas.
Accordingly, they must submit on a regular basis a forest management plan to the provincial authorities. The government grants
an annual cutting license to each limit holder, based on its estimate of the concession's sustained yield possibilities.
The various fees paid by the timber limit holders to the province of Que>=1bec for stumpage are as follows:
(Cite as: 48 FR 24159, *24181)
The purchase price of a timber limit, which has varied between $500 and $1500 per square mile depending on the location of the
concession and the quality of the timber thereon;
The cutting license, renewable annually, which is contingent upon payment of a ground rent (currently $15.40 per square
kilometer); and
The stumpage dues, which vary according to species and end use, currently amounting to:
--pulpwood (softwood): $3.36 per cubic meter;
--sawlogs (softwood): $0.77 per cubic meter.
The stumpage dues for pulpwood are based on a percentage of the price per ton of newsprint delivered in New York; the basis of
the stumpage dues for sawlogs is undocumented.
In addition to the payments and fees listed above, the limit holders also bear a number of additional costs, i.e.:
Road building and maintenance: the limit holders build all their forest roads. They bear 100 percent of the cost of secondary
roads, but only 50 percent of the cost of main access roads on the grounds that they are intended for common use. All these roads
remain the province's property and are accessible to the public.
fire prevention and suppression: this is carried out by private, non-profit forest protection agencies created by the industry.
(Cite as: 48 FR 24159, *24181)
Insect and disease protection: limit holders pay a calculated percentage depending on area and circumstances.
Supply Agreements (Domanial Forests)
Domanial forests are public lands managed by the provincial government of Que>=1bec. The province enters into supply
agreements for standing timber from these forests with any interested company. For sawmills, the duration of these agreements
varies from five to twenty years, depending on each mill's size. In effect, these are fixed-term timber purchase agreements in
which the holder's rights to timber are limited to areas specified by the province. This contrasts with the earlier system, whereby
the holder could select the areas to be harvested each year within the concession area up to the total amount specified by the
cutting license. Another difference between the two systems is that under supply agreements, timber cut from a domanial forest
can be used only to supply the holder's mills and cannot be resold.
A supply agreement always specifies an annual maximum authorizedconsumption of wood for each mill covered by the
agreement. This amount, expressed in cubic meters, also appears on the mill's annual operating license. Renewal of supply
agreements depends on the yield and performance of the agreement holders. The province is responsible for devising and
implementing forest management plans.
(Cite as: 48 FR 24159, *24181)
Agreement holders prepare an annual logging plan for submission to the provincial authorities, who then issue annual cutting
permits for a specific volume of wood defined by species.
Although agreement holders pay no fee per se to acquire their contracts, they must pay the provincial government the following
fees for each cubic meter harvested:
Stumpage fees based on the following factors:
--Location of forest,
--Product cut by species,
--Size of standing timber,
--Density of timber,
--Logging difficulties;
Road building costs (same as under the timber limit system);
Management costs, $0.09 per cubic meter;
Fire prevention costs, $0.13 per cubic meter;
Fire suppression costs, $0.04 per cubic meter; and
Insect and disease protection costs, $0.05 per cubic meter;.
In addition, agreement holders are responsible for scaling costs and for specific silvicultural activities, such as reforestation, in
the amount of at least $0.05 per cubic meter harvested in any given year.
(Cite as: 48 FR 24159, *24181)
Deferral, Suspension or Waiver of Stumpage Payments
The province of Que>=1bec does not allow the deferral, suspension, or waiver of any stumpage payments.
Saskatchewan
Background
Saskatchewan's major industries are farming and mining. Its industrial usage of forest products is underdeveloped, and its
softwood timber is small and scattered. In order to attract mills, long-term agreements with negotiable conditions were initiated.
Stumpage
In Saskatchewan, stumpage rights are allocated in two ways: (1) under a timber permit, which is granted annually; and (2) under
Forest Management License Agreements (FMLA's). About 13 percent of the production in Saskatchewan of the softwood industry
under investigation is allocated by permit, and the balance by FMLA's.
(Cite as: 48 FR 24159, *24181)
A timber permit authorizes the holder to harvest a stated volume of timber, is valid for one year, and is renewable. Because
FMLA's are negotiated separately with each company, their terms vary. Stumpage rights can be awarded for up to 20 years, with
an option to renew. Under both arrangements, the Forestry Branch of the provincial government specifies the AAC. The area to be
harvested is selected by the permittee or company, subject to government approval.
For timberland under the permit system, the province is responsible for management, silviculture, main road construction,
reforestation, fire and disease prevention, etc. In contrast, under FMLA's, the company is completely responsible for forestry
management, but other services may be carried out by the province with the company paying partial costs, according to the
individual agreement; e.g., the company might pay $0.20 per cord on all timber harvested toward the costs of reforestation. The
province is always responsible for fire and disease protection. Main roads are constructed by the province up to a negotiated
quantity specified in each contract. A company may construct additional roads at its own expense.
Stumpage fees are paid on a monthly (or sometimes quarterly) basis to the Forestry Branch. Timber permit allocations pay on the
lumber out-turn of the mill. Rates take into account timber quality. FMLA's are of two types: volume agreements and area
agreements. Volume agreement stumpage dues are paid on the mill out-turn and can be renegotiated periodically. Area
agreement fees
(Cite as: 48 FR 24159, *24181)
are paid on scaled volume delivered to the mill yard and are indexed.
Federal Stumpage
Federal Crown lands represent 11 percent of productive timberlands in Canada. Of that, 90 percent is too inaccessible to
economically supply North American timber markets. In fiscal year 1981-82, 0.8 percent of total Canadian timber (hardwoods
plus softwoods) harvested from Crown lands was cut in small quantities from tracts of federal lands in five provinces and two
territories. Most of the volume was cut on Indian Reserves. Stumpage from federal lands is usually allocated according to "volume
agreements," whereby an allowable cut is specified. The particular volume agreement procedures of the province in which the
timber is located generally apply.
Four federal agencies, none of which has land management as a primary function, have jurisdiction over different portions of
federal lands.
Some Department of National Defence (DND) land is used for forest research. Environment Canada administers all DND land,
and any timber sales tend to be inspired by the need to clear areas rather than to generate revenue. An individual or company
may hold only one annual permit at a given time. Each permit is issued to cut timber up to a volume valued at not more than
$2,000 based on prevailing local rates.
(Cite as: 48 FR 24159, *24181)
The Department of Parks Canada (DPC) reserves most of its land for recreational use. Logging is prohibited with one
exception: when the Wood Buffalo Park was created in 1956 in northern Alberta, a pre-existing sawmill situated there was granted
a license for long-term cutting rights. The license runs through May 2002 and will not be renewed.
About 95 percent of all federal Crown lands fall under the jurisdiction of the Department of Indian and Northern Affairs (DINA),
which is the combination of two agencies with quite separate functions. The Department of Northern Development has
administrative responsibility for the territories. Timber in the territories is remote and scattered; nevertheless, the supply is
much greater than can be used by the sparse *24182
(Cite as: 48 FR 24159, *24182)
population. Annual cutting permits are granted on a small-volume basis according to the Territorial Lands Act. Approximately
50,000 m 3 of cut timber comes from the territories annually, and none is exported.
The other agency of DINA is the Department of Indian Affairs, which governs the 1,500 existing Indian Reserves in Canada.
Timber sales on Indian lands are conducted by local band councils according to the federal Indian Timber Regulations. The
Regulations provide for small-volume annual cutting permits as well as licenses for "larger" volume supply (volume cut cannot
exceed a value of $2,500 based on prevailing local rates). All revenue is returned by the federal government to the Indians.
(Cite as: 48 FR 24159, *24182)
Many permittees on federal timber are harvesters only, who in turn sell the logs to small non-commercial operators or individuals
requiring fuelwood. Indians often cut very small amounts of timber for their own use.
Appendix C--Issues and Comments
Petitioner's Comments
Comment 1. Petitioner contends that the Department, in determining that stumpage programs are generally available because
they are provided to all potential users without government limitation, has created an unfounded distinction between de jure
availability and de facto availability.
DOC Position. The statute requires that a countervailable domestic subsidy be provided to a specific industry, or group of
industries. The DOC determined that the industries using stumpage are not a "specific industry or group of industries" within the
meaning of the law (see Section 771(b)(B) of the Act). While it is true that not all industries currently use stumpage, this is not the
result of any governmental action. The government of Canada is not limiting the users of stumpage, either de facto or de jure.
Under our interpretation of the statute, we would not, for example, find generally available a program which on its surface
appeared to have broad eligibility
(Cite as: 48 FR 24159, *24182)
criteria, but which was administered by government in such a manner as to benefit a particular industry group. See, e.g., Certain
Steel Products from France, 47 FR 39332, 39334 (Sept. 7, 1982).
Comment 2. Petitioner contends the Department incorrectly defined the users of stumpage as many groups of industries without
support in the record. Petitioner specifically argues that:
The Department found the Act's requirement that a domestic subsidy be provided to a specific industry or group of industries to
be met where subsidies were provided to the "steel industry," subsidies fall within more than one major industry group in both the
European Communities and the United States classification systems (as do the users of stumpage in these investigations).
The Department mischaracterized as "a list of products produced by industries holding stumpage permits," a list of products made
from stumpage submitted by the government of Canada.
DOC Position. Concerning the "steel industry," our investigations of certain carbon steel products from various countries covered
forged as well as rolled steel, which are included in two major industry groups. Yet the forged steel involved was insignificant
amounts of forged bar and structurals. Certain size ranges of these products can only be made through the forged process as
opposed to a rolled process. Since the Tariff Schedules of the United States,
(Cite as: 48 FR 24159, *24182)
Annotated (TSUSA) do not differentiate between the forged and rolled process, these could not be separated out.
Concerning petitioners second argument, the Canadian government did submit lists of products of different industries holding
stumpage rights, and we verified that producers of products classified in a number of different industry groups hold stumpage
rights.
Comment 3. Petitioner contends that the Department refused to acknowledge the existence of a "commonly recognized Canadian
forest products industry."
DOC Position. While it is true that one often sees references to a so-called "forest products industry" or "forest products sector," use
of such terms for convenience is not controlling for purposes of the countervailing duty statute. Significantly, the ITC, in its
preliminary determinations, found that lumber, shakes and shingles, and fencing constitute three distinct industries. Moreover,
under the Canadian and United States industrial classification systems, lumber, shakes and shingles, veneer and plywood,
furniture, sashes and doors, and pulp and paper are identified as separate industries and are listed under several major industry
groups.
Comment 4. Petitioner contends that the Department's treatment of "the forest products industry" as "a group of * * * industries"
for purposes of non- stumpage programs is inconsistent with its finding that stumpage programs are generally available.
(Cite as: 48 FR 24159, *24182)
DOC Position. The non-stumpage programs which the Department has found to be countervailable involve benefits which would
be of use to all or to a large number of industries, not merely to those industries manufacturing products from stumpage.
Therefore, the governments of Canada have targeted these programs to benefit certain industries. In our opinion, it is
appropriate to take into account the distinction between these programs and stumpage practices in terms of targeting. Otherwise,
these targeted programs and stumpage practices in terms of targeting. Otherwise, these targeted programs would escape the
purview of the countervailing duty law, because they arguably are provided to more than one group of industries.
Comment 5. Petitioner contends that using cut data instead of bid data does not make a significant difference in the calculation of
subsidies. They further state that the Department ignored significant information on the record that most United States stumpage
sales are of private timber which is not sold significantly in advance of use.
DOC Position. First, as described in the section entitled "Stumpage Programs of the Canadian Federal and Provincial
Governments," it is not the Department's policy to make cross-border comparisons in determining whether, or to what extent,
subsidies are conferred. Second, it would be inappropriate in these investigations to compare United States and Canadian
stumpage prices in view of inter alia, the significant differences in quality and accessibility of
(Cite as: 48 FR 24159, *24182)
stumpage and 7 of the requirement frequently imposed in Canada but not in the United States that in-kind services be
performed by companies allowed to harvest stumpage. Third, even if we were to compare United States and Canadian stumpage
prices, some information on the record indicates that such prices do not significantly vary when appropriately adjusted for the
above-described differences. In any event, in recent years, bid prices in the United States have usually been higher than cut
prices. (Such data is not available for private sales of United States timber. Indeed, petitioner has presented and relied on United
States public sales data.) Therefore, United States prices would not be a reasonable assessment of current prices paid. Our review
of data compiled by the United States Forest Service for forest regions 6 and 9, the Pacific Northwest and the Eastern regions of
the United States show that significantly lower cut prices (16 to 60 percent) are paid for softwood timber when compared to bid
prices, except in the case of White Mountain Forest. As petitioner argues, the record in these investigations reflects that only sales
of timber on national forest lands have recently been bid significantly in advance of use. The record does not contain such
information concerning private United States sales.
Comment 6. Petitioner contends that the Department's intepretation of subsection 771(5)(B)(iv) is arbitrary and not in
accordance with laws. Petitioner argues that the statutory language covers any governmental action
(Cite as: 48 FR 24159, *24182)
which reduces an industry's raw material acquisition costs.
DOC Position. As stated in our preliminary determinations and in these final determinations, we maintain that the best
interpretation of subsection (iv) is that it covers the relief by a government of a pre-existing statutory or contractual obligation.
While these investigations represent the first time the DOC has construed subsection (iv) definitively, we think that our
interpretation is supported by prior precedent, the legislative history of the Act, and basic rules of statutory construction. While
counsel has cited cases involving the European Communities Common Agricultural Policy (CAP), those cases involve cash
payments which we would not consider to be the assumption of costs under subsection (iv).
From the evidence on the record, the Canadian governments do not, through their stumpage programs, relieve a specific group of
industries of any pre- existing statutory or contractual obligations.
Comment 7. Petitioner argues that the Department should use competitively set United States stumpage prices to establish a
commercial benchmark for Canadian stumpage.
DOC Position. It is not the DOC's policy to use cross-border comparisons in establishing commercial benchmarks, because such
comparisons fail to account for differences in *24183
(Cite as: 48 FR 24159, *24183)
comparative advantage between countries. Futhermore, such comparisons would be particularly inappropriate in these
(Cite as: 48 FR 24159, *24183)
investigations because of differences in such factors as species combination, density, qualitry, size, age, accessibility, terrain and
climate between standing timber in different areas. Moreover, there is evidence in the record that the United States government
restricts supply of publicly-owned timber, thereby increasing the price of such timber in the United States.
Respondent's Comments
Comment 1. Respondent contends that RDIP is not targeted to any specific industry or group of industries, but rather is available
to all industries throughout the vast majority of Canada, with the boundaries of DREE eligibility serving to implement
geographically neutral criteria.
DOC Position. We find RDIP to be targeted to specific regions because the criteria for designation of areas eligible for assistance
from DREE are not objective, identifiable criteria. The use of subjective criteria leaves the designation of eligible areas to the
discretion of national and provincial DREE ministers.
Comment 2. Respondent contends that the amount of RDIP grant payments to producers of the products under investigation
which subsequently went bankrupt, were closed or were sold in arm's length transactions provide no current benefit to the
production of softwood lumber, and should not be countervailed
(Cite as: 48 FR 24159, *24183)
because they provide no current benefit.
DOC Position. We agree in principle, but we could not verify the amounts of grants given to firms which went bankrupt, were
closed, or were sold in arm's length transactions.
Comment 3. Respondent argues that we improperly allocated as united grants funds that were explicitly provided by the
government of Que>=1bec to REXFOR to cover losses sustained in previous years by Samoco, one of REXFOR's subsidiaries.
DOC Position. We allocate the subsidy benefit of funds generally provided to cover losses to the year of receipt to reflect the
nature of the liabilities giving rise to the loss. These liabilities are the basic costs of operations (e.g., wages, materials, certain
overhead expenses), which are generally expensed in the year incurred. To the contrary, we allocate any countervailable funds
provided to cover losses in multiple previous fiscal years over a broader period of time. Any losses incurred previously by
Samoco had already been written off by REXFOR. In addition, allocating funds for multi-year loss coverage solely to the year of
their receipt, as respondent advocates, would open a loophole in the countervailing duty law. Funds could be provided
allegedly for this purpose, but intended to have a long lasting future effect.
Comment 4. The Special ARDA grants made to native bands located in isolated
(Cite as: 48 FR 24159, *24183)
areas were used to produce softwood products for non-commercial use. This production is not included in the official shipment
figures for the industry and would not be included in the denominator used in the subsidy calculation.
DOC Position. During verification we determined that some Special ARDA funds made to native bands were used commercially.
Grants were used to acquire logging equipment, to perform subcontracting work, and to establish a shake and shingle operation to
supply local markets.
Comment 5. There is no justification for aggregating Special ARDA and General ARDA assistance in calculating benefits. The
programs have different purposes and different legal bases.
DOC Position. While the General ARDA is a rural development program, and the Special ARDA is an ongoing program which seeks
to improve employment and income opportunities for Canada's native population, both were created under the federal
Agriculture and Rural Development Act. In any event all benefits are aggregated in calculating the final amount of the subsidies.
[FR Doc. 83-14290 Filed 5-27-83; 8:45 am]
BILLING CODE 3510-25-M