(Cite as: 57 FR 22570, *22575)
planed lumber."
While the Department's clear preference is to use final mill values in calculating benefits (which we requested in the
questionnaire), the fact that such data were not available and could not be accurately estimated or calculated, and the fact that
Statistics Canada made every effort to isolate and accurately calculate first mill shipment values, have rendered a situation in
which using first mill is applicable. Therefore, in calculating the subsidy rate form the programs that the Department is finding
countervailable, the Department is using as the denominator the shipment values provided by Statistics Canada, which
represent to the best possible extent, the value of softwood lumber products at the first mill. As such, the Department will also
instruct U.S. Customs to collect the duty on the FOB first mill value.
Inclusion of By-Products in the Denominator
To calculate the ad valorem subsidy from stumpage programs, the Department has divided the total benefit by the value of certain
softwood lumber products (at the first mill/planing mill stage) plus the value of by-products that are produced during the lumber
production process and sold by lumber producers.
To calculate the benefit used in the numerator of the calculation, we have multiplied the per cubic meter differential between the
preferential and
(Cite as: 57 FR 22570, *22575)
nonpreferential stumpage prices by the volume of subsidized logs harvested from provincial lands that entered sawmills during
the period of investigation, to the extent that we had verified data for this calculation. The Department did not include in the
calculation the volume of logs harvested from private, federal or native lands, or the volume of logs harvested from provincial
lands that were provided at nonpreferential prices. As discussed below, we did not exclude sales of subsidized logs by major
tenureholders to unrelated companies that were harvested from provincial land because data isolating such sales from all trade in
logs were not provided.
In the denominator of the subsidy calculation, the Department included the total value of all softwood lumber shipped in each
province (at the first mill/planing mill stage) plus the shipment value of by-products that are produced during the lumber
production process. The total value of softwood lumber includes lumber produced from both subsidized and nonsubsidized
stumpage. By using this total value in the denominator, we ensure that we do not countervail more than the average subsidy
attributable on an aggregate *22576
(Cite as: 57 FR 22570, *22576)
level to the products under investigation.
Numerator Issues
Respondents assert that the Department should exclude from the numerator the
(Cite as: 57 FR 22570, *22576)
proportion of logs sent to sawmills but attributable to the production of products other than softwood lumber products.
Conversely, Respondents argue that the Department should include in the numerator of the calculation only the volume of the
logs harvested based on the proportion of wood fiber from Crown timber entering sawmills that emerges as softwood lumber.
Neither of these proposals is methodologically correct.
Stumpage is provided at preferential rates to producers of certain softwood lumber products. Because the stumpage holders
themselves are lumber producers, the stumpage benefit is like a grant to the company. As discussed in the "Specificity" section
above, we have determined that the stumpage benefit is not tied solely to the production of softwood lumber. As a result, all
products produced during the lumber production process receive the benefit. When stumpage holders purchase the softwood
timber, they are not purchasing just that portion of the timber that can be used to produce lumber, nor are they purchasing the
timber in its constituent parts. Moreover, it is the whole log that must be processed to produce lumber, not just certain parts of
the log or a certain volume of the log.
Because the stumpage benefit that we are calculating is that which is received by lumber producers which purchase subsidized
stumpage, and not a benefit received by log producers, the subsidy is properly attributed to the value of the lumber products
produced from that preferentially provided input. Despite
(Cite as: 57 FR 22570, *22576)
Respondents' arguments, it is irrelevant whether products that are produced during the lumber production process are at
different stages of production than finished lumber. The stumpage subsidy benefits sales of all products produced during the
lumber production process.
Further, Respondents are not on point when they argue that the subsidy on the stumpage should be diluted by apportioning
between the volume of the log that ends up as lumber and the volume that ends up as other products. That argument pertains to
pass-through issues and is not relevant in this case because the producers that receive the benefit from the program are also the
producers of the certain softwood lumber products subject to investigation. Thus, this is not a pass-through issue as in Final
Affirmative Countervailing Duty Determination: Fresh, Chilled and Frozen Pork from Canada, 54 FR 30774 (1989)
(Pork), where the producers of swine were different than the producers of pork products.
The only conceivable volume-based analysis that could be considered relevant is not what portion or percentage of the log ends
up as lumber, but rather how many cubic meters of a log are required to produce one cubic meter of lumber. As such, the proper
analysis would be to apply the inverse of Respondents' volume argument so that the subsidy that benefits shipments of certain
softwood lumber products is not diluted. Under such an analysis, one would calculate how many cubic meters of logs (e.g.,3) are
required to produce one cubic meter
(Cite as: 57 FR 22570, *22576)
of lumber, and then multiply the per cubic meter benefit by this yield factor. The result would then be multiplied by the total
cubic meters of lumber shipments and that amount would be the total benefit used in the numerator.
However, such a calculation of lumber yield is unnecessary because when we multiply the per cubic meter stumpage benefit by
the total cubic meters of logs harvested under subsidized tenures that enter sawmills, we have calculated the total benefit
received by all lumber producers in the aggregate. Indeed, such a calculation would be uncalled for inasmuch as we consider that
the subsidy being provided is not tied specifically to sales of softwood lumber but rather to sales of all products produced during
the lumber production process. If we were to use a lumber yield factor adjustment (which is the only volume-based allocation of
the benefit that could arguably be appropriate), there is no way to attribute any amount of the subsidy to chips or other
by-products because there is no comparable volume yield factor. Since the subsidy on stumpage (i.e., the log) is not tied to
specific products produced during the lumber production process, the only appropriate way to allocate the benefit is to divide by
shipment values of all products produced during the lumber production process. Thus, the only remaining issue is to determine
the relevant sales values over which the benefit should be allocated.
Denominator Issues
(Cite as: 57 FR 22570, *22576)
We have recognized that there are certain products of commercial value that result from the lumber production process, (i.e.,
chips and sawdust) that are separate and distinct from the lumber produced. Accordingly, we have included the value of these
products in our denominator in order to calculate the ad valorem subsidy rate, consistent with the Department's practice
described in section 355.47(c)(1) of its Countervailing Duties; Notice of Proposed Rulemaking and Request for Public
Comments, 54 FR 23366 (May 31, 1989) (Proposed Regulations).
Respondents agree that the Department was correct in allocating the benefit over not just lumber but also the commercial
products produced by mills other than lumber, including chips, sawdust, and shavings. This is inconsistent, however, with the
remainder of their argument. Respondents' own calculation, as provided in their case brief, does not include the value of products
other than lumber, i.e., chips, sawdust, and shavings. They argue that these products should not be included because they are at
different stages of processing than finished lumber, and that by including products at different stages of the production process,
we are causing distortion. We disagree with Respondents that we are causing distortion by attributing the subsidy to products that
are at different stages of the production process. Chips, sawdust, and lumber were all produced during the same milling process.
We
(Cite as: 57 FR 22570, *22576)
assume that as a result of the milling operation, all products that are produced and sold benefit from an United subsidy. While we
recognize that lumber may have more value added when compared to woodchips and sawdust, it is the Department's intent to
capture the amount of the subsidy based on the total value of all products sold regardless of whether one product has more value
than another.
As discussed above, we have included the values of chips and sawdust in the denominator of our calculation. This is consistent
with the Department's practice, described in its Proposed Regulations, § 355.47(c)(1). This section provides that where the
Department determines that a countervailable benefit is not tied to the product or sale of a particular product or products, the
Department will allocate the benefit over all products produced by a firm, in the case of a domestic program.
The Coalition maintains that the Department erroneously allocated the subsidies to lumber mills over both the primary product
and the by-products that result from the production of lumber. The Coalition argues that the woodchips, sawdust, and shavings
that are residues from the production of softwood lumber are properly categorized as by-products (i.e., they are produced as the
necessary result of the production of a much more valuable *22577
(Cite as: 57 FR 22570, *22577)
good). The Coalition cites three determinations involving Lamb Meat from New Zealand 46 FR 58128 (1981), 54 FR 1402 (1989),
and 54 FR 19590,
(Cite as: 57 FR 22570, *22577)
(collectively, Lamb Meat) and Pork where the Department has allocated the subsidy exclusively to primary products. Despite
Respondents' arguments, the Coalition maintains that the ruling of the U.S.-Canada Binational Panel in Fresh, Chilled, and
Frozen Pork does not require the Department to overturn its prior controlling precedents.
The Coalition further argues that provincial stumpage programs are targeted, if not explicitly "tied," to softwood lumber
production. They argue that there can be little doubt that the basic effect of the subsidized provincial stumpage programs is to aid
and benefit sawmills so as to promote softwood lumber production, not the production of chips. Furthermore, the Coalition
argues that the intent behind the program is normally an important consideration when the Department must make an allocation.
We disagree with the Coalition with respect to these issues. As discussed above, the Department has determined that the stumpage
subsidy is not provided specifically to the producers of softwood lumber, or tied specifically to the production of softwood
lumber. Thus, any products that are produced during the lumber production process, and sold by lumber producers purchasing
subsidized stumpage, benefit from the stumpage subsidy. Therefore, pursuant to the Department's regulations, we are allocating
the benefit over the total value of shipments (at the first mill/planing mill stage) of all products produced during the lumber
production process.
(Cite as: 57 FR 22570, *22577)
The Coalition's references to Lamb Meat and Pork are inapposite. In the most recent administrative review of Lamb Meat,
56 FR 38423 (August 13, 1991), subsidy benefits were for lamb meat production, and thus were allocated over the shipment value
of lamb meat. The Coalition's argues that (1) the methodology used by the Department to allocate the benefit in the
Redetermination on Remand in Pork is inapplicable here, (2) the Panel decision does not have precedential value for future cases,
and (3) the circumstances involved in allocating the benefit to pork producers are unique to that case. However, we find these
points to be in contradiction when, in response to Respondents' volume arguments, the Coalition cited to the Department's
position in the Redetermination on Remand where the preferred methodology for "achieving an equitable allocation would be to
divide the total benefits received by hog farmers by the total value of products derived from their hogs."
Finally, the Coalition further argues that an additional subsidy is conferred upon sawmills by reason of the requirements in BC and
Quebec that pulpmills buy chips from sawmills before chipping logs since these requirements artificially increase purchases of
chips from sawmills, inflate the prices paid for the chips, and thus enhance the apparent value of chips relative to lumber.
According to the Coalition, if the Department believes that softwood lumber and chips are joint products to which lumber mill
subsidies should be allocated, then any benefit to produce additional chips is necessarily a benefit to
(Cite as: 57 FR 22570, *22577)
produce additional lumber, and must offset the lumber subsidy resulting from the chip purchasing requirement.
For these reasons, the Coalition maintains that the artificial increase in the price of chips caused by the chip purchasing
requirements must be discounted by 25 percent to account for the extent to which chip purchasing requirements artificially
increase chip prices.
Although sawmill operators in British Columbia and Quebec may be required to sell their chips resulting from the lumber
production process to pulpmill operators, this practice 'is not being investigated as a subsidy in this case. Furthermore, we have
no reason to believe that a sawmill operator will alter his lumber production in order to increase chip production and
corresponding sales to offset the costs of producing lumber. Because chips are not covered by the scope of this investigation, and
because these procurement requirements are not being investigated, we have made no attempt to ascertain or quantify the effect
that chip purchasing policies may have upon the price of chips or the production of lumber.
Based on the above discussion, we determine that no changes are necessary in the methodology used in the Preliminary
Determination to calculate the total benefit used in the numerator (after the per cubic meter benefit has been determined), or to
calculate the denominator used in the calculation of the ad valorem subsidy rate.
(Cite as: 57 FR 22570, *22577)
Pulplog/Sawtimber Adjustment (Alberta, Quebec, and Ontario)
The Coalition argues that because pulpwood is an inferior good (i.e., smaller, bent, or of poorer quality), the price of pulpwood
cannot be used as a benchmark for the price of sawtimber without adjustment. Further, the Coalition argues that since Canadian
pulpwood prices are equivalent to prices for similar stands of pulpwood in the United States, the Department need only increase
Canadian pulpwood prices by the ratio of U.S. sawtimber to pulpwood prices to obtain an undistorted market price benchmark for
sawtimber. As support for its contention that pulpwood is an inferior, lower-priced good, the Coalition presented the Department
with information from foreign markets that show sawtimber prices to be significantly greater than pulpwood prices.
As explained below, the Department has determined that regardless of whether pulpwood is considered to be inferior to
sawtimber, we do not consider it appropriate in this case to compare Canadian stumpage prices for pulpwood and sawtimber with
United States prices. Differences in definitions across borders for pulpwood and sawtimber preclude accurate comparisons. In
general, the provinces selling stumpage define the timber by end use (i.e., pulpwood is what it processed by a pulpmill and
sawtimber is what is processed by a sawmill) and not by the size and other physical characteristics of the wood. In other
(Cite as: 57 FR 22570, *22577)
countries, sawtimber and pulpwood may be more commonly defined by size rather than end use. Wide variations in species, size,
quality, and accessibility provide additional barriers to crossborder or international comparisons.
We found no evidence that in selling stumpage the governments define by size, species, or grade which logs will be charged the
pulp rate and which logs will be charged the sawmill rate. The information on the record indicates that because of technological
advances that enable sawmills to obtain lumber from small diameter logs, which comprise the large majority of the harvests of
Alberta, Ontario, and Quebec, there is little difference in the timber consumed by pulpmills and sawmills in Canada. In
Ontario, sawmills can use roundwood with a diameter as small as four inches. For the vast majority of roundwood consumed by
sawmills and pulpmills there is little if any difference in quality, though there may be differences at the extremes (e.g., some
roundwood is too large to be sent through a chipper and some roundwood is too small and bent to be sent through a sawmill).
The Coalition argues that, in the case of Alberta, if the Department does not use cross-border information to adjust pulp prices,
the Department should use the difference in sawtimber and *22578
(Cite as: 57 FR 22570, *22578)
pulpwood prices found in the Commercial Timber Permit sales because in those sales sawtimber prices are higher. We have
declined to apply this difference, however, as the volume of stumpage sold under the relevant Commercial Timber Permits was so
small (450
(Cite as: 57 FR 22570, *22578)
cubic meters, which is less than one hundredth of one percent of the total Crown softwood harvest) that we do not consider it an
appropriate measure of the value of pulpwood in comparison with sawtimber.
In sum, any attempt to make a distinction between sawtimber and pulpwood is becoming increasingly artificial. Moreover, in
selling the stumpage the provinces make no distinction in the timber except based on its end use. Our use of pulp prices as
benchmarks in certain provinces is possible because these provinces do not distinguish between pulpwood and sawtimber based
on physical characteristics. However, the reason we are using the price paid for pulpwood as a benchmark is not that it is higher
than the sawtimber rate. Rather, the basis for our determination that these pulp prices can be used as a benchmark is that they are
nonpreferential prices charged for the same good within the relevant jurisdiction. As such, the Coalition's argument that an
upward adjustment should be made to these benchmark pulpwood prices by applying the rate of sawtimber to pulpwood prices
found in the United States would be inappropriate.
Pass Through For Logs
Respondents argue that when logs are traded at arm's length between unrelated companies, no subsidy is passed through to the
production of softwood lumber
(Cite as: 57 FR 22570, *22578)
products. Therefore, the Department must remove the volume of all arm's-length log purchases from the harvest multiplier used
to calculate the stumpage benefit.
The Department, before making any adjustment for arm's length log purchases, must be able to quantify the total net trade in logs
that are harvested solely from subsidized provincial stumpage between unrelated companies. As discussed below, in none of the
provinces where the issue was raised was the Department able to quantify accurately this arm's-length log trade between
unrelated parties. Accordingly, the Department has made no adjustment.
In Alberta, the provincial government sampled those companies accounting for the top 60 percent by volume of forest area
controlled by provincial stumpage holders. These companies provided figures for their total logs purchased from unrelated
companies. Most of these purchases involved trade in roundwood between integrated companies. However, the Department was
unable to quantify Alberta's surveyed figure for two reasons. First, the Alberta survey did not report the end use of the traded logs
(i.e., pulp and paper or lumber production). Second, the survey results did not indicate from which tenures the logs were
harvested (i.e., Crown, federal, private, or Native Indian bands). The Department has already excluded logs processed in
pulpmills from its calculation of the benefit. Therefore, any adjustment based on data which include pulplogs would be overstated.
Moreover, we have also excluded from the
(Cite as: 57 FR 22570, *22578)
benefit calculation the volume of logs harvested from nonsubsidized sources of timber (private, federal, Native Indian bands).
During verification, BC authorities provided information as to their estimate of the total trade of roundwood between companies
(24 percent). As in Alberta, however, BC provided no information isolating the trade in logs used in sawmills that are harvested
from provincial lands only. As such, the Department could verify neither the end use nor the origin (i.e., Crown, federal, SBFEP
competitive, private, or Native Indian bands) of the estimated quantity of traded logs. Also, as in Alberta, the Department has
excluded logs processed in pulpmills and the volume of logs harvested from nonsubsidized sources of timber (i.e., Crown, federal,
SBFEP competitive, private, or Native Indian bands) from its calculation of the benefit. Therefore, any adjustment based on such
data would be overstated.
Ontario submitted lists of over 150 independent loggers that harvest provincial timber but do not own or operate any type of mill.
To arrive at the total volume harvested by independent loggers, Ontario used the company- specific license data provided in its
response and isolated those companies that did not own or operate some type of mill. At verification, Ontario stated that it did not
know if these independent loggers were related to a mill, as defined by its stumpage dues system and Ontario tax law. At
verification, the Department selected 12 independent logging companies that accounted for almost
(Cite as: 57 FR 22570, *22578)
26 percent of total volume harvested by independent loggers and checked to see if these companies owned or operated a mill. We
examined the original license documents for these 12 companies and found that four of the 12 selected companies were not
independent loggers but actually owned or operated a mill. The four companies that were not independent loggers accounted for
almost 21 percent of the sample volume. (See Ontario Verification Report pp. 18-19.)
Because of the inability of Alberta and BC to disaggregate their arm's-length log trade data into sales of logs harvested solely from
subsidized Crown timber destined for sawmills, and because of the discrepancies associated with the verification of the selected
companies in Ontario, the Department has determined that there is no basis for making this adjustment in any of the three
provinces where this issue was raised.
Application of Country-Wide Rate
The Province of Quebec argues that the Department should apply province- specific, as opposed to country-wide, rates in this
investigation. In support of its argument, Quebec makes the following points: (1) U.S. law recognizes provinces as "countries" for
countervailing duty purposes; (2) Canadian provinces have exclusive jurisdiction over timber within their borders; (3)
there are no federal programs or joint federal/provincial programs that
(Cite as: 57 FR 22570, *22578)
contribute to the countervailing duty rate; (4) one province cannot control the softwood lumber programs in another
province; (5) application of a country-wide rate to a province whose individually calculated subsidy rate is lower than the
country-wide rate violates U.S. law because the Department must assess a countervailing duty equal to the amount of the
net subsidy; (6) the Department can never apply a true country-wide rate in this investigation because the provinces of Prince
Edward Island, Nova Scotia, New Brunswick, and Newfoundland (the Maritime Provinces) were excluded from the initiation; (7)
the provinces were individually responsible for the export charge under the MOU and for instituting replacement measures; and
(8) if the Department does not issue province-specific rates it should apply the "significant differential" test used for companies
under 19 CFR 355.20(d) (see the Province of Quebec's April 21, 1992 case brief). We note that neither the GOC nor any province
under investigation other than Quebec made a request for province-specific rates.
Section 701 of the Act provides, in relevant part, that if the Department determines that a "country under the Agreement" is
providing a subsidy with respect to the manufacture, production, or exportation of a class or kind of merchandise imported, or
sold for importation, into the United States (and the ITC determines that such imports *22579
(Cite as: 57 FR 22570, *22579)
are causing injury to the domestic industry), the Department shall impose a countervailing duty on
(Cite as: 57 FR 22570, *22579)
the merchandise equal to the amount of the net subsidy.
As pointed out by Quebec, section 771(3) of the Act and 19 CFR 355.2(d) indicate that the term "country" includes a political
subdivision, in this case, a province. Obviously, however, the meaning of "country" depends on the context. For example, if
"country" always meant province, imports from Quebec would not receive the benefit of an injury test under section 701(a) of the
Act, because Quebec is not a "country under the Agreement" within the meaning of section 701(b) of the Act. Similarly, 19 CFR
355.11(a), which implements article 3(l) of the GATT Subsidies Code, uses "country" in its ordinary sense The question then is what
Congress meant by "country" when it added section 706(a)(2) to the Act in the Trade and Tariff Act of 1984.
Section 706(a)(2) was one of several amendments proposed by the Executive Branch. In the case of section 706(a)(2), the
purpose of the proposal was to codify and clarify existing Department practice, which was generally to calculate a single
nation-wide subsidy rate, except in certain instances in which the Department would calculate separate subsidy rates for
individual firms. At the time, the Department never had calculated a province-specific rate, and, to our knowledge, the issue
never had arisen or been addressed. Therefore, in 1984, Congress only had before it two options available under Department
practice at the time: a single nation-wide rate or individual company rates. In light of this, we believe Congress intended that the
word
(Cite as: 57 FR 22570, *22579)
"country," as used in section 706(a)(2), possess its normal meaning. In other words, in 19 CFR 355.20(d), which implements
section 706(a)(2), "country-wide" means "nationwide."
Quebec also contends that applying a country-wide rate to a province whose subsidy rate is lower than the country-wide rate
violates U.S. law because the Department must assess a countervailing duty equal to the amount of the net subsidy. The
purpose of a country-wide rate is to determine whether, on average, imports from a country under the Agreement are subsidized.
This average rate is applied to all merchandise from the country regardless of whether the program is a provincial, regional, or
state program (see IPSCO. Inc. v. United States 899 F.2d. 1192 (Fed. Cir. 1990)) (IPSCO). Quebec's assertion that the Department is
in violation of U.S. law every time it assesses a country-wide rate is erroneous. A weighted-average countrywide rate will almost
always result in individual firms being subject to a rate which is higher or lower than their own individual rate. The "net subsidies"
found to exist equates to the average subsidy rate applicable to the merchandise subject to the investigation (see IPSCO).
Quebec further contends that the Department must assess province- specific rates because a country-wide rate can never be
applied due to the exclusion of the Maritime Provinces from this investigation. While Quebec is correct in saying that the
country-wide rate will not be applied to the
(Cite as: 57 FR 22570, *22579)
Maritime Provinces, the Maritime Provinces were excluded not because the self- initiation covered the subsidy programs in some
provinces but not other provinces, but for the reasons explained below. The self-initiation was an initiation of an investigation of
certain softwood lumber products from Canada, not from any particular province.
As addressed fully in the Self-Initiation of Countervailing Duty Investigation: Certain Softwood Lumber Products From
Canada, 56 FR 56055 (October 31, 1991) (Notice of Self-Initiation), this investigation was self- initiated by the Department in
response to the GOC's unilateral termination of the MOU. We determined that the GOC's termination of this agreement constituted
special circumstances in accordance with Article 2 of the GATT Subsidies Code. Because the Maritime Provinces were exempted
from the export tax collected under the MOU, the "special circumstances" required for the self- initiation did not apply to these
provinces. As a result, we exempted the Maritime Provinces from this investigation.
We fail to see how province-specific rates are warranted by reason of the provinces having individually assumed responsibility for
the export charge and for instituting replacement measures under the MOU. We do not deny that the provinces had the
responsibility for implementing the export charge; however, the provinces only implemented the export charge as directed by
the GOC, because it was required under the MOU. Revenue Canada, a federal agency, was
(Cite as: 57 FR 22570, *22579)
solely responsible for collecting the export charges and disbursing the collected funds to the individual provinces. The MOU was
an agreement between the United States and Canada, not an agreement between the United States and the individual
provinces.
As discussed above, section 706(2) of the Act creates a presumption in favor of country-wide rates, with specific exceptions
established only for state- owned enterprises and companies with "significantly different" rates. Except for state-owned
enterprises and companies with significantly different rates, we have consistently followed this country-wide rate presumption.
Quebec's contention that we should consider provinces as "firms" is not supported by the statute or by the Department's
regulations. We have consistently treated the provinces as the government providing the subsidy, not as a company receiving a
subsidy. Also, because all of the information was collected on an aggregate basis within each province, and all calculations are
done on an aggregate basis, we are unable to apply the company-specific significant differential test outlined in 19 CFR 355.20(d).
In addition to the precedential and legal implications of applying province- specific rates, the issue of province-specific rates
raises a number of practical administrative considerations. Most of these concern the ability of the U.S. Customs Service to
enforce province-specific rates.
Customs may face extreme administrative difficulties in enforcing any
(Cite as: 57 FR 22570, *22579)
countervailing duty order if the Department issues province-specific rates. Unlike standard importations into the United
States, where Customs can generally determine the country of origin with relative ease, provincial origin is not readily discernible
from standard customs documents or invoices. Under present circumstances, only by physically examining a lumber shipment
can Customs accurately determine provincial origin.
The manner in which lumber is sold and shipped to the United States presents an added complication. Importers file
approximately 240,000 Canadian softwood lumber entries each year, roughly 1,000 entries per business day. A large proportion
of Canadian softwood lumber is sold through distributors or reload centers located along the U.S.-Canadian border, in provinces
other than the original province of milling. These distributors ship according to their customers' demands and often mix bundles
of lumber from several mills and several provinces on each truckload. Customs, therefore, cannot reliably determine provincial
origin without physically examining each bundle of lumber.
Quebec has cited the application of province-specific export taxes under the MOU as proof that province-specific rates are
administratively feasible. However, under the MOU, the GOC was *22580
(Cite as: 57 FR 22570, *22580)
responsible for determining provincial origin and applying the export charge. The export charge was collected by Revenue
Canada through monthly tax returns filed directly with Revenue Canada by each mill. Verification was performed by
Revenue Canada
(Cite as: 57 FR 22570, *22580)
through audits with individual mills, not at the border, an option that does not exist for the U.S. Customs Service. Documentation
provided at the border included specific shipment information but did not reflect certified GOC export charge collections.
Quebec also claims that Customs can easily determine province of origin from the mill markings on the lumber. However, large
amounts of lumber are not grade stamped and not all markings are province-specific.
While Customs is currently applying these procedures on lumber shipments from the Maritime Provinces as it did when collecting
bonds during the interim period (i.e., October 4, 1991 through March 12, 1992), the volume of shipments from the Maritime
Provinces is minuscule compared with those from the rest of Canada, and collecting bonds with estimated province-specific
rates for purposes of implementing the five-month long interim measures is not the same as assessing final countervailing
duties accurately, thereby ensuring adequate enforcement of the determination, and if the ITC determination is affirmative, the
order. Moreover, during the interim period, the GOC maintained the procedures established under the MOU to document
province of origin. These procedures were terminated upon issuance of our Preliminary Determination.
Given the special role the national government plays in a countervailing duty investigation, and the fact that we have not
received a request for province- specific rates from the GOC or any other province, we determine that, for the
(Cite as: 57 FR 22570, *22580)
reasons outlined above, we will continue our long-standing practice of applying a country-wide rate.
Based upon our analysis of the responses to our questionnaires, verification, and written comments from interested parties, we
determine the following:
Programs Determined to Confer Subsidies
We determine that subsidies are being provided on the manufacture, production, or exportation of certain softwood lumber
products from Canada under the following programs:
Stumpage Programs
Softwood timber is the primary input into the production of certain softwood lumber products. For purposes of our analysis, we
are using the term "stumpage" to refer to standing softwood timber. Stumpage on government-owned land is provided to
companies by the provincial and federal governments under various tenure arrangements. These arrangements are described in
detail in the public responses.
We determine that the governmental provision of stumpage is limited to a
(Cite as: 57 FR 22570, *22580)
specific group of industries and is provided at preferential rates in accordance with section 771(5) of the Act.
Specificity
In our Preliminary Determination, we found that stumpage was provided to a specific group of industries, the primary timber
processing industries, within the meaning of section 771(5)(A)(ii) and section 771(5)(B) of the Act. Respondents have claimed
that the Department's preliminary ruling on specificity "is based on multiple legal errors." (Hearing Transcript, p. 111).
Respondents' arguments are essentially as follows: (1) The Department analyzed the legislative history of the 1988 Act incorrectly,
and the existence of "purposeful government action" continues to be a prerequisite for a finding of specificity; and (2) the manner
in which the Department counted the users of stumpage is incorrect. Based on our analysis of the facts and arguments on the
record, we continue to find that stumpage programs are specific.
Legal Requirements
With respect to Respondents' first argument, in 1983 the Department found that stumpage programs were not specific because
stumpage programs
(Cite as: 57 FR 22570, *22580)
are available within Canada on 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 activities of the Canadian governments.
Final Negative Countervailing Duty Determination: Certain Softwood Lumber Products from Canada 48 FR 24159,
24167 (May 31, 1983) (Lumber I).
Respondents suggest that if the Department reviews the legislative history of the 1988 Act again, it will agree that Congress did not
intend to overturn the so-called "inherent characteristics test" established in 1983. We have done as Respondents suggested, but
we do not agree with their conclusion. Therefore, the Department stands by its analysis set forth in the Preliminary
Determination.
Nevertheless, assuming arguendo that Respondents are correct that Congress did not overturn the inherent characteristics test in
the 1988 Act, the Department would still have the discretion to overturn it in an administrative proceeding, provided it had a
reasonable basis for so doing and articulated these reasons. In our view, the inherent characteristics test is not required by the
statute, either in its pre-1988 or post-1988 incarnations.
(Cite as: 57 FR 22570, *22580)
Moreover, again assuming arguendo that Respondents' analysis of the 1988 Act is correct, even if Congress did not overturn the
inherent characteristics test, it certainly cannot be said to have codified it.
Respondents attempt to discern from the language of the statute, the Department's Proposed Regulations on specificity, and from
certain words used in prior judicial decisions and Departmental determinations, a requirement that a finding of specificity cannot
exist without a showing of "purposeful government action." Significantly, Respondents do not cite a holding in a single judicial or
administrative decision, other than the Department's 1983 determination on softwood lumber and related determinations, that
supports this proposition.
Turning first to the statute, we note that the statute provides the following definition:
(5) Subsidy.--
(A) In general.--The term "subsidy" has the same meaning as the term "bounty or grant" as that term is used in section 303, and
includes, but is not limited to, the following:
* * * * *
(ii) The following domestic subsidies, if provided or required by government action to a specific enterprise or industry, or group
of enterprises or industries, whether publicly or privately owned and whether paid or bestowed
(Cite as: 57 FR 22570, *22580)
directly or indirectly on the manufacture, production, or export of any class or kind of merchandise:
* * * * *
(B) Special rule.--In applying subparagraph (A), the administering authority, in each investigation, shall determine whether the
bounty, grant, or subsidy in law or in fact is provided to a specific enterprise or industry, or group of enterprises or industries.
Nominal general availability, under the terms of the law, regulation, program, or rule establishing a bounty, grant, or subsidy, of
the benefits thereunder is not a basis for determining that the bounty, grant, or subsidy is not, or has not been, in fact provided to
a specific enterprise or industry, or group thereof.
*22581
(Cite as: 57 FR 22570, *22581)
19 U.S.C. 1677(5).
Nowhere in paragraph (5) do the terms "purposeful government action" or "inherent characteristics" appear.
Respondents argue that a requirement of "purposeful government action" can be found in the phrase "provided or required by
Government action to a specific enterprise or industry, or group of enterprises or industries." See, e.g., Joint Case Brief
Concerning Specificity, Vol. II, pp. 11-12-13 (April 21, 1992) (Specificity Brief). Respondents claim that what this phrase really
means is restricted or limited by government action to a specific enterprise, etc. See Hearing Transcript, p. 381. We find this
interpretation strained. A
(Cite as: 57 FR 22570, *22581)
more natural reading of the phrase "provided or required by government action" is that in the case of a particular benefit, the
benefit must be provided by the government or at the government's direction. If, as Respondents claim, Congress intended that
the phrase "provided or required" actually means "restricted or limited," one would think that Congress would have spoken more
clearly and chosen the latter phrase.
In addition, Respondents claim that the Department's use of the term "selective treatment" in its Proposed Regulations indicates
that "purposeful government action" is a prerequisite for specificity. See, e.g., Specificity Brief, pp. II-11-12. However, the
Department never intended that the term "selective treatment" mean what Respondents claim it means. The Department chose
this term merely as a drafting device in order to link the two different prerequisites for domestic and export subsidies that, when
combined with a countervailable benefit, form the basis of an actionable subsidy: (1) In the case of domestic subsidies, specificity;
or (2) in the case of export subsidies, a tie to actual or anticipated exportation or export earnings.
In a similar vein, Respondents make much of the fact that in several decisions the courts and the Department have used variations
on the word "target." See, e.g., Specificity Brief, pp. II-13-17. According to Respondents, this indicates that the courts and the
Department have read into the statute a requirement of "purposeful government action." With respect to this argument, we must
heed the
(Cite as: 57 FR 22570, *22581)
following advice of the U.S. Supreme Court:
As the court below noted, "'(i)t is a maxim, not to be disregarded, that general expressions, in every opinion, are to be taken in
connection with the case in which those expressions are used."' 64 C.C.P.A., at 134, 562 F.2d, at 1213, quoting Cohens v. Virginia,
6 Wheat. 264, 399, 5 L.Ed. 257 (1821).
Zenith Radio Corp. v. United States, 437 U.S. 443, 462 (1978) (Zenith).
To the Department's knowledge, no one in the cases cited by Respondents argued, and none of the court decisions cited held, that
the absence of "purposeful government action" rendered such programs nonspecific or that the existence of "purposeful
government action" was the dispositive factor for finding specificity. To paraphrase the Court in Zenith, the isolated statements in
the cases relied upon by Respondents cannot be dispositive here. Id.
Next, Respondents cite PPG Indus., Inc. v. United States, 928 F.2d 1568, 1577 (Fed. Cir. 1991) (PPG), for the proposition that
"(s)ome independent characteristic must define the 'specific' group that government (sic) has targeted." Specificity Brief, p. II-18.
Respondents misinterpret the statement in PPG, that "Nothing in the statute mandates * * * that specificity is met merely if
recipients of a domestic subsidy are identifiable." 928 F.2d at 1577 (emphasis in original). The notion of "identifiable recipients" as
the test for specificity goes back to Cabot Corp. v. United States, 620 F. Supp. 722