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NOTICES
DEPARTMENT OF COMMERCE
International Trade Administration
(C-122-816)
Final Affirmative Countervailing Duty Determination: Certain Softwood Lumber
Products from Canada
Thursday, May 28, 1992
*22570
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AGENCY: Import Administration, International Trade Administration, Department of Commerce.
EFFECTIVE DATE: May 28, 1992.
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SUMMARY: We determine that benefits which constitute subsidies within the meaning of the countervailing duty law are
being provided on the manufacture, production, or exportation of certain softwood lumber products from Canada, as
described in the "Scope of Investigation" section of this notice. The estimated net subsidy is 6.51 percent ad valorem.
FOR FURTHER INFORMATION CONTACT: Bernard Carreau or Kelly Parkhill, Office of Countervailing Compliance, Import
Administration, U.S. Department of Commerce, room B099, 14th Street and Constitution Avenue, NW., Washington, DC 20230;
telephone (202) 377-2786.
FINAL DETERMINATION:
Case History
Since the publication of the Preliminary Affirmative Countervailing Duty Determination: Certain Softwood Lumber
Products From Canada (Preliminary Determination), 57 FR 8800 (March 12, 1992) in the Federal Register, the following
events have occurred. On March 18, 1992, we issued a supplemental/deficiency questionnaire to the Government of Canada
(GOC) regarding the province of Saskatchewan, and the Yukon Territory and Northwest
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Territories (the Territories). At the request of the GOC, we extended the due date for these responses until April 3, 1992.
We issued a questionnaire seeking clarifications on certain issues pertaining to two companies requesting exclusion on March 13,
1992. We received responses to this questionnaire on March 27, 1992.
We conducted verification of the responses submitted by the GOC on its own behalf, and on behalf of the provinces of Alberta,
British Columbia (BC), Ontario, and Quebec (hereinafter referred to as Respondents), from March 16 through March 27, 1992. In
addition, from March 16 through March 18, 1992, we verified certain companies that requested exclusion from this investigation.
Between April 13 and April 21, 1992, we issued verification reports to Respondents, and other interested parties which requested
copies of verification reports in their application for administrative protective order, and the Coalition for Fair Lumber Imports
(the Coalition), representing the U.S. industry.
We received timely requests for a public hearing from five interested parties. We received case and rebuttal briefs from interested
parties on April 21 and 23, 1992, and April 27, 1992, respectively.
In response to a request by Respondents, we postponed the public hearing (see 57 FR 13077 (April 15, 1992). A 22-hour public
hearing was held at the Department of Commerce on April 29 and 30, 1992.
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Scope of Investigation
The products covered by this investigation are certain softwood lumber products. These 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, rabbitted, 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, rabbitted, chamfered, V-jointed, beaded, molded, rounded or the like) along
any of its edges or faces, whether or not planed, sanded or finger-jointed; (4) coniferous wood flooring (including strips and friezes
for parquet flooring, not assembled) continuously shaped (tongued, grooved, rabbitted, chamfered, V- jointed, beaded, molded,
rounded or the like) along any of its edges or faces, whether or not planed, sanded or finger-jointed. Such products are currently
provided for under subheadings 4407.1000, 4409.1010, 4409.1090, 4409.1020, respectively, of the Harmonized Tariff
Schedule (HTS). Although the HTS subheadings are provided for convenience and customs purposes, our written
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description of the scope of this proceeding remains dispositive.
Scope Issues
Respondents and a number of other interested parties submitted a variety of arguments that certain types of softwood lumber
products should be excluded from our final determination, and the order, if one is issued. These parties are the Independent
Lumber Remanufacturers' Association (ILRA); the Clemson Corporation (doing business as the National Frame Company); Green
Forest Lumber Products (Green Forest); the International Sleep Products Association (ISPA); and Leggett and Platt,
Incorporated.
Scope Exclusion Requests--Specialty Products
The Respondents requested that the Department exclude from the scope of the investigation the following: Products
manufactured from Western Red Cedar, Yellow Cypress, Eastern White Cedar, Eastern White and Red Pine, and clear and shop
grades of lumber (collectively referred to as specialty products). Respondents stated that softwood lumber produced from these
six species and grades has characteristics that distinguishes it from lumber produced from more commonly available coniferous
species. These characteristics include, among
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others: Appearance; resistance to certain insects, disease and fungi; and strength. According to Respondents, the proof of the
desirability of these characteristics lies in the higher prices that lumber produced from these species commands.
The scope of the investigation covers lumber products produced from all types of coniferous wood. Each of the specialty species
can be used to produce the same or similar lumber products as any other coniferous species commonly harvested in Canada
and the United States. While the different strengths and weaknesses of these species may be part of the definition of a particular
type of lumber, the speciation and quality of the timber input into a particular product are only two of the various criteria by
which softwood lumber products can vary. See, e.g., Softwood Lumber from Canada, United States International Trade
Commission (ITC) Inv. No. 701-TA-312 (December 1991) (preliminary). In addition, no information was provided during the
course of the investigation indicating that these species and grades of timber were sold according to the same stumpage systems
other than those found to be applicable to other species and grades.
Furthermore, no specific product information was provided for the record, with the exception of the listing of several end
products manufactured from these species (which are not, by and large, within the scope of this investigation in any case).
Therefore, there is no basis for determining whether products
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manufactured from these grades and species should either *22571
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be excluded from the scope of the investigation or be included in a separate class or kind of merchandise.
With respect to the contention that lumber manufactured from these specialty products commands a higher price, we note that
there is a wide range of prices paid for softwood lumber products manufactured from all coniferous species. While a higher price
paid may somehow indirectly indicate the expectations of the final consumer, it is not in and of itself a basis for the exclusion of a
product from the scope of an investigation.
Remanufactured Softwood Lumber Products
We received comments from Respondents and the ILRA requesting that the Department exclude remanufactured softwood
lumber products (remans) from the scope of the investigation. The Department also received comments from National Frame
Company requesting that the Department exclude a particular type of softwood reman, bed frame components, from the scope of
the investigation. Finally, ISPA and Leggett and Platt, Inc., submitted comments requesting that the Department exclude bed
frame components in general, and those bed frame components imported into the United States by Leggett and Platt in particular,
from the scope of the investigation. These parties argue that remans should be
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excluded from the scope of the investigation because: (1) They do not belong to the same class or kind of merchandise as rough
sawn dimension lumber; (2) they do not benefit from the alleged subsidies under investigation; and (3) they are not made by
enterprises included within the specificity finding in the preliminary determination.
The Coalition and Fred Tebb and Sons, Inc. (Tebb) submitted comments in opposition to the exclusion of remans from the scope
of the investigation, and to any finding that remans represent a separate class or kind of merchandise. The Coalition applied the
Department's five class or kind criteria to remans and concluded that they should not represent a separate class or kind of
merchandise. Tebb disputed Respondents' and interested parties' descriptions of remans, claiming that their explanations
described "artlike" products, which exaggerated the differences between remans and dimension lumber, and which essentially
contended that every cut made to a piece of lumber greatly increases the value of the product at the same time it establishes a new
class or kind of merchandise. Tebb noted that Respondents and other interested parties incorrectly applied their artlike
descriptions to all remans, even though remanufacturers sell a wide variety of softwood lumber products, which are usually only
minimally processed. The arguments presented by Respondents and other interested parties with respect to remans are
addressed in the following three sections.
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Class or Kind of Merchandise
By applying the five criteria the Department uses to determine whether merchandise is within the class or kind of merchandise
covered by the investigation, Respondents and other Canadian interested parties concluded that remans are not the same class or
kind of merchandise as dimension lumber or rough sawn lumber. They further cite the U.S.-Canada Memorandum of
Understanding on Softwood Lumber (MOU) as evidence that certain remans were identified and accorded different treatment than
other softwood lumber products, confirming that they are a different class or kind of merchandise. Citing the results of their class
or kind analysis and the MOU treatment of remans, they contend that the Department should exclude these products from the
scope of the investigation because of their significant differences from dimension lumber. Respondents allege that the focus of the
investigation is on rough sawn or dimension lumber, and that the Department and the U.S. domestic industry really are not
interested in remans.
The scope of this investigation, however, clearly includes both so- called dimension lumber as well as other softwood lumber
products, including remans. The Preliminary Determination stated:
Since the scope of our investigation includes those products covered by the
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U.S.-Canada Memorandum of Understanding on Softwood Lumber, which includes not only dimension lumber but a wide
variety of other lumber products, all of these products are considered to fall within the scope of this investigation. (Emphasis
added.)
Therefore, there is no basis for excluding remans from the scope of the investigation just because they are different from other
lumber, which is also included within the scope. Furthermore, the domestic industry did argue both in its direct and rebuttal
briefs against excluding remans from the scope of the investigation.
Nor is there any basis for determining that remans as a group are a separate class or kind of merchandise. There is no widespread
agreement on an exact definition of "remans," which essentially is a term of convenience that indicates that at least some
additional processing has been performed on rough sawn lumber. The descriptions of remans on the record are laced with
generalities too broad for the Department to conclude that even a subset of remans constitutes a separate class or kind of
merchandise. While the Department does not dispute that certain remans are produced from highly sophisticated processing
techniques, no attempt was made to enumerate which processes, when applied to softwood lumber, changed the physical
characteristics, ultimate use, expectations of the final consumer, advertising, and channels of trade sufficiently to create a
separate class or kind of
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merchandise. The comments received did not present a coherent set of criteria by which the Department could create or delineate
a class or kind of merchandise from among the welter of softwood lumber products.
The evidence on the record does not demonstrate that all remans constitute a separate class or kind. To the contrary, the
evidence presented regarding why remans should be a separate class or kind is contradictory.
For example, the ILRA stated that among the remans made by member companies of the ILRA are "decorative paneling, window
casings, flooring, moulding, furniture components, ladder stock, finger-jointed and end-matched merchandise." See Exhibit 8 of
the ILRA Brief, p. 3. The ILRA asserts that these "reman products are distinguishable, because of fabrication and finishing, from
common sawmill lumber used primarily in the construction, repair and remodeling of residential and nonresidential buildings."
Id. Decorative paneling, window casings, flooring and moulding, however, while not common sawmill lumber, are nevertheless
"used primarily in the construction, repair and remodeling of residential and nonresidential buildings." In its rebuttal brief, the
ILRA argues that the distinction is not really whether remans are used in the construction, repair and remodeling of houses; it is
that they may be used for nonstructural interior purposes. The list of remans provided by ILRA, however, contains siding,
gutters, fence boards, door stock, window sash cuttings, furring and roofing strips used across structural members
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of walls and ceilings to serve as a base for the attachment of wall, ceiling and roof materials, and tongue and groove roof and floor
decking which provides a structural deck. See ILRA brief at Exhibit B. These remans do not necessarily fit the description of
non*22572
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-structural interior purposes. In addition, all of these products, some of which may be advertised separately, are also frequently
available in lumber yards.
Throughout this proceeding, the term "reman" was routinely applied to a wide variety of lumber products, some of which would
clearly be within the scope of the proceeding even if it were limited just to dimension lumber. For example, Green Forest and Tebb
indicated that their remanufacturing businesses consist of nothing more elaborate than cutting the lumber into customer-
specified sizes. They remanufacture 2X4s and 2X6s out of 2X10s. The ILRA, on the other hand, argues that remans should be a
separate class or kind because the amount of remanufacturing is so substantial. It argues that sawmill lumber, as opposed to
remans, is generally sold to the construction industry in an "as-is" condition, ready for use as the structural component of a
building. The same is true, however, for the remanufactured 2X4s and 2X6s to which we referred above.
Some of the descriptions of what might constitute a reman presented for the record were mutually exclusive. For instance, the
ILRA indicated that only the best quality lumber can be used for remans, resulting in remans always being of
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a superior quality wood than standard dimension lumber. However, the ISPA and Leggett and Platt stated that its reman product
of interest, bed frame components, is produced using wood from the undesirable outer portion of a log, which is often used for the
manufacture of wood chips, and therefore is, at least in some respects, unlike the more expensive prime dimension lumber which
they argue is the focus of the investigation. (See ISPA and Leggett and Platt brief, p. 14.) Finally, comments received were
hyperbolic in nature, with Canadian interested parties insisting that their descriptions of the most highly processed remans made
from only the most valuable lumber applied to all remans, while the Coalition contended that the consumer's expectations for
remans and standard dimension lumber were the same because the consumer demands of both products the best quality for the
lowest price.
Likewise, there was conflicting evidence regarding the amount of value-added to the lumber product by the remanufacturing.
ILRA and Leggett and Platt argue that there is substantial value added, while Tebb and Green Forest Products state that this is not
necessarily the case. Neither side presented any reasonable, objective criteria by which the Department could distinguish among
the numerous softwood lumber products.
Respondents point to the MOU, and appendices B and E of the MOU in particular, as evidence that the Department has at least
implicitly recognized the unique nature of remans as a group, and that the Department has experience identifying
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individual reman products and administering separate provisions for remans.
The list of products included in appendices B and E of the MOU were derived from the scope of the 1986 investigation, and only
served to clarify product coverage for purposes of administering the MOU (i.e., the basis on which the export tax would be
collected.) The lists themselves, however, and the products specifically enumerated and defined in them, resulted from the series
of negotiations conducted in connection with the MOU. As such, the lists and the products they include are not indicative of the
results of an examination of factual evidence presented to the Department and analyzed according to the five class or kind
criteria. While the lists contain enough information to describe fairly what had been agreed upon during negotiations, they do not
provide sufficient information for us to analyze properly each product according to our criteria. Therefore, the Department
cannot rely on these lists as evidence that remans represent an individual class or kind of merchandise within the meaning of the
Trade and Tariff Act of 1930, as amended, (the Act) or as a basis for establishing a separate class or kind.
Pass-through of Subsidy to Remans
Respondents and other Canadian interested parties contend that because remanufacturers purchase softwood lumber as an input
at arm's-length prices,
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the Department has not found that remans receive a countervailable subsidy. Some Respondents also argue that the focus of the
investigation is the primary product targeted by the subsidy program which was the subject of the investigation. Leggett and Platt
and the ISPA argue that the Department cannot include bed frame components within the scope of the investigation because the
Department has not found that Canadian producers of bed-frame components themselves have received countervailable
subsidies.
As pointed out above, remans are included within the scope of the investigation, and the Department did investigate whether
remans benefitted from the subsidies investigated. The Department determined that remans do benefit from subsidies. As the
ILRA noted, not all remans are manufactured by independent producers; some reman producers are integrated companies which
purchase stumpage and manufacture both dimension lumber and remans. See ILRA rebuttal brief p. 4. Therefore, some producers
of remans do benefit directly from stumpage. A comparison of the reman products included in appendices B and E of the MOU
with the products listed in the results of Respondents' surveys of end products produced by stumpage holders demonstrates that
there are many remans that are produced by tenure holders, and which, therefore, benefit directly from stumpage subsidies.
Specifically, several products, such as lath, siding, flooring, and treated softwood lumber were listed in both the MOU appendices
and in the results of the end product surveys. While bed frame
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components, and not bed frames (which appear on the end products survey), are included on the MOU reman list, it is
nevertheless clear that the stumpage- holding companies which produce the bed frames must first make the constituent bed frame
components. Therefore, the subsidized stumpage holders who produce bed frames also manufacture remans, at least at one point
in their production process. Similarly, results of the end products surveys indicate that stumpage holders produce doors, pallets,
and fences, while door stock, pallet stock, and fence boards all appear on the MOU appendices. While we were not completely
satisfied that the end product surveys were accurate and complete, it is apparent that stumpage holders do produce remans (see
the "Specificity" section of this notice).
Since it is clear that several of the products listed in MOU appendices B and E produced by independent reman producers are the
same products that are produced by stumpage holders that benefit from the subsidies found to exist, the issue then becomes
determining which individual companies produce remans as part of a continuous process starting with the felling of subsidized
timber, and which produce remans from lumber purchased at arm's length. The Department's procedures for accomplishing this
are either through company exclusion requests or through the investigation and promulgation of company- specific rates.
However, because the number of exclusion requests exceeded 300 and the number of timber processing companies is even
greater, these analyses
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would have been so large as to be impracticable, and arguably impossible, within the confines of this countervailing duty
investigation. For a fuller explanation of our rationales *22573
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for these exclusion and company- specific rate decisions, please refer to the "General Calculation Issues," and "Company
Exclusion" sections of this notice.
Upstream Subsidy Issue
Respondents argue that the Department cannot include remans, including bed frame components, within the scope of the
investigation because the Department has not found that the subsidies provided to Canadian softwood lumber producers are
provided to independent reman producers. As such, countervailing duties on imports of remans may not be imposed
absent an affirmative upstream subsidy determination with respect to the imported merchandise.
Section 701(e) of the Act provides that whenever the Department has reasonable grounds to believe or suspect that an upstream
subsidy, as defined in section 771A(a), is being paid or bestowed, the administering authority shall investigate whether an
upstream subsidy has in fact been paid or bestowed, and if so, shall include the amount of the upstream subsidy as provided in
section 771A(c). Section 771A(a) defines an upstream subsidy as any subsidy that is bestowed on an input product used in the
manufacture of the merchandise subject
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to the investigation, if there is a competitive benefit bestowed on the subject merchandise that has a significant effect on the cost
of manufacturing of the subject merchandise. There is a competitive benefit if the price for the input product is lower than an
unsubsidized, arm's-length price.
The scope of this investigation covers certain softwood lumber products, and includes both dimension lumber and remans, the
former being the input to the latter. Both dimension lumber and remans are produced by stumpage holders which receive
stumpage at preferential prices. Reman producers that purchase lumber from stumpage holders at arm's-length prices argue that
the Department cannot impose a countervailing duty order on their lumber products without conducting an upstream
subsidy investigation to demonstrate that the remans are receiving a countervailable benefit. As we discussed above, the
Department has found that some producers of remans are found to be receiving countervailable benefits. The Department is not
obligated to investigate every producer of the subject merchandise if some producers are found to be receiving subsidies.
Exclusion investigations, which were impracticable in this investigation, are the appropriate avenue to determine if there are
specific companies that do not receive countervailable benefits. The Coalition, on the other hand, contends that section 771A is
irrelevant because forestry products are within the scope of the agriculture provision under section 771B.
We disagree with the Coalition that an analysis based on section 771B of the
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Act is applicable in this case. Section 771B, which deals with certain processed agricultural products, mandates that "* * *
subsidies found to be provided to either producers or processors of the product shall be deemed to be provided with respect to
the manufacture, production, or exportation of the processed product," if the demand for the raw agricultural product is
substantially dependent on the demand for the latter-stage product, and the processing adds limited value to the raw product.
Remans are not processed agricultural products for the purposes of this provision. The Act and its legislative history indicate that
this provision was intended for agricultural food products with minimal processing between the raw agricultural product and the
processed product, not a manufactured product such as remans (which are produced from another manufactured product,
lumber). Specifically, section 771(4)(E)(iv) defines "raw agricultural product" as "any farm or fishery product."
Moreover, assuming, arguendo, that lumber were an agricultural product intended to be covered by Congress under section
771B, there is no evidence on the record indicating that demand for remans is substantially dependent on demand for logs, the
raw product in this case, nor is there substantial evidence showing only "limited" value added either when processing logs into
lumber or lumber into many remans.
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GATT Issues
Some Respondents argue that the General Agreement on Tariffs and Trade (GATT) precludes the levy of countervailing
duties in excess of the amount of subsidy found to exist. They conclude that because subsidies were not found to exist on
remans, countervailing duties cannot be applied to them. This investigation does not result in the levy of
countervailing duties. Actual duties will not be levied unless an order is issued, and even then not until a section 751
review is completed or not requested. Further, because this is an aggregate case, it is necessary for the Department to calculate
and assess duty deposits on the average subsidy found for all of the merchandise subject to the investigation. We do not believe
that these procedures violate the GATT or the Agreement on Interpretation and Application of Articles VI, XVI, and XXIII of the
General Agreement on Tariffs and Trade (GATT Subsidies Code). Because we cannot calculate the average subsidy on all
merchandise (as Statistics Canada could not provide the relevant total value of all shipments of the subject merchandise), we
will instruct Customs to collect cash deposits on a first mill basis. As such, we will not collect more in deposits, on average, than
the amount of subsidy found. With respect to actual duty assessment, this issue will be addressed during the first
administrative review if an order is issued and if such review is requested.
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Collection of Duties for Remanufactured Softwood Lumber Products on First Mill Basis
Respondents argue that if the Department does not accept their contentions that remans represent a separate class or kind of
merchandise, which should be excluded from the order (if an order is issued), at a minimum, the Department should, be
consistent with its instructions to Customs made following the Preliminary Affirmative Countervailing Duty Determination:
Certain Softwood Lumber Products from Canada, 51 FR 37435 (October 22, 1986) (Lumber II), that the countervailing
duty be imposed on the first mill value of the lumber input.
Tebb opposes duty assessment on this basis, citing the alleged imprecision resulting from the fluidity of potential methods for the
accounting of first mill values, and the inherent difficulty in enforcing such a provision.
The Department is requiring the posting of a bond or cash deposit on the first mill value for the purposes of this investigation.
However, to the extent that any of Tebb's concerns regarding incorrect postings are borne out, the matter should be presented
directly to the Customs Service. For a fuller discussion of our rationale for the use of first mill values, see the relevant portion of
the "General Calculations Issues" and the "Suspension of Liquidation" sections of this notice.
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Company Exclusion Requests
In the Preliminary Determination, we preliminarily determined that six companies out of the 334 companies that requested
exclusion would qualify for exclusion from any eventual countervailing duty order. The Department had previously
determined that investigating 334 company-specific *22574
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exclusion requests was not practicable within the meaning of 19 CFR 355.14(c). (See Decision Memorandum, Company
Exclusions, January 17, 1992, in the public file, Room 8099, of the Department of Commerce.) (All relevant case documents
referenced in this notice are available in the public file at this location.) Although we determined that we could not investigate 334
exclusion requests, we did accept exclusion requests from companies that used exclusively or primarily U.S.-origin logs in their
lumber production.
For purposes of this final determination, the Department considered all 24 exclusion questionnaire responses which the GOC
submitted on January 31, 1992. We also took into account all timely information submitted on behalf of these companies after
January 31, 1992.
Based on our review of the responses, certifications received, and verification, we have determined to exclude 15 companies from
any countervailing duty order issued as a result of this investigation. In
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determining which companies to exclude, we first identified those companies that exported to the United States during the period
of investigation (POI). Six companies did not export to the United States during the POI and, therefore, have not been excluded
pursuant to 19 CFR 355.14. Next, we checked to see if all companies purchased the subject merchandise during the POI. One
company did not purchase any U.S.-origin logs and did not provide data on its purchases of non-US.-origin logs and, therefore,
was not excluded.
The next stage was to identify those companies which used only U.S.-origin logs in their lumber production during the POI. There
were three such companies. We then identified those companies which purchased both U.S.-origin logs as well as non-U.S.-origin
logs and lumber. For these companies we applied the province-specific per cubic meter benefit to the volume of each company's
purchases of private logs, Crown logs, and Crown lumber, and a zero rate to the value of each company's purchases of U.S.-origin
logs. If, after calculating the benefit and dividing by total shipment value, a company had an overall de minimis subsidy rate, it
was excluded. Only one company was found to have a rate above de minimis, and, therefore, was not excluded. Where necessary,
we have applied the weighted-average exchange rate for the period of investigation to convert values reported in U.S. dollars to
Canadian dollars.
Respondents have argued that the Department should exclude all companies located in the southern border region of Quebec
based on a Forestry Canada
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study of this region that found that 70 percent of the lumber made in the region was from U.S.-origin logs. Respondents argue that
at a minimum, the Department should only apply the benefit to the estimated 30 percent of lumber that comes from
non-U.S.-origin logs.
The Department's regulations provide only for company exclusions, not geographic or regional exclusion requests. If the
Department were to exclude all companies from Quebec's border region without having examined them on a case-by-case basis,
the Department may inadvertently exclude companies in the region that, according to our regulations, would be ineligible for
exclusion (see 19 CFR 355.14). For example, companies that did not export to the United States during the POI are ineligible for
exclusion.
However, the Department has allowed company-specific exclusion requests in this investigation under 19 CFR 355.14. All
companies from Quebec's border region with the United States that believed they were eligible for exclusion should have applied
for exclusion, as a number of companies have done.
In addition, Respondents argue that all arm's-length lumber purchases should be excluded from the Department's benefit
calculation for the exclusion companies. We disagree with Respondents with respect to this issue. According to 19 CFR
355.14(b)(3), if the exporter is not the producer of the merchandise, the person must certify that the suppliers or producers of the
merchandise receive no subsidies. When a wholesaler, trader, or other type of seller
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purchases a product and performs no value-added manufacturing, the Department assumes that the subsidy on the product
passes forward to the selling stage. (See Final Affirmative Countervailing Duty Determination and Countervailing Order:
Certain Steel Wire Nails from Thailand, 52 FR 36967 (October 2, 1987)). On this basis, the benefit was applied to all purchases of
lumber, whether or not they were at arm's length.
Moreover, Respondents argue that the Department should use a company's province-specific rate for purposes of the exclusion
calculation. The Department agrees with Respondents and has used the province-specific per cubic meter benefit in order to
calculate the subsidy rate for exclusion companies.
Finally, for those companies not found to have de minimis benefits, Respondents argue the Department should calculate
company-specific rates. According to 19 CFR 355.20(d), the Department will calculate individual rates only to the extent
practicable. The Department has determined, as previously stated above in regard to requests for exclusion, that because of the
large number of companies involved in this investigation it is not practicable to calculate company-specific rates.
The names of the excluded companies are listed in the "Suspension of Liquidation" section of this notice. We have adjusted our
country-wide rate calculation to remove the effect of the companies we have excluded.
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Analysis of Programs
For purposes of this determination, the period for which we are measuring subsidies (the POI) is the GOC's fiscal year, April 1,
1990, through March 31, 1991.
Unless otherwise specified, all values referred to are denominated in Canadian dollars.
General Calculation Issues
Use of Aggregate Data
We have relied on aggregate information (i.e., data for the manufacturers, producers and exporters in all provinces and territories
subject to investigation) provided by the GOC and the provincial governments for this determination because of the large number
of producers of softwood lumber products covered by this investigation. Although we received a number of requests for
company-specific rates, we determined not to issue any company- specific rates in this investigation.
Shipment Values Used in Denominator of the Subsidy Calculation
(Cite as: 57 FR 22570, *22574)
The shipment data contained in the denominator of the benefit calculation are vital for two reasons. First, it has an important
impact on the benefit calculation and hence must be as accurate as possible. Second, the product composition incorporated in the
shipment value has important implications for how U.S. Customs should collect the duty. That is, if the value of all remans within
the scope of this investigation is included in the denominator of the benefit calculation, then U.S. Customs must collect the duty
on the value at the mill of final manufacturing (i.e., final mill). On the other hand, if the value of remans is excluded from the
denominator of the benefit calculation, then U.S. Customs must collect the duty on the value exiting the first mill of manufacturing
(i.e., first mill). Both the accuracy and composition of the shipment value used *22575
(Cite as: 57 FR 22570, *22575)
in the Preliminary Determination have been questioned by the Coalition.
The Coalition argues that the denominator includes a certain amount of double counting, which occurred as a result of including
the value of some remans and the lumber inputs from which they came. It maintains that therefore the denominator should be
reduced by a minimum of five percent (the estimate of double counting by Statistics Canada officials). The Coalition further
insists that, since the shipment value includes remanufactured lumber, the Department should collect the duty on a final mill basis
in order to capture the entire
(Cite as: 57 FR 22570, *22575)
value of the remans entering the United States. Even if remans can be purged from the shipment value, the Coalition insists that
collecting the duty on a first mill basis would be difficult, if not impossible, to enforce. Lastly, the Coalition maintains that even if
U.S. Customs treats remans differently, these exceptions should only be made in the case of arm's-length transactions and for
companies which produce remans exclusively from lumber.
Respondents counter that the small degree of double counting in the shipment data only serves to understate the amount of the
denominator, i.e., it is to their detriment. They also maintain that since the shipment value expressly excludes siding, flooring,
and other remanufactured millwork, the duty should be assessed on a first mill basis. They contend that this is administratively
feasible and precisely what U.S. Customs did after Lumber II.
In order to explain this issue, it is important to describe how the shipment data were calculated. At verification, it was established
that data on total shipment values of all subject merchandise were not directly available to the GOC. Therefore, Statistics
Canada calculated shipment values from its existing data. Statistics Canada collects the relevant data primarily on a first
mill basis and has no system for collecting final mill data. The Department verified both the data and the calculations.
As discussed in detail in the Federal Government Verification Report, there were two general components of the shipment
values--the calculated, per unit
(Cite as: 57 FR 22570, *22575)
shipment values and the actual shipment volumes. Statistics Canada multiplied these two figures to obtain total shipment
values for each province. The shipment volumes explicitly exclude double counting, while the calculated, per unit values may
contain a small amount (i.e., estimated to be five percent by Statistics Canada officials) of remanufactured shipment values.
Based on verification, the Department finds the shipment data free from double counting. First, as stated above, the shipment
volumes are carefully scrutinized by Statistics Canada for double counting. Secondly, while the calculated, per unit shipment
values may contain some remanufactured shipment values, their inclusion in the per unit value renders an average per unit value
which, in all likelihood, is insignificantly different from a purely lumber per unit value.
The Coalition's statement that the shipment data are overestimated by five percent stems from a misunderstanding of the data.
Statistics Canada officials explained during verification that among the various per unit prices comprising the average per
unit value, five percent were from remans. They did not state that the per unit values were five percent higher as a result of
including the remanufactured per unit values.
On the other hand, Respondents' assertion that the inclusion of some per unit prices for remans slightly lowers the shipment value
is only partially true; it is true for the example they provide. However, the shipment value also includes
(Cite as: 57 FR 22570, *22575)
some remanufactured per unit values which will tend to overstate the figure. This is explained below.
There are two general types of remanufactured per unit values included in the per unit shipment values and they tend to offset one
another. One group, lumber that is sold from the first mill rough and then planed in the second mill, will include per unit prices
which tend to understate the total, calculated, per unit value. This is true since U.S. Customs will collect duty on a FOB first mill
basis only insofar as the lumber is at least to the planed stage. That is, when lumber is not planed in the first mill, the planing mill is
then considered to be the first mill. [FN1] The second group, lumber that is sold in standard dimensions from one mill to a second
mill which cuts the lumber into custom dimensions, will include per unit values which tend to overstate the total, calculated, per
unit value. Hence the effect of the remanufactured per unit prices on the total, calculated, per unit prices, while impossible to
determine with precision, is most certainly quite small and not to the clear advantage of either party.
FN1 An April 20, 1992 letter from Ms. Barbara Tillman, Office Director, Office of Countervailing Compliance, to Mr. Carlton L.
Brainard, Director, Office of Trade Operations, U.S. Customs Service states "(p)lease note that further processing does not include
the planing process from rough-cut to