(Cite as: 57 FR 22570, *22593)
Respondents argue that the Department compared significantly different sets of rights and obligations. They contend that the
adjustments necessary to make the rights and obligations incorporated in major and SBFEP tenures comparable are very complex
and must take account of all factors relating to: (1) Timber quality; (2) the obligations of the tenureholders; and, (3) the rights of
the tenureholders. They maintain that the Department examined only the first two factors and that:
It is improper for the Department to conclude that the difference between the average stumpage charges paid by the SBFEP
licensees and those paid by long-term tenureholders (after making adjustments for differences in timber quality and obligations)
constitutes a countervailable subsidy. The difference could as readily be attributab1e to differences in how the relative benefits
and risks of the stumpage rights being compared are valued by the market. As Dr. Nordhaus points out, the prices for long-term
and spot contracts frequently diverge by substantial amounts. Moreover, unlike adjustments for differences in timber quality or
tenureholder obligations, it is exceedingly difficult-- perhaps impossible--to quantify properly the adjustments needed to reflect
differences in the term, scope, and riskiness of timber rights. (See Respondents' April 21, 1992 briefs, pp. III-46, 47.)
They maintain that adjusting for differences in the first two factors may
(Cite as: 57 FR 22570, *22593)
allow for rational price comparisons between similar or related goods, but that when the comparison is between different sets of
rights and obligations, such adjustments alone will not make them comparable.
Respondents focus their arguments regarding the differing rights between SBFEP and major tenures on temporal distinctions. It is
their contention that: "(s)pot prices such as those occurring under the SBFEP and the prices of long- term contracts such as those
represented by major tenures, will often differ for sound economic reasons by substantial amounts." (See Respondents' April 21,
1992 brief, p. VIII-B-33.)
First, the Department does not consider SBFEP stumpage rates to be spot prices. Spot markets (such as for commodities or
currencies) are characterized by prices which are subject to change over time, but which may be fixed at the time of the spot sale
for delivery within a relatively short period of time. (See Hearing Transcripts, April 29, 1992, pp. 235-240 for Dr. Nordhaus'
discussion of spot markets.) While SBFEP licensees may indeed elect to lock in the bid rate at the time of bid, the upset rate (i.e.,
the minimum bid which consists of the appraised value plus any developmental silviculture levies) fluctuates each quarter in
accordance with the Comparative Value Pricing System (CVPS), which BC uses in establishing essentially all stumpage prices. The
interval from bid to harvest completion of SBFEP sales may be up to three years, which could incorporate 12 price changes.
Furthermore, while Dr.
(Cite as: 57 FR 22570, *22593)
Nordhaus argues that the Department erred in comparing spot and long-term prices, Dr. Nordhaus' testimony clearly does not
establish that SBFEP sales are spot sales: "I'm not making a factual assertion here that (SBFEP sales) were spot sales * * * " (See
Hearings Transcript for April 29, 1992, pp. 237-38.)
Second, stumpage rates assessed on major tenures are not fixed for the duration of the tenure; precisely like the SBFEP, they
change every quarter according to the CVPS. In that sense, they cannot be considered long-term prices.
Third, even taking into account the fact that the SBFEP tenures are shorter in duration, there is no clear relative over- or
undervaluation of either the competitive benchmark or the administratively-set price, since short-term and long-term prices do
not, even in instances when one might expect them to, exhibit constant relative relationships. For example, U.S. Treasury notes
are sold in durations ranging from 3 months to 30 years. One would expect that an investor who was willing to commit money
over a longer period of time would demand a higher yield (i.e., the price of money) in order to be compensated for the greater risk
from inflation and interest rate fluctuations. However, an inverted yield curve is not uncommon during a credit crunch.
Lastly, Quebec has urged the Department specifically to compare the prices of public and private timber in that province (which
the Department in fact has
(Cite as: 57 FR 22570, *22593)
done). The public stumpage rates in Quebec are under long-term tenures (25 years) while the private sales cover two seasons at
most. (See Hearings Transcript for April 30, 1992, 162-64.) In addition, in an attachment to Respondents' April 21, 1992 brief, Dr.
Nordhaus critiques the methodologies implemented in the Preliminary Determination but directs no criticisms towards the fact
that the Department compared short-term and long-term sales in Quebec. (See Respondents' April 21, 1992 brief, Attachment
111-1, p. 4.) Thus, it is difficult to fathom how short-term private sales in Quebec can be an appropriate benchmark, but
short-term competitively-bid sales in BC cannot.
Representativeness of SBFEP Prices
Respondents' second major contention is that SBFEP prices are not representative of the market. They insist that SBFEP licensees
sell marginal supplies to major tenure holders. Because these marginal supplies fulfill the incremental needs of major tenure
holders at particular points of time, major tenure holders are willing to pay more for them than they would normally pay for
timber. Therefore, Respondents believe that the SBFEP section 16 prices are not a reasonable proxy for market prices, and
presented MOF officials as *22594
(Cite as: 57 FR 22570, *22594)
well as industry participants to support this assertion at verification.
(Cite as: 57 FR 22570, *22594)
Notwithstanding the anecdotal information submitted by Respondents on this point, no studies or analyses were supplied to
confirm such allegations. The Department cannot rely solely on such statements as a basis for discounting the validity of an
observable market price. Absent documented evidence to the contrary, the Department considers that the competitively-bid
SBFEP price is a representative market price.
The MOF did supply information, which the Department verified, indicating that the value of softwood timber on SBFEP stands is,
across the entire province, essentially of identical value to all other Crown timber. Consequently, the Department considers that
the timber sold on both the SBFEP and major tenure holders' stands are the same and hence comparable.
Moreover, economic theory indicates that it is precisely the marginal valuation that determines the equilibrium price for an input
in a competitive market. The latter point, that the Canadian softwood lumber industry can be characterized as a competitive
market, is supported by Dr. Nordhaus' analysis: "Because of the low level of concentration of the lumber industry, and given its
high reliance on international trade, the industry is best characterized as a competitive industry." (See Respondents' February 19,
1992 submission, Appendix A, p. 22.) Therefore, at each price for logs (i.e., the cost of logs to lumber producers), lumber
producers will purchase logs up to the point where their marginal value product from the last additional log (i.e., their marginal
(Cite as: 57 FR 22570, *22594)
revenue) just equals their purchase price (i.e., cost) of the log. Moreover, even if one concedes Respondents' claim that, due to the
high costs associated with mill closures, major tenure holders actually purchase logs beyond the point where their marginal value
product and cost of logs equate (i.e., beyond the point of profit maximization), the analysis still holds. The equilibrium price will
still be a reflection of marginal valuation. Therefore, the Department considers the SBFEP an appropriate market price.
Competitiveness of Major Tenures
Respondents' third major contention is that major tenures are also competitive since applicants for major tenures may include
bonus offers in their application package or may commit themselves to additional obligations.
During verification, the Department found that (1) the MOF was, in fact, unaware if any major tenure holders made bonus offers
during the POI and (2) any additional obligations undertaken by major tenure holders, such as a commitment to perform
incremental silviculture, were quite rare, and for which the Department is adjusting in its final determination in any case. (See BC
Verification Report, pp. 11 and 25.) Therefore, the Department lacks sufficient evidence to conclude that the major tenures are
competitive.
(Cite as: 57 FR 22570, *22594)
Nonpreferential Price Benchmarks
Respondents' final point of contention is that the Department's Preliminary Determination implicitly views only auction prices as
competitive. They argue that auctions are often not the best or the only way to establish competitive prices, and that relatively
few prices in the United States are established through auction bidding. They also maintain that the GOC considers the auction
system incompatible with its preferred long-term system of forest management.
In choosing a benchmark for determining and measuring price discrimination, the Department uses prices charged by the
government which are nonpreferential. The Department may find that prices which are not established by competitive auction
bidding are nonpreferential, but in the case of BC, auction prices were the only nonpreferential price available to the Department.
While the Department maintains that competitively bid prices are, by definition, nonpreferential, that does not mean that the
Department could not have utilized a different benchmark had one been available. For example, in this investigation, we did not
use auction prices for either the Quebec or Ontario benchmarks. In addition, the Department could utilize a nonpreferential
auction price as the benchmark and still find no subsidy if other prices were equivalent. Therefore, while the Department has no
all- encompassing definition for what constitutes a competitive price, in this case
(Cite as: 57 FR 22570, *22594)
we find that the SBFEP auction prices are competitive and nonpreferential.
Furthermore, we consider that the Department can adjust for those factors which we consider relevant to the calculation, thereby
reasonably comparing the administratively-set prices to the SBFEP section 16 benchmark price. We also find the SBFEP
benchmark price to be reflective of an appropriate market price, that the available evidence does not permit consideration of
major tenures as competitive, and that auction prices are neither a mandatory nor general test for preferentiality, but are
appropriate in this case.
Measurement of the Benefit
Both Respondents and the Coalition have raised a number of issues relating to the benefit calculation under a SBFEP benchmark.
The SBFEP Price
Respondents argue that the Department should have used all SBFEP sales (i.e., sections 16, 16.1, and 18) in calculating the
competitive benchmark, rather than limiting the benchmark to section 16 sales only. However, only section 16 sales are based
solely on the highest bid. Therefore, by isolating section 16
(Cite as: 57 FR 22570, *22594)
SBFEP sales, the Department has ensured that the benchmark reflects stumpage rates that are essentially market-determined.
Including sections 16.1 and 18 sales would inject nonmarket factors in a competitive benchmark, precisely what the Department
wants to avoid. Section 16.1 sales are only partially competitive; they are conferred on the bidder who submits the highest
combination of bid and potential value added. Since a private timber seller would be indifferent as to the ultimate final product of
the timber, including section 16.1 sales in the benchmark would undermine the nonpreferentiality of the competitive prices.
Section 18 sales are conferred without competition (i.e., are administratively set) and, as such, are inappropriate to use in the
benchmark. Therefore, the Department limited its benchmark stumpage rate to section 16 competitively-bid SBFEP sales in this
final determination.
Log Grades
Respondents also argue that the Department erred in the Preliminary Determination in making a grade-based distinction between
sawlogs and pulplogs. They argue that grade is a poor indicator of the ultimate destination of a softwood log. They state that
pulplogs are often sawn and that sawlogs are sometimes chipped. They also maintain that in the Interior very little pulpwood is
sorted at the point of harvest, and that sawmills
(Cite as: 57 FR 22570, *22594)
typically attempt to mill all logs delivered to the mill. Those that are sorted out are usually logs which will be traded to another
sawmill, but whose species or size are inappropriate for the sawmill in question.
During verification, we found no evidence that either the government or companies distinguish log destination (sawmill or
pulpmill) solely by grade. (See Verification Exhibit P-16.) In *22595
(Cite as: 57 FR 22570, *22595)
addition, examination of a log yard during company verifications provided yet further evidence that sawmills do not distinguish
between sawlogs and pulplogs, i.e., they attempt to saw all logs. Accordingly, we are using the stumpage rate for all softwood logs,
for both the administratively-set price and the competitive benchmark, in the benefit calculation.
Method of Adjustments
Respondents maintain that, in comparing the SBFEP section 16 benchmark and the administratively-set stumpage rate, the
Department incorrectly adjusted the administratively-set stumpage rate upward by the costs of the major tenure holders'
obligations, rather than adjusting the SBFEP benchmark downward by the expenses incurred by the MOF on the SBFEP stands.
Respondents claim that the latter method is more accurate since it reduces the SBFEP benchmark by the value of services which
SBFEP licensees receive from the
(Cite as: 57 FR 22570, *22595)
MOF. In addition, they state that the MOF costs are the appropriate ones since they best represent what the SBFEP costs would be
for performing the same obligations on the same exact stands. They also insist that the MOF should not be considered to be less
efficient in performing these obligations, since they use the same contractors as the major tenure holders. Alternatively,
Respondents suggest using a simple average of the MOF's and major tenure holders' costs.
In measuring subsidies, the Department's practice is to measure the benefit to the recipient. In this case, the benefit to the
recipient (i.e., the softwood lumber products producer) is the difference in price (price includes stumpage plus the costs of all
obligations) between administratively-set stumpage and the competitive benchmark. Although Respondents maintain that the
obligations the MOF fulfills on SBFEP stands is a service provided to the SBFEP licensee, that is clearly not the case for some
obligations. For example, when the MOF performs silviculture work on Crown stands that are part of the SBFEP, the MOF is
performing work which increases the value of a Crown asset; it is by no means performing a service for SBFEP licensees.
Conversely, when major tenure holders perform silviculture obligations on Crown lands, they are in fact providing a service to the
MOF.
Lastly, MOF officials argued and presented data which indicated that the major tenure holders' and SBFEP stands are, on average,
almost of identical value.
(Cite as: 57 FR 22570, *22595)
The Department verified and accepted those data. Given that stand accessibility, location, and terrain all affect value, and that
these same factors also would account for cost differentials relating to many obligations, the Department finds these facts
incompatible with MOF costs which, for some activities, are significantly higher than those of the major tenure holders. [FN5]
FN5 For example, MOF costs for site preparation and planting and seedlings are 100 and 54 percent higher, respectively, than
MTH costs for the same activities. In addition, MOF administration costs are 272 percent higher than administration costs borne
by MTH ($1.34 for the MOF and $0.34 for MTH). (See December 13, 1991 BC response, pp. H-I and H-4.)
Based on these factors, the Department considers that in making the adjustments, we should examine the total costs incurred by
both the major tenure holders and the SBFEP licensees as the most accurate method to determine the benefit.
Application of Adjustments
Road Building and Road Maintenance
(Cite as: 57 FR 22570, *22595)
The Coalition argues that the Department should amortize road building costs since industry practice and accepted accounting
principles regarding capital expenditures justify such treatment. Furthermore, it maintains that major tenure holders and SBFEP
licensees did not face different road building costs prior to October 1987; therefore, only road building costs incurred since that
time should be included in the amortized portion for the POI. Lastly, the Coalition states that if the Department decides not to
amortize road building costs, it should base the per unit costs on the actual harvest volume, rather than the harvest made
accessible by the roads.
The Department disagrees with the Coalition's first two points. First, we do not consider that it is always necessary to amortize
capital expenditures. For example, if one amortizes a recurring cost over a given number of years, by the last year of that
amortization schedule, expenses and amortized costs will be equivalent. For example, if a company amortizes, using a
straight-line depreciation schedule, a $1,000,000 cost every year for 10 years, in the tenth year the amortization will equal
$1,000,000 (i.e., $100,000 times 10 years). Secondly, prior to October 1987, SBFEP tenure holders and major tenure holders
did not face the same road building obligations. Section 88 road building credits apparently accounted for only a small proportion
of total road building costs--perhaps 10 percent of off-block roads. (See BC Verification Report,
p. 26.) Therefore, the Department concludes that road building costs are
(Cite as: 57 FR 22570, *22595)
essentially in a "steady state" and that amortization is not necessary. [FN6] Lastly, given that the major tenure holders do not own
the roads that they build or use, one would not necessarily consider these roads to be assets to major tenure holders. For these
reasons, the Department considers the amortization of road building costs to be inappropriate and will expense such costs.
FN6 The Department did make a 15 percent downward adjustment of road building costs to account for potential overlap of
obligations between MTH and SBFEP licensees.
The Department agrees with the Coalition that the proper denominator in the per cubic meter road building cost calculation is the
actual volume harvested as opposed to the volume made accessible by the roads. The latter figure would, by its very nature, be an
estimate, while the former is an actual verified number. In addition, the Department consistently used the volume harvested in
calculating all per unit values. To deviate in this instance would be to skew the cost calculation for road building relative to all
other factors.
Silviculture
(Cite as: 57 FR 22570, *22595)
Both Respondents and the Coalition argue that the Department erred in using silviculture expenses as an adjustment to the major
tenure holders' price in the Preliminary Determination. Both parties argue that silviculture liabilities are the correct adjustment
because they more accurately reflect the expenses associated with the current harvest. However, the parties disagree on exactly
what the value of those silviculture liabilities should be.
This disagreement explains in part the Department's decision to use silviculture expenses. Liabilities by their very nature are, at
least in part, speculative, while expenses are actual costs which can be verified. In addition, regarding the amortization of roads,
Respondents state in their April 21, 1992 brief (p. 7-14) that "amortization adds needless complexity." The same can be said of
silviculture liabilities. Lastly, as MOF officials demonstrated during verification, this issue is only relevant for the Interior, since
silviculture expenses and liabilities are essentially identical on the Coast given the shorter growing cycle. [FN7] (See BC
Verification *22596
(Cite as: 57 FR 22570, *22596)
Report, p. 29.) Given these facts, the Department considers that the silviculture adjustment should employ current expenses
rather than future liabilities.
FN7 During the POI, silviculture expenses on the Coast were $1.60 while silvi culture liabilities were $1.63 (See December 13,
1991 BC response, p. H-4.)
(Cite as: 57 FR 22570, *22596)
Miscellaneous Expenses
Respondents argue that the Department should allow, with the exception of scaling fees, the remaining miscellaneous expenses
which it did not allow in the Preliminary Determination, i.e., engineering and layout, scaling, cruising, head office forestry and
engineering, and regional office forestry and engineering. They state that, at most, engineering and layout and scaling should be
reduced by five and ten percent, respectively, to account for overlapping costs incurred by SBFEP licensees.
During verification the Department posed numerous questions to MOF officials, as well as to major tenure holders and SBFEP
licensees, and received a great deal of information regarding miscellaneous expenses. (See BC Verification Report, pp. 27-28 and
33-35.) We also verified the actual amounts incurred by the major tenure holders for these activities. We now consider that major
tenure holders do in fact bear a substantial administrative burden which is reflected by these costs and that SBFEP licensees do
not bear a comparable administrative burden. Therefore, the Department has included all miscellaneous expenses, with the
exception of scaling fees which are clearly borne by both major tenure holders and SBFEP licensees, in the benefit calculation. We
also have made the estimated five and ten percent downward adjustments noted above for engineering and layout and scaling to
account for
(Cite as: 57 FR 22570, *22596)
the small degree of these expenses which are common to major tenure holders and SBFEP licensees.
G&A Expenses
Respondents argue that all G&A expenses reported in the Price Waterhouse survey for the Coast should be included in the G&A
per unit costs, including those which the MOF does not allow for appraisal purposes. They insist that such expenses (e.g.,
charitable contributions, company communications, and taxes) are valid business expenses and should, therefore, be included in
G&A expenses. We agree and as such have included these expenses in the Department's benefit calculation.
Other Adjustments
The Coalition contends that the Department erred in omitting a tenure security adjustment in the Preliminary Determination.
They state that there should be an adjustment which takes into account the assured supply of timber which major tenure holders
have relative to SBFEP licensees.
The Department does not consider that the long-term right (and obligation as well, given minimum cut requirements) to cut
timber is necessarily a benefit.
(Cite as: 57 FR 22570, *22596)
This is consistent with the Department's position, vis-a-vis Respondents', that a long-term tenure does not necessarily imply
greater risks.
A secure administered supply, in and of itself, implies nothing without consideration of the price or other requirements necessary
to procure that supply. Furthermore, given that the price of administered timber, as well as the concomitant obligations, can, and
does, change, it is not evident that a secure supply is always advantageous. In fact, the Coalition admitted as much during the
hearings: "Isn't it possible the (sic) through intervention in the market, the Government requires (major tenure holders) to harvest
timber that (they) otherwise would not * * *" (See Hearings Transcript for April 29, 1992, p. 266.) ln light of these uncertainties,
the Department does not consider that a tenure security adjustment is warranted.
Respondents raised the following factors which they maintain must be adjusted for when using the SBFEP benchmark:
- Some SBFEP licensees may be subject to lower tax rates than major tenure holders;
- Major tenure holders have greater costs related to safety and first aid compliance measures, union wage rates, waste charges,
and employee withholding requirements;
- SBFEP have lower operating costs resulting from a lack of capital assets and the associated financial carrying costs;
(Cite as: 57 FR 22570, *22596)
- SBFEP can lock in prices at the time of the bid;
- Certainty regarding their contingent liabilities make SBFEP tenures more valuable; and
- SBFEP licensees have the ability to make short-term and incremental sales.
First, whether SBFEP tax rates may be lower is not relevant since the Department does not consider the indirect effect of taxes on
subsidy calculations. (See § 355.46 of the Proposed Regulations.) The Department only considers taxes in a countervailing
duty proceeding when the tax itself is the source of the subsidy. Second, the Department does not consider capital carrying
costs relevant to this analysis since we are expensing all costs. Third, some of those expenses listed by Respondents were in fact
incorporated in our analysis (e.g., waste charges) and for others it is not clear from the record that such costs are only borne by
major tenure holders and hence may be irrelevant. Fourth, even assuming arguendo that SBFEP tenure holders lock in prices (see
above), major tenure holders have the option to reduce or increase their harvest by 50 percent in any one year to take advantage
of end product market prices. Fifth, it may be true that the contingent liabilities of major tenure holders could be increased;
however, they can be reduced as well. For example, the MOF eliminated interest payments for late stumpage payments to major
tenure holders in a portion of the Interior for a period of five months in 1990-91. (See December 13, 1991 BC response, pp.
IV-61-62.) Lastly, as
(Cite as: 57 FR 22570, *22596)
stated above, the Department does not consider short-term sales inherently advantageous vis-a-vis long-term sales. Given these
facts, the Department does not consider that any of these adjustments are appropriate for its benefit calculation.
Calculation of the Benefit
In calculating the benefit in this final determination, the Department based the calculation on verified data and followed the same
methodology as used in the Preliminary Determination. However, some of the adjustments were modified as explained above.
One of the modifications which is not discussed above relates to the volume of logs entering sawmills, i.e., the volume of logs
which are inputs to the subject merchandise. In the Preliminary Determination we based this distinction on log grades. That is, we
assumed that particular grades of logs were likely to be sawn, while other grades were likely to be chipped for pulp. However,
during verification, both the BC and federal governments presented data concerning the percentage of all softwood logs which
enter sawmills in each region (i.e., Coast and Interior) for 1985, 1986, 1988, and 1989. Given that the Department verified such
data, and that these data provide a more accurate figure for the volume of softwood logs entering sawmills, the
(Cite as: 57 FR 22570, *22596)
Department is applying the percentage of softwood logs entering sawmills in 1989 to the total volume of the Crown softwood
harvest subject to administratively-set stumpage rates, in order to calculate the volume of stumpage entering sawmills which
benefits from the stumpage subsidy.
To calculate the benefit, we multiplied the volume of the softwood sawlogs (which are not competitively-priced and which
originate from Crown lands) entering sawmills by the per cubic meter *22597
(Cite as: 57 FR 22570, *22597)
difference between the adjusted administratively-set price and the SBFEP benchmark to arrive at the total stumpage program
benefit. The calculation of the country-wide rate is discussed in the "Country-Wide Calculation" section of this notice.
Quebec
According to the questionnaire responses, and as verified by the Department, over 95 percent of the stumpage harvested on
provincial lands in Quebec is harvested under Timber Supply Forest Management Agreements (TSFMAs). For purposes of setting
stumpage rates under TSFMAs, Quebec is divided into 28 tariffing zones, the boundaries of which, according to Respondents, were
set so as to ensure that for each zone, the factors that influence the market value of standing timber (average tree size, type of soil,
topography, transportation distances, etc.) were as homogeneous as possible. At verification the
(Cite as: 57 FR 22570, *22597)
Department learned that the tariffing zones were originally set up by a consultant hired by Quebec to establish the zones
according to biophysical and geomorphological homogeneity, and that private as well as provincial lands were considered when
examining the biophysical characteristics.
Quebec calculates a different stumpage rate by species for each tariffing zone and that rate applies uniformly throughout the zone.
The stumpage rate for each tariffing zone is set based on a "parity technique", which uses information on stumpage rates from
private forest to calculate the market value of standing timber (MVST) of the provincial forest land in each tariffing zone. The
stumpage rate charged in a tariffing zone is equivalent to the MVST for that zone. In setting the stumpage rates, Quebec makes no
distinction between sawlogs and pulplogs.
In order to obtain private stumpage rates, the government conducts a "full census" of the private market once every three years
and a survey in the intervening years. The first and only "full census" was conducted in 1988, and was used to set stumpage rates
during the POI without any adjustments. At verification the Department examined all of the raw data collected in the various
surveys and confirmed the accuracy of the results.
Preferentiality Benchmark
(Cite as: 57 FR 22570, *22597)
Respondents argue that the parity technique employed by Quebec to set provincial stumpage rates matches public to private
prices and, therefore, systematically excludes preference, and precludes any need for a traditional preferentiality analysis. They
state that if we decide to do a preference analysis, the Department should apply, on the basis of verified information, the
Department's preferred measure of preferentiality by comparing stumpage prices for standing timber sold to lumber mills to the
stumpage price for standing timber sold to pulp and paper mills. Respondents further argue that should the Department chose not
to rely on this measure of preferentiality, it can resort to two other viable benchmarks: (1) Private forest stumpage prices; or (2)
the relationship of Quebec's cost of providing stumpage to the revenues it receives from stumpage.
The Coalition argues that a cross-border comparison with the United States remains the most accurate measure of Quebec
subsidies, and that sawtimber stumpage prices in Maine, which according to the Coalition are the appropriate benchmark, are
considerably higher than sawtimber stumpage prices in Quebec.
Concerning the Coalition's proposed use of a cross-border comparison, see the general "Preferentiality" section above for a
discussion of why the Department is not using this potential benchmark.
In order to examine government sales of identical goods to different purchasers in determining preferentiality, as Respondents
have suggested, the
(Cite as: 57 FR 22570, *22597)
sales used for comparison must be nonspecific or, if they are specific, must be demonstrated through other means to be
nonpreferential. While it is true that Quebec does not distinguish between sawlogs and pulplogs in setting provincial stumpage
rates, sales to pulp producers are specific (see "Specificity" section above). In addition, simply because a government sells the
same good to two end users for the same price does not preclude a finding of preferentiality for those sales. According to
information contained on the record, the only possible benchmark which could be used to demonstrate the nonpreferentiality of
the stumpage charged to pulp mills, private stumpage rates, indicated that pulp mill stumpage rates as well as sawmill stumpage
rates were preferential. Thus, the preferred test (price discrimination) is not possible.
Respondents state the Department's first alternative benchmark, government prices for similar goods, is nonexistent in Quebec.
The next alternative benchmark is prices charged by private sellers for the same good. Respondents note that the Department
established at verification the viability of Quebec's private forest as a legitimate benchmark. Respondents cite the Verification
Report, stating the Department verified that the total log harvest from private lands equals 23 percent of the total log harvest in
Quebec and 17 percent of the softwood log harvest in Quebec.
Note--About 10 percent of the total Quebec softwood harvest by sawmills is from private forests.
(Cite as: 57 FR 22570, *22597)
As a result of verification and an examination of all relevant information on the record, the Department is satisfied that the private
market surveys (done in connection with the parity technique) accurately reflect the prevailing private stumpage prices in
Quebec. Therefore, we determine that the private prices provide a reliable benchmark for comparison purposes.
The Coalition argues that the second alternative benchmark in the hierarchy-- prices charged by another seller within the same
jurisdiction--is not ideal, but would be a more accurate measure of subsidization only if the Department used the Quebec sawlog
prices collected by a private company for the New Brunswick Government. According to the Coalition, the Quebec survey relied
upon by the Department as a measure of private prices suffered from numerous infirmities, whereas the data collected for New
Brunswick is much less likely to be afflicted by the same infirmities. The survey performed for New Brunswick, according to the
Coalition, revealed much higher private stumpage prices in Quebec than the Quebec survey did. In large part this may be because
this survey examined only sawtimber, whereas the Quebec rates were based on a survey of all timber--pulpwood and sawtimber.
Respondents counter that the private stumpage survey conducted for New Brunswick was not only unverified but, as stated in a
letter from the company that performed the survey submitted by Respondents, only the border zone between Quebec and New
Brunswick was included in the survey. Respondents also point out that there were only five
(Cite as: 57 FR 22570, *22597)
Respondents in the New Brunswick survey in contrast to Quebec survey of private forests, which included 149 Respondents
throughout Quebec.
The Coalition contends the entire provincial stumpage system in Quebec is not "market-based" because private prices in Quebec
are distorted and depressed by decades of artificially cheap provincial stumpage, and these prices are used to set public
stumpage.
Citing a study published in 1988 of the "20 quality zones" in Quebec done by the Aktrin Research Institute of Ontario, *22598
(Cite as: 57 FR 22570, *22598)
the Coalition asserts the "cost adjustments" which Quebec uses to make public and private timber comparable are utterly fanciful
and lead to anomalous results. Respondents point out that the Aktrin study cited by the Coalition is completely outdated and
irrelevant since it examined a system that was replaced in 1989 by Quebec's current system of 28 "biophysically and geologically
homogeneous tariffing zones."
We agree with Respondents that private prices in Quebec collected under Quebec's own contracted out surveys, which we
examined in depth at verification, are a viable benchmark. The evidence cited by the Coalition is either outdated and irrelevant or
anecdotal. As for the private forest stumpage prices collected by New Brunswick, the study is far less comprehensive than the
private stumpage survey conducted for Quebec in connection with the parity technique.
(Cite as: 57 FR 22570, *22598)
We calculated the private stumpage benchmark by weight-averaging the private stumpage rates collected in the provincial
government private market surveys in the calendar years 1990 and 1991, to reflect Quebec's fiscal year. In instances where a cost
or obligation was borne by both those harvesting on private lands and on provincial lands, we have adjusted the provincial
stumpage rate by the difference between the two costs or obligations, as discussed below. If it is unclear from the facts on the
record as to the difference between private and provincial lands, no adjustment was made to either the private stumpage rate or
the provincial stumpage rate.
Adjustments to Noncompetitive Provincial Rate
We determined the noncompetitive stumpage rate by dividing the actual total stumpage fees paid by sawmills and lath producers
during the POI (most laths are within the scope of this investigation) by the actual amount of stumpage used by sawmills/lath
producers during the POI reported in the questionnaire responses.
In order to make an equitable comparison, we have had to account for the fact that TSFMA holders are required to fulfill certain
forest management and timber-harvesting obligations that may not be required of those harvesting from private lands. In
addition, the distribution of private and provincial lands
(Cite as: 57 FR 22570, *22598)
within the province results in additional costs incurred by provincial tenure holders in the North. Therefore, to determine
whether provincial stumpage is provided at a preferential rate, we have made adjustments for all of the obligations and expenses,
on a per cubic meter basis, that are incurred by TSFMA holders but are not borne by those harvesting privately-owned timber.
These adjustments (on a per cubic meter basis) are as follows:
Harvesting Costs
Respondents have claimed an adjustment to account for the differential in harvesting costs between provincial lands and private
lands. Respondents claim that since most provincial lands are located in the northern portion of Quebec where conditions are
harsh, harvesting costs are much higher than for private lands, which, according to Respondents, are located in the milder and
more developed southern portion of Quebec.
We note that according to the questionnaire response, close to fifty percent of the total softwood harvest under TSFMAs are in the
tariffing zones which also contain the private forests surveyed by Quebec for use in the parity technique. In addition, as discussed
in the Verification Report, when setting up the tariffing zones, the consultant hired by Quebec considered all lands, both
provincial and private, in determining "biophysical and geomorphological
(Cite as: 57 FR 22570, *22598)
homogeneity." In fact, the original 28 tariffing zones were later checked by an independent research foundation (also noted in the
Verification Report), which had a mandate from Quebec to examine the tariffing zone limits and revise them whenever justifiable.
This research foundation reaffirmed the tariffing zone boundaries as they were originally set up.
Based on these facts, we see no basis for a claim that harvesting costs on provincial lands would differ significantly from the
comparable costs on private lands in those tariffing zones with private and public forests. However, we do agree that a harvesting
cost differential exist between private lands in the mostly southern zones and the public land in the northern zones. Therefore, we
only applied this adjustment to those zones in northern Quebec with no private forests. Before making this adjustment, we first
adjusted for inflation since the cost data upon which Respondents made the claim were from periods prior to the POI. The data
submitted by Respondents on costs in the private forests was collected in 1988 and the costs in the public forests was for FY
1989/90. We adjusted both of these figures to 1990 using the Statistics Canada Industrial Product Price index and then
derived the differential.
To account for the fact that we are only allowing the adjustment in the northern zones, we multiplied this inflation adjusted
differential by the spruce-pine-fir harvest under TSFMAs in those tariffing zones which lack significant private forests. We then
divided this number by the total spruce-
(Cite as: 57 FR 22570, *22598)
pine-fir harvest under TSFMAs to derive the appropriate per cubic meter adjustment for the province-wide calculation.
Road Construction and Maintenance
Respondents contend that, as with harvesting costs, there are significant differences in road construction and maintenance costs
incurred by TSFMA holders harvesting in the public forests. According to Respondents, the information that was necessary to
make this adjustment was missing at the time of the Preliminary Determination but was submitted prior to verification and is now
part of the verified record. Therefore, they claim the Department should make an adjustment for the additional costs in road
building and maintenance costs incurred by TSFMA holders.
Respondents state that the additional road building and maintenance costs imposed on TSFMA holders are primarily attributable
to the costs of building and maintaining primary roads, although silviculture requirements unique to TSFMA holders also require
more secondary and tertiary road building and maintenance than is needed in the private forests. Because Quebec's private
forests are concentrated in the more heavily populated and developed southern portions of the province, a preexisting network of
primary roads connects the private forests to Quebec's commercial centers. Consequently, Respondents