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1146

ARTICLE 1904

BINATIONAL PANEL REVIEW

UNDER THE

NORTH AMERICAN FREE TRADE AGREEMENT 

IN THE MATTER OF

CERTAIN SOFTWOOD LUMBER PRODUCTS FROM CANADA.

FINAL AFFIRMATIVE COUNTERVAILING DUTY DETERMINATION

FILE USA-CDA-2002-1904-03 
 

DECISION OF THE PANEL 

Appearances: 


 


 

I. INTRODUCTION

 

      This Panel was constituted pursuant to the North American Free Trade Agreement   (“NAFTA”) to review challenges to the final affirmative countervailing duty determination issued by the U.S. Department of Commerce (“Commerce” or “the Department”) relating to certain softwood lumber products from Canada.  Notice of Final Affirmative Countervailing Duty Determination and Final Negative Critical Circumstances Determination: Certain Softwood Lumber Products from Canada, 67 Fed. Reg. 15545 (April 2, 2002) (“Final Determination”).  In the Final Determination, Commerce concluded that provincial stumpage programs under which Canadian provinces confer rights to harvest standing timber on government owned forestlands are subsidies to producers of softwood lumber which are countervailable under United States law. 

      This Panel considers challenges made to the Final Determination by the Government of Canada, the Government of Alberta, the Government of British Columbia, the Government of Manitoba, the Government of the Northwest Territories, the Government of Ontario, the Gouvernement du Québec, the Government of Saskatchewan, the Government of the Yukon Territory, the British Columbia Lumber Trade Council, the Ontario Forest Industries Association, the Ontario Lumber Manufacturers Association and the Québec Lumber Manufacturers Association (collectively referred to as the “Canadian Joint Parties” or the “Canadian Parties”).  Consideration is also given to challenges made by the Coalition for Fair Lumber Imports Executive Committee (the “Coalition”) and by various private parties.  Following extensive briefing, oral argument in this matter was held in Washington, D.C. on April 15, 16 and 17, 2003. 

      Set out below are highlights of the background and procedural history to this review and thereafter the Panel’s analysis of the issues raised by the parties.

  1. BACKGROUND
 

      Historically, most of the timberlands in Canada have been owned by the Crown, and management, including the harvesting of timber, has been administered by the provincial governments.  This administration is done through provincial stumpage programs, pursuant to which private companies enter into tenure arrangements to harvest standing timber.  Although there are various types of tenure arrangements, in general, the provinces grant long term harvesting rights to individuals and companies, which involve obligations as well as the right to cut timber.  Access to the ability to cut standing timber is accomplished through the payment of stumpage fees and various in-kind payments. The provincial governments require license holders to assume responsibility for, inter alia, roadbuilding and  maintenance, reforestation of harvested or damaged areas, and resource planning. 

   Agreements to operate sawmills or process certain volumes of harvested timber are sometimes incorporated into tenure agreements, as are minimum cut requirements and requirements to use specific sawmills. In many cases the tenure holders own and operate sawmills which process all of the logs they harvest, although there is evidence in the record to indicate that some tenure holders are independent harvesters that do not operate sawmills and sell their logs to unrelated mills. 

      Under the stumpage programs, the harvesting of timber creates the obligation to pay to the provincial government a fee (“stumpage”) calculated with reference to the volume of timber cut. 

      This is the fourth U.S. countervailing duty investigation of Canadian softwood lumber imports.  In 1982, a petition was filed by the U.S. Coalition for Fair Canadian Lumber Imports alleging that certain provincial stumpage programs and other federal and provincial programs constituted countervailable subsidies. The Department’s  investigation resulted in a negative finding.  Certain Softwood Products from Canada, 48 Fed. Reg. 24159 (May 31, 1983) (“Lumber I”).  Specifically, the investigation found that stumpage rights were not provided to a “specific enterprise or industry, or group of enterprises or industries” within the meaning of 19 U.S.C. § 1677(5)(B)(ii) and that stumpage did not constitute the “provision of goods or services at preferential rates.”  19 U.S.C. § 1677(5).  Under the preferentiality standard, the law required Commerce to  determine whether a good or service had been provided at a preferential rate using benchmarks that included the price the government charged other parties for identical or similar goods, the price charged by other sellers within the same political jurisdiction, the cost of providing the good or service, and the price paid for the good outside the country under investigation. 

      A new petition, filed in 1986 by the Coalition for Fair Lumber Imports, again alleged that certain provincial stumpage systems constituted countervailable subsidies.  In this case, the Department reversed its previous position and issued a preliminary affirmative determination.  Certain Softwood Lumber Products from Canada, 51 Fed. Reg. 37453 (1986) (“Lumber II”).  The Investigating Authority found in this case, unlike in Lumber I, that the provincial stumpage programs were “specific” under the same statutory scheme. The change in position was stated to have resulted both from a new factual record and a revised interpretation of the law.  In addition, the Preliminary Determination concluded that the “preferentiality” test was met, and consequently, a subsidy was found.  

      The Lumber II investigation was terminated when Canada and the United States entered into a Memorandum of Understanding (“MOU”) in December, 1986.  Pursuant to the MOU, Canada agreed to collect a charge on exports of softwood lumber to the United States in an amount which was then about equal to that which had been calculated in  the Preliminary Determination.  Under the terms of the MOU this tax could be reduced or eliminated for provinces that instituted “replacement measures”, e.g., increases in the amount of stumpage fees, or other charges.   In exchange for this assessment, the petition was withdrawn and the investigation was terminated. 

      As a consequence of changes in their practices, pursuant to the terms of the MOU,  the export charges for British Columbia  and Québec were, in time,  eliminated or substantially eliminated.  Certain Atlantic provinces were also subsequently exempted.  Canada then elected to terminate the MOU in September, 1991.   

      The Department promptly self-initiated a third investigation in October 1991.  The result of this investigation, in May of 1992, was an affirmative subsidy determination in which it found that provincial stumpage programs and log export restraints in British Columbia conferred countervailable subsidies.  Certain Softwood Lumber Products from Canada, 57 Fed. Reg. 22570 (May 28, 1992) (“Lumber III”).  This determination was appealed to a binational panel under the Canada-United States Free Trade Agreement (“FTA”).  The panel concluded that Commerce’s determination that the export restraints were “specific” was unsupported by substantial evidence.  The panel remanded to Commerce on this and other issues.  Softwood Lumber from Canada, USA-92-1904-01, Panel Decision (May 6, 1993).   

      Upon remand, the Department again found a countervailable subsidy, and once more upon review of the remand determination, the binational panel held that Commerce had inadequately addressed certain issues, including specificity.  Softwood Lumber from Canada, USA-92-1904-01, Panel Decision on Remand (Dec. 17, 1993).  The panel ordered Commerce to rescind the countervailing duty order, which it did on January 6, 1994.  See Certain Softwood Lumber Products from Canada, 59 Fed. Reg. 12584 (March 17, 1994).  The Department subsequently published an order revoking the countervailing duty order.  Certain Softwood Lumber Products from Canada, 59 Fed. Reg. 42029 (Aug. 16, 1994).2 

      Negotiations conducted in 1995 resulted in the Softwood Lumber Agreement Between the Government of the United States of America and the Government of Canada (the “SLA”).  Under the SLA, Canada agreed to impose fees on exports of softwood lumber from certain provinces to the United States.  In return, the U.S. agreed not to initiate any action and to dismiss any petition filed.  The SLA expired on April 1, 2001.

  1. PROCEDURAL HISTORY
 

      On April 2, 2001, a new petition was filed with Commerce requesting initiation of a countervailing duty investigation to determine whether manufacturers, producers or exporters of certain softwood lumber products from Canada were receiving countervailable subsidies.  The petitioners were listed as the Coalition for Fair Lumber Imports Executive Committee (hereinafter, “the Coalition”), the United Brotherhood of Carpenters and Joiners, and the Paper, Allied-Industrial, Chemical and Energy Workers International Union.  The petition was amended on April 20, 2001 to add four lumber producers, Moose River Lumber Co., Shearer Lumber Products, Shuqualak Lumber Co. and Tolleson Lumber Co., Inc., as petitioners.  The petition complained that the Government of Canada and provincial governments were providing countervailable subsidies with respect to the export, manufacture and production of softwood lumber. 

      On April 30, 2001, the Department commenced the investigation.  Notice of Initiation of Countervailing Duty Investigation: Certain Softwood Lumber Products from Canada, 66 Fed. Reg. 21332 (April 30, 2001).  The Notice of Initiation listed as potentially countervailable subsidies, federal and provincial timber management systems and other federal and provincial programs.  The scope of the investigation was identified as softwood lumber, flooring and siding including all products classified under subheadings 4407.1000, 4409.1010, 4409.1090 and 4409.1020 of the Harmonized Tariff Schedules of the United States, and any softwood lumber, flooring and siding described below: 

      In the Notice of Initiation, Commerce stated that, due to the large number of Canadian producers, it intended to conduct the investigation on an aggregate basis.  The Notice of Initiation also stated that Commerce would seek the cooperation of the Canadian and provincial governments in implementing a system to review applications for company exclusions from any order that might issue. 

      On May 1, 2001, the Department issued countervailing duty questionnaires to the Government of Canada and requested that it provide copies to the provincial governments.  The Government of Canada and the provinces submitted responses to these questionnaires on June 28, 2001.  Additional information was filed by the Canadian Parties on numerous occasions after submitting the questionnaire responses.  On July 25, 2001, Commerce issued supplemental questionnaires to the Government of Canada and the provinces.  Responses were received on August 3, 2001.  The Investigating Authority  issued further supplemental questionnaires to certain provinces and the federal government in November and December 2001.  Canada and the provincial governments submitted additional materials in response on December 17, 2001. 

      On May 8, 2001, the Government of Canada filed a proposal with Commerce setting forth a process by which to review requests for company exclusions.   

      On May 23, 2001, the International Trade Commission (“ITC”) published its preliminary determination, finding that there was a reasonable indication that an industry in the United States was being threatened with material injury by reason of imports from Canada of the subject merchandise. 

      In a letter dated July 31, 2001, the Government of Canada requested a province-specific rate for Québec producers of softwood lumber.  In separate matters, two Canadian companies submitted requests for company-specific rates. 

      On August 2, 2001, Commerce amended the Notice of Initiation to exempt certain softwood lumber products harvested and produced in the provinces of New Brunswick, Nova Scotia, Prince Edward Island and Newfoundland (the “Maritime Provinces”) from the investigation.  Amendment to the Notice of Initiation of Countervailing Duty Investigation: Certain Softwood Lumber Products from Canada, 66 Fed. Reg. 40228 (Aug. 2, 2001).  The Maritime Provinces were exempted because of unique circumstances associated with the Maritime Provinces and because the petitioners did not allege that any countervailable subsidies were received by producers in the Maritime Provinces.  The exemption does not apply to softwood lumber products produced in the Maritime Provinces from Crown timber harvested in any other province.  

      On August 17, 2001, the Department published its Preliminary Determination.  Notice of Preliminary Affirmative Countervailing Duty Determination, Preliminary Affirmative Critical Circumstances Determination, and Alignment of Final Countervailing Duty Determination with Final Antidumping Duty Determination: Certain Softwood Lumber Products from Canada, 66 Fed. Reg. 43186 (Aug. 17, 2001).  Commerce preliminarily found that the provincial stumpage programs and certain non-stumpage programs were countervailable subsidies, and imposed provisional measures at 19.31% ad valorem.  One company was preliminarily excluded.  Following the issuance of the Preliminary Determination, the Canadian Parties filed additional factual information and analyses with Commerce. 

      In January and February 2002, Commerce verified the factual information submitted by the Government of Canada and the provinces, and issued verification reports on February 15, 2002.  

      On February 20, 2002, Commerce determined that it was impracticable to conduct examination and verification for each of the 351 applicants for company exclusions that were received.  The Department determined that it was practicable for it to examine and consider a limited group of exclusion requests, from primary mills that produce lumber of U.S. or Maritime origin or from timber harvested on private Canadian land.  Commerce did not act on the other applications on the grounds that the volume of applicants and documents submitted and the large number of groups and companies involved rendered the task impracticable. 

      On March 12, 2002, Commerce issued a preliminary determination on issues related to the scope of the order.  Commerce required parties to submit briefs on this issue by March 15, 2002 and rebuttal briefs by noon on March 18, 2002.  A hearing was held on scope issues on March 19, 2002. 

      The Final Determination was announced by the Department on March 21, 2002 and issued on March 25, 2002.  The Final Determination incorporated an Issues and Decision Memorandum (hereinafter, the “Decision Memo”), which was also issued on March 25, 2002.  In the Final Determination, Commerce reached the following conclusions: 

      Commerce denied the request to provide a province-specific rate for Québec. 

      On May 16, 2002, the ITC issued its final determination that the industry in the U.S. producing softwood lumber products was threatened with material injury by reason of imports of the subject merchandise from Canada. 

      On May 22, 2002, Commerce published an amended countervailing duty order on softwood lumber products from Canada, which contained an amended net countervailable subsidy rate of 18.79 percent ad valorem.  Notice of Amended Final Affirmative Countervailing Duty Determination and Notice of Countervailing Duty Order:  Certain Softwood Lumber Products from Canada, 67 Fed. Reg. 36070 (May 22, 2002).

  1. PANEL JURISDICTION AND THE STANDARD OF REVIEW
 

      This Panel's authority derives from Chapter 19 of the NAFTA.  Article 1904(1) of the NAFTA provides that "each Party shall replace judicial review of final antidumping and countervailing duty determinations with binational panel review."  Article 1904(2) directs the Panel to assess whether a final countervailing duty or antidumping duty determination is in accordance with the laws of the importing country, in this case, the United States.  The laws consist of the “relevant statutes, legislative history, regulations, administrative practice and judicial precedents to the extent that a court of the importing Party would rely on such materials in reviewing a final determination of the competent investigating authority." NAFTA, Chapter 19, Article 1904(2).  

      Pursuant to Article 1904(3) and Annex 1911 of the NAFTA, the Panel is required to apply the standard of review specified in Section 516A(b)(1)(B) of the Tariff Act of 1930, 19 U.S.C. § 1516a(b)(1)(B).  That section states that “[t]he Court shall hold unlawful any determination, finding, or conclusion, found . . . to be unsupported by substantial evidence on the record, or otherwise not in accordance with law.”  Under this standard, the Panel does not engage in de novo review and must restrict its review to the administrative record. 

      In reviewing Commerce’s interpretations of the governing statute, the Panel follows the two-stage approach adopted by the U.S. Supreme Court in Chevron, U.S.A. Inc. v. Natural Resources Defense Council, Inc. 467 U.S. 837 (1984).  When reviewing an agency’s construction of the statute which it administers, court is confronted with two questions:  

      Id. at 842-43.  

      An agency’s statutory interpretation is to be upheld if it is “sufficiently reasonable,” even if it is not “the only reasonable construction or the one the court would adopt had the question initially arisen in a judicial proceeding.”  American Lamb Co. v. United States, 785 F.2d 994, 1001 (Fed. Cir. 1986) (citing Chevron). 

      The U.S. Court of Appeals for the Federal Circuit has held that Commerce’s statutory interpretations enunciated in an administrative determination are “entitled to deference under Chevron.”  Pesquera Mares Australes Ltda v. United States, 266 F.3d 1372, 1382 (Fed. Cir. 2001).  Commerce’s regulations adopted after notice-and-comment rulemaking are also entitled to a high level of deference.  See Koyo Seiko Co. v. United States, 258 F.3d 1340, 1347 (Fed. Cir. 2001).  Additionally, “[w]e must give substantial deference to an agency’s interpretation of its own regulations.”   Thomas Jefferson Univ. v. Shalala, 512 U.S. 504, 512 (1994). 

      Nonetheless, the Panel must “assure that the agency has given reasoned consideration to all the material facts and issues” and that Commerce has explained how its legal conclusions follow from the facts in the record.  Greater Boston Television Corp. v. FCC, 444 F.2d 841, 851 (D.C. Cir. 1970), cert. denied, 403 U.S. 923 (1971).  Commerce must “examine the relevant data and articulate a satisfactory explanation for its action including a `rational connection between the facts found and the choices made.’”  Avesta AB v. United States, 724 F. Supp. 974, 978 (CIT 1989) (quoting Motor Vehicle Mfrs, Ass’n v. State Farm Mut. Auto Ins. Co., 463 U.S. 29, 43 (1983), aff’d, 914 F.2d 233 (Fed. Cir. 1990), cert. denied, 111 S. Ct. 1308 (1991)).  The reviewing court “must `consider whether the decision was based on a consideration of the relevant factors and whether there has been a clear error of judgment.’”  Motor Vehicle Mfrs., 463 U.S. at 43 (quoting Bowman Transportation, Inc. v. Arkansas-Best Freight System, Inc., 419 U.S. 281, 285 (1974)).    

      Additionally, if Commerce “intends to depart from a prior position, … it must give its reasons for doing so, thereby allowing the Court to `understand the basis of the agency’s action and … judge the consistency of that action with the agency’s mandate.’”  Hoogovens Staal BV v. United States,  4 F. Supp. 2d 1213, 1217 (CIT, 1998) (quoting Atchison, Topeka & Santa Fe Ry. Co. v. Witchita Bd of Trade, 412 U.S. 800, 808 (1973)).  Furthermore, the substantial evidence standard requires “more that mere assertion of `evidence which in and of itself justified [the determination], without taking into account contradictory evidence or evidence from which conflicting inferences could be drawn.’”  Gerald Metals, Inc. v. United States, 132 F.3d 716, 720 (Fed. Cir. 1997) (quoting Suramerica Aleaciones Laminadas, C.A. v. United States, 44 F.3d 978, 985 (Fed. Cir. 1994)) (quoting Consolidated Edison Co. v. NLRB, 305 U.S. 197, 229 (1938)). 

      When an agency does need to fill gaps in a statute, it must act consistently with the underlying purpose of the law it is charged with administering.  The Panel is to “reject administrative constructions, whether reached by adjudication or by rulemaking, that are inconsistent with the statutory mandate or that frustrate the policy Congress sought to implement.”  Hoechst Aktiengesellschaft v. Quigg, 917 F.2d 522, 526 (Fed. Cir. 1990) (quoting Ethicon, Inc. v. Quigg, 849 F.2d 1422, 1425 (Fed Cir. 1988) and FEC v. Democratic Senatorial Campaign Comm., 454 U.S. 27, 32 (1981)).  

      With this guidance, the Panel proceeds to evaluate the issues raised by the parties.

  1. SUFFICIENCY OF PETITION
 

      The petitioners in this investigation are listed as the Coalition, four lumber producers, Moose River Lumber Co., Shearer Lumber Products, Shuqualak Lumber Co. and Tolleson Lumber Co., Inc., and two unions, the United Brotherhood of Carpenters and Joiners and the Paper, Allied-Industrial, Chemical and Energy Workers International Union.4   

      The Canadian Joint Parties assert that Commerce’s determination that the petition was filed on behalf of an “interested party” is contrary to law and is not supported by substantial evidence.  They argue that the Coalition did not qualify as an interested party because it merely acted as a representative of the Coalition for Fair Lumber Imports, which was the true party in interest.  The Canadian Parties assert that there was insufficient information in the record to determine whether the Coalition for Fair Lumber Imports met the statutory requirements as an interested party because its members were not identified, nor was the volume and value of its members’ production. They argue that the four individual companies were not interested parties within the meaning of the statute because the four companies did not file documents in the case or otherwise participate in the investigation, and because they failed to provide the required value information.  The two unions did not qualify as interested parties because neither was representative of the softwood lumber industry.  The Canadian Joint Parties also contend that Commerce failed to require the petitioner to provide the requisite information.  

      The statute requires that Commerce initiate a countervailing duty proceeding whenever “an interested party described in subparagraph (C), (D), (E), (F) or (G) of section 771(9)” files a petition that is accompanied by information reasonably available to the petitioner alleging the elements necessary for the imposition of duties under section 701(a) of the Act.5  An “interested party” is defined as: 

      19 U.S.C. § 1677(9). 

      Pursuant to the statute, Commerce also must determine whether the petition has been filed “by or on behalf of the industry.”6  Commerce’s regulations provide that a petition must contain “[i]nformation relating to the degree of industry support for the petition, including: (i) [t]he total volume and value of U.S. production of the domestic like product; and (ii) [t]he volume and value of the domestic like product produced by the petitioner and each domestic producer identified.”7  The regulations additionally require that the petition must contain, “to the extent reasonably available, the name, address, and telephone number of the petitioner and any person the petitioner represents.”8  

      The Department determined that the four individual companies were interested parties within the meaning of section 771(9)(C) of the Act as manufacturers, producers, or wholesalers in the United States of a domestic like product.  The Department concluded that the Coalition was an interested party within the meaning of section 771(9)(E) as a trade or business association, and that the two labor unions were interested parties pursuant to section 771(9)(D).  Commerce also determined that there was sufficient industry support for the petition. 

      The question before this Panel is whether the Department’s determination that the petition was sufficient was supported by substantial evidence or was otherwise in accordance with the law.   

      The four individual companies submitted along with the petition certain proprietary documents that contained the companies’ production volumes, indicating that each was a United States softwood lumber producer.  We find no statutory requirement that a qualified interested party participate in further aspects of the investigation.  Thus, Commerce’s decision that the companies were “interested parties” was supported by substantial evidence and was otherwise in accordance with the law.  

      Although the statute requires that a petition need only be filed by a single interested party, the Panel finds the Department’s determination with respect to the Coalition and the two unions also to be proper.   

      Commerce’s determination that the Coalition was an association, defined as a “gathering of people organized for a common purpose,”9 was based on a reasonable interpretation of the statute.  The petition identified the thirteen members of the Coalition as softwood lumber producers, and provided the production volume for each producer.  The Department’s conclusion that a majority of association members manufacture, produce or wholesale domestic like product was thus based on substantial evidence and was not contrary to law. 

      The two labor unions certified that they represented U.S. softwood lumber workers.  The Panel does not read into the statute a requirement that the unions represent a certain percentage of the industry.  Commerce’s conclusion that they were interested parties because they represented workers in the softwood lumber industry is consistent with the statute. 

      The petitioners also provided the Department with their names, addresses, telephone numbers and submitted a list of U.S. softwood lumber producers that documented their support for the petition, in satisfaction of Commerce’s regulations. 

      In determining whether the petition has been filed “by or behalf of the industry,”  the Department has interpreted its regulation to permit a determination of industry support on either a volume or value basis.  Commerce argues that where industry support is determined on the basis of production volumes, value data is irrelevant to industry support.  The petition and the amendments thereto contained information demonstrating that supporters of the petition accounted for 67 percent of total softwood lumber production.  Based on information provided in the petition and the amendments, the Department determined that the industry support requirement was fulfilled.  The Panel does not find Commerce’s interpretation of its regulation to be in error.  

      In sum, the Panel concludes that Commerce’s determination that the petition fulfilled the statutory and regulatory requirements was in the main supported by substantial evidence and was otherwise in accordance with the law.

  1. FINANCIAL CONTRIBUTION
 

      There are two key elements to a finding of a countervailable subsidy, namely that a financial contribution is made by a government, and that a benefit is provided thereby.  These two elements will be discussed in turn.   

      The statute describes several categories of financial contribution, including “providing goods or services, other than general infrastructure.”  19 U.S.C. § 1677(5)(D)(iii). 

      Prior to the Uruguay Round Agreements Act (“URAA”), the statute provided that the term “subsidy” included “(t)he provision of goods or services at preferential rates.” 19 U.S.C. § 1677(5)(A)(ii).  Thus, although the URAA effected a change in the statutory definition of a countervailable subsidy, the phrase “goods or services” appears prior and subsequent to the URAA.   The Agreement on Subsidies and Countervailing Measures (“SCM Agreement”) of the World Trade Organization (“WTO”) uses the identical language, i.e., where “ a government provides goods or services other than general infrastructure ….”   

      The Investigating Authority in this case determined that the provincial governments, through the tenure and stumpage programs, made a financial contribution to the harvesters of crown timber.  The  Department observed that stumpage might be regarded as the granting of a right to harvest timber, or as the timber itself.  Looked at either way, it determined that the harvesters were “provided” with a good and that “… regardless of whether the provinces are supplying timber or making it available through a right of access, they are providing timber within the meaning of  Section 771(5)(B)(iii).”  Decision Memo at 5.   

      Commerce’s reasoning regarding the meaning of the term “goods” is based largely upon lexicographic sources.   

      In addition, in the Decision Memo, the Department notes the argument by the Coalition that the legislative history supports the Department’s decision.  

      The Canadian Parties contest the proposition that standing timber is a “good.” They argue that dictionary definitions of the term refer to movable property, and do not encompass all property rights.  They equate the term to “movable tangible items that are capable of being traded”, as set forth in  Black’s Law Dictionary.   In addition, reference is made to the Uniform Commercial Code statement that “[a] contract for the sale… of timber to be cut is a contract for the sale of goods within this Article whether the subject  matter is to be severed by the buyer or by the seller even though it forms part of the realty at the time of contracting, and the parties can by identification effect a present sale before severance” (emphasis added).  Art. 2-107(1) and (2). 

      Thus, their argument is based upon the distinction between actual identifiable property, and the rights granted to harvesters to a profit à prendre, an interest in real property.  They cite cases that distinguish between this kind of property right and the “goods” which may be obtained through the exercise of such rights. 

      Second, Canada argues that the term “goods” must be interpreted in consonance with its use in provisions of other WTO agreements, reports and the SCM Agreement itself.  They suggest that in a number of instances these authorities embrace “goods” only because they are traded internationally and equate “goods” with “property.”  

      Lastly, Canada contests the Department’s suggestion that if the stumpage programs do not contribute goods, they may amount to the contribution of a service.  The Panel will not address this issue, as there is no indication that Commerce seriously advances this argument. 

      The Panel has examined the legislative history.  The Statement of Administrative Action (“SAA”) refers to: 

      The SAA, which accompanied the URAA, explicitly states that the countervailing duty (“CVD”) statute is to be interpreted "sufficiently broad so as to encompass the types of subsidy programs generally countervailed by commerce in the past".  The Panel notes that the Act contains only one explicit exception, and that is one related to general infrastructure; there is no natural resource exception in the law or in the CVD regulations.  The Panel, therefore, accepts that the statute is intended to have a comprehensive reach to include any goods or services, which are provided as a result of a government action in the country under investigation. 

      The SAA demonstrates Congress' support for the Department's determination that provincial stumpage programs constitute a financial contribution within the meaning of section 771(5)(D)(iii) of the Act.  

      It is also significant that all parties have acknowledged that timber is a 'market asset' and that through tenures the provincial governments relinquish ownership of those assets to the lumber companies.  Regardless of the form of the transaction between the provincial governments and those who harvest the timber, in substance it is a sale of timber.  

      In this connection, it is noted that in each of the previous lumber cases, neither the Department nor a reviewing panel has specifically addressed the question at issue.  Rather, it is has been assumed that there is a financial contribution.  Therefore, while the legislative history is far from conclusive, the Panel is of the view that it tends to support the position of the Investigating Authority and the Coalition. 

      While Commerce may never have previously considered the Canadian challenge to the finding of a financial contribution, the question was raised in a Canadian complaint before the WTO.  The complaint, against the Preliminary Determination in this case was the subject of a WTO Panel report.  WT/DS236/R, September 27, 2002.  This report is not, of course, binding on this panel.  See Hyundai Electronics Co. Ltd. v. United States, 53 F. Supp. 2d 1334 (CIT 1999).  Nonetheless, the Panel finds the reasoning in the report persuasive as to the proper construction under the SCM Agreement.   

      In determining whether the provincial stumpage programs “provide goods or services” to tenure holders, the first question is whether the provinces “provide” something to the loggers.  The WTO Panel concluded, after examining the tenure and stumpage programs, that “the only way to supply standing timber to harvesting companies is by allowing them to harvest the timber.”  Hence, in that Panel’s view, “where a government allows the exercise of harvesting rights, it is providing standing timber to the harvesting companies.”  WT/DS236/R at ¶¶7.17-18 (emphasis in original). 

      This Panel sees nothing in the statute or in the SCM Agreement which attaches any special meaning to the word “provides”, or which suggests that because the timber is harvested pursuant to licenses or tenures, it is not “provided” by the provinces.  We therefore concur with the WTO Panel on this point. 

      The WTO Panel also addressed the issue of whether standing timber is a “good”, considering the dictionary definitions of the term, Canada’s argument that harvesting rights are different from “goods”, and that the term, under WTO agreements, is limited to “products”.    

      Rather than rely upon the various definitions of the term, the WTO Panel looked to the overall purpose of the SCM Agreement.  The Panel found that in context the phrase “goods or services other than general infrastructure” has a more expansive meaning; it refers to “a broad spectrum of things a government may provide”.  WT/DS236/R at ¶7.23.  Bearing in mind this purpose, the WTO Panel concluded that: 

      Considering that in relevant respects the language of the countervailing duty statute mirrors exactly the WTO SCM Agreement, and that the broad purpose of these provisions is the same, the Panel considers that the meaning ascribed to the WTO SCM Agreement applies equally to the parallel provisions of the countervailing duty statute.  Therefore, the Department’s finding of a financial contribution in this case is affirmed. 

      The Panel notes that, even if provincial stumpage constitutes a financial contribution for CVD purposes, none of the parties have questioned the fact that the act of granting timber harvesting rights to softwood lumber producers, and the establishment of any conditions attached to the exercise of those rights by provincial governments, constitutes a legitimate exercise of jurisdictional responsibilities by the granting authorities concerned.

  1. BENEFIT/ADEQUACY OF REMUNERATION
 

      The statute requires, given a financial contribution, that the contribution confer a benefit.  A benefit is conferred when the good or service is provided for “less than adequate remuneration.”  19 U.S.C. § 1677(5)(E).  That section further states that “the adequacy of remuneration shall be determined in relation to prevailing market conditions for the good or service being purchased in the country which is subject to the investigation or review.”  The section requires the government to take into account the “[p]revailing market conditions includ[ing] price, quality, availability, marketability, transportation and other conditions of purchase or sale.”  

      This language parallels the language set forth in Article 14(d) of the SCM Agreement.  Article 14(d) provides that “[t]he adequacy of remuneration shall be determined in relation to prevailing market conditions for the good or service in question in the country of provision or purchase (including price, quality, availability, marketability, transportation and other conditions of purchase or sale).” 

      Following the adoption of the URAA and the SAA that accompanied it, the Department issued interim regulations in 1995 regarding certain procedural matters, deferring the consideration of regulations interpreting the substance of the changes in the law.  In November 1998, it issued its final regulation concerning the term “adequacy of remuneration.”  63 Fed. Reg. 65348, et seq. (Nov. 25, 1998).  That section, 351.511(a)(2), defines “adequate remuneration” as follows:  

      In connection with the publication of the new regulations, the Department noted that prior to the URAA amendments, the law provided that a subsidy was found if the goods or services were provided “at preferential rates.”  (See e.g., Lumber III).   In view of the change in the standard, Commerce undertook to furnish guidance on how the new provision would be applied.  This guidance has been referred to in the Commerce brief as the Preamble to the regulations, and the panel will adopt this term as well.  Two items in the Preamble are particularly significant to this case.  The first relates to the treatment of market distortion caused by the participation of a government in the market, and the other relates to the application of a “world market price” to measure the extent of a benefit.  These comments will be discussed in turn.

A. Actual Market Transactions

 

      In its Decision Memo, the Investigating Authority declined to use the first benchmark set forth in the regulations, on the ground that there are no useable market-determined prices between Canadian buyers and sellers within the meaning of the regulations.   

      Commerce stated that “[w]here the market for a particular good or service is so dominated by the presence of the government, the remaining private prices in the country in question cannot be considered to be independent of the government price.”  Decision Memo at 37.  It reasoned that “[a] large government presence in the market will tend to make much smaller private suppliers price-takers,” and that “the government dominated market will distort the market as a whole if the government itself does not sell at market-determined prices.”  Id.  Commerce concluded that “[i]n such a situation, true market prices may not exist in the country, or it may be difficult to find a market price that is independent of the distortions caused by the government’s action.”  Id.   

      The Department determined that provincial stumpage fees are not set to reflect market prices, but with a view toward traditional economic policy goals, such as job creation.  Commerce also concluded that minimum cut requirements on public lands distort timber supplies and depress prices, and that the stumpage market is driven by the government’s control of the total softwood timber harvest.  In Commerce’s view, substantial evidence exists to support the conclusion that stumpage fees on public lands are the price driver for the stumpage market in those provinces and that stumpage fees are largely derivative of the public land prices. 

      In arriving at its determination, Commerce relied heavily upon language found in the Preamble to the regulations, which in pertinent part states: 

      63 Fed. Reg. 65377. 

      With respect to individual provinces, Commerce stated in the Decision Memo that the information submitted on private prices was inadequate, based on, among other things, differences in bidding or tendering process, the lack of market-based transactions or a failure to adequately break down the prices submitted.  The Department also concluded that detailed import prices were unavailable and that prices from the Maritime Provinces could not be used due to insufficient information.  

      The Canadian Parties and the provinces argue that Commerce acted inconsistently with the statute and the regulations, which require it to use in-country market transactions, in rejecting record evidence indicating that market-determined prices exist in various provinces.   

      Specifically, the Canadian Parties argue that in Ontario, large numbers of private landowners export logs to the U.S. and that Commerce was provided with a survey of private timber sales transactions that indicate that private sellers sell private timber at prices above and below Crown rates.  The Government of Québec maintains that it submitted substantial record evidence indicating that its private forest is a large and open market, free of government interference, and that the methodology employed by the province to set public stumpage rates has not changed significantly since Commerce validated Québec’s system in Lumber III.  Thus, Québec maintains, its prices are an appropriate benchmark for reviewing the adequacy of remuneration.  Alberta claims that it provided market values, known as timber damage assessments (“TDAs”), for standing timber that were developed by the private sector for arm’s length business purposes.  TDAs represent compensation for damage by mineral rights extractors and, although they do not represent sales, Alberta claims they represent fair market value.  British Columbia also states that it provided Commerce with information on competitive sales of stumpage in British Columbia through the Small Business Forest Enterprise Program.   

      The Canadian Parties argue that Commerce failed to give reasoned consideration to any of this evidence.  They also argue that it ignored a study by Resource Information Systems, Inc. (“RISI”), which found the timber market in Ontario to be competitive and that timber prices sold in the private market were not distorted by government involvement in the market.  There was also a study by Charles River Associates (“CRA”) that concluded that the price for the supply of private timber in Ontario set the market price for softwood timber and that there was a competitive market for timber in Ontario.  The Canadian Parties also point to a study by Dr. William Nordhaus that demonstrated that provincial stumpage charges do not lower the price of logs or lumber in comparison with an undistorted competitive market.  Finally, the Canadian Parties take issue with Commerce’s rejection of the Maritime Provinces as a source of benchmarks. 

      The Department argues that, based upon record evidence, it was reasonable to conclude that private prices in the provinces were related to the dominant Crown stumpage prices, and that there were no other competitive market prices available to use as a comparison.  Thus, it claims, it properly turned to the second tier of its regulatory hierarchy to determine the adequacy of remuneration. 

      Specifically, Commerce asserts that Québec’s stumpage program does not reflect “fair market values.”  Rather than acting like a commercial actor intent upon maximizing commercial revenue, Québec instead uses its stumpage program to implement policy objectives including creating and maintaining jobs.  The Department asserts that Québec controls every aspect related to the Crown forests, including limiting the eligibility of parties entitled to harvest Crown timber, imposing appurtenancy requirements, maintaining annual allowable cut requirements, and imposing restrictions upon the transferability of harvesting rights. As a consequence of these restrictions, it claims that stumpage prices artificially established by Québec do not reflect competitive prices.    

      Commerce adds that, although Québec has a private timber harvest, evidence on the record indicated that it was reasonable for the Department to conclude that those private sales were not based upon an open market with free competition.  In its Decision Memo, it points to largely anecdotal evidence, including statements made by a Ministere des Ressources Naturelles and an official from the Québec private wood lot owners’ association.  Commerce also states that it found unpersuasive a report presented by Québec that it argues demonstrated that private stumpage prices in Québec were slightly higher than prices in Maine.  Commerce concluded that the study submitted by Québec relied upon a 75 percent quality premium for Maine trees, but that the quality premium adjustment was not reliable.  In Commerce’s view, given the dominance of Crown stumpage in Québec, i.e., 83 percent, and compelling record evidence demonstrating that the province’s private prices were influenced by the Crown stumpage prices, it reasonably concluded that those private prices were not useable as benchmarks under the first regulatory tier.   

      With respect to British Columbia, Commerce argues that the province controls the participants in the market, the volume available for harvesting, and imposes actual harvest requirements.  Through these methods, the department asserts, British Columbia promotes job creation and retention while effectively eliminating the forces that would drive a competitive market.  

      Commerce states that British Columbia offered during the investigation two sources of potentially market driven private prices for use in measuring the adequacy of remuneration, but that neither source provided market prices that were appropriate because no underlying data concerning the transactions were provided and because it was not provided with information to determine whether the private prices were established consistent with market principles.  As a result of the lack of useable, fair market private prices in British Columbia, and evidence demonstrating that the government dominated the market (i.e., 90% of timber harvested during the period of investigation), Commerce claims that it properly resorted to the second tier of its regulatory hierarchy. 

      Similarly, it argues that Ontario’s stumpage program does not reflect “fair market values.”  According to Commerce, Ontario charges fees that are administratively set and establishes appurtenancy requirements that require tenure holders to own mills or have commitment letters for processing an annual allowable cut.  These measures, Commerce argues, allow Ontario to implement policy objectives such as the creation and retention of jobs.  According to Commerce, the provincial price for timber on Crown lands is comprised of four component charges, the minimum charge, the forest renewal charge, the forestry futures charge, and the residual value charge.  Commerce claims that the minimum charge is set administratively every year depending on the species and the destination of the harvested timber and that Ontario has stated that the primary reason for this charge is to generate a secure source of revenue regardless of market conditions.  For the Department, Ontario’s appurtenancy requirements and administered fee structure indicate that the province is not acting to maximize revenue from its timber resource, but to administer its stumpage program to pursue policy objectives.  

      Commerce claims that it reasonably determined that Ontario’s private prices were not useable in its adequacy of remuneration analysis.  The record established that the percentages of provincial, federal, and private timber harvested by Ontario during the POI were: 92 percent provincial, 1 percent federal and 7 percent private.  Commerce relies on a study placed on the record by the petitioners conducted by Economists, Inc. (“Economists”), which concluded that administered stumpage prices have a distortive effect on private prices.  Commerce states that it considered the two studies submitted by Ontario, the RISI study and the CRA study, but that it found the Economists study to be more persuasive.  According to Commerce, record information, including survey responses, demonstrated that private timber sales and private land holders are not independent from the provincial stumpage system.  It claims that it reasonably concluded that private prices in Ontario, which represented only 7 percent of the total harvest during the POI, could be distorted by Ontario’s administered stumpage prices, which constituted 92 percent of the harvest. 

      With respect to the remaining provinces, Commerce contends the record contains no suitable private price transaction information, but that the record contains evidence demonstrating that the volume of Crown stumpage was overwhelmingly larger than the private harvest during the POI.  

      The Panel discusses the arguments raised by the parties in accordance with the standard of review set forth above.   

      Clearly, the law prefers market-based, actual transactions that occur in the country of export.  Commerce itself has stated that “[t]he most direct means of determining whether the government required adequate remuneration is by comparison with private transactions for a comparable good or service in the country.  The preferred benchmark in the hierarchy is an observed market price for the good, in the country under investigation, from a private supplier (or, in some cases, from a competitive government auction) located either within the country, or outside the country . . ..”  Decision Memo at 36.  

      The Panel notes that the Canadian Parties do not appear to contest the validity of the regulation, which contemplates that there may be instances in which actual, market-based transactions are not available.  Thus, it seems, all parties agree that there may be circumstances under which it is not possible to judge the adequacy of remuneration based on actual, market-based transactions in the exporting country and that there may be circumstances under which rejection of the first tier in the regulations is appropriate. 

      The Panel rejects the notion that significant involvement by the government in the market, by itself, serves as a basis for rejecting the first regulatory tier, without sufficient analysis of whether and how such involvement has distorted actual transaction prices.  It is unreasonable to conclude, without further support, that where the government is a majority provider, private prices may not be used as a benchmark.  However, the Panel finds that, with adequate support and analysis, it could be reasonable to conclude that significant involvement by the government may lead to market distortion. 

      Commerce states that it has based its conclusion on record evidence indicating that the government controls every aspect of Crown forests, as indicated in certain provinces by limited eligibility of parties entitled to harvest, appurtenancy requirements, cut requirements, restrictions on transferability and administered fee structures, and that such control is aimed at policy objectives rather than market principles.  Commerce pointed to survey responses and a study by Economists, Inc., which indicated that private timber sales were not independent from the provincial stumpage system, to support its position.  Commerce also maintains in some instances that information submitted on private prices was insufficient to determine whether such prices were determined in accordance with market principles.  Based on such evidence, Commerce claims it was reasonable to conclude that private prices were related to stumpage prices and that there were therefore no market-based prices available to use as a comparison. 

      Although the Panel finds Commerce’s analysis to be minimal and its reliance in some instances on anecdotal evidence to be weak, the Panel is of the view that, even though it may not agree with the Department’s weighing of the evidence, it cannot say that substantial evidence in the record is lacking.  In accordance with the standard of review which the Panel applies in this case, the Panel defers to the conclusions reached by Commerce and does not find its determination to be unlawful.   

      The Panel notes that Commerce concluded in Lumber III that prices in Québec are determined in accordance with market forces.  As stated by Commerce, “. . . we determine that the private prices provide a reliable benchmark for comparison purposes.”  Lumber III, 57 Fed. Reg. at 22597.  Although the Lumber III investigation was conducted under the “preferentiality” standard, instead of the current “adequacy of remuneration” standard, in both cases Commerce sought a reliable, market-based benchmark.  Moreover, mills in Québec import significant quantities of logs from the U.S., and if prices in Québec were artificially low, it would not make economic sense to import.  At the hearing, Commerce is also on the record as stating that in the situation where logs moved freely between Canada and the United States, the Canadian lumber industry concerned was operating under open and competitive market conditions.

      The Panel finds Commerce’s determination to be of a factual nature.  Given the standard of review applicable to this case, and in light of the record evidence, the Panel agrees to defer to Commerce’s decision to reject private prices in Québec and the other provinces as inadequate benchmarks for the purpose of the first regulatory tier.  Although the Panel may have reached a different conclusion, and despite serious reservations, it does not find the Department’s determination to be inconsistent with the law or to be unsupported by substantial evidence on the record.

B. World Market Prices

 

      After rejecting the first benchmark established in the regulations, namely actual market transactions in Canada, Commerce concluded that “world market prices”  were available that could be used to determine whether the provincial stumpage programs provide a good or service to softwood lumber producers for less than adequate remuneration pursuant to the second regulatory benchmark.10  The Department concluded that stumpage prices from the United States qualify as commercially available world market prices because it is reasonable to conclude that U.S. stumpage would be available to softwood lumber producers in Canada and because they are based on actual observed transactions within a competitive market.   

      Underpinning the Commerce determination is the supposed proximity of similar Canadian and U.S. forests, generally composed of the same species mix of trees.  The Department determined that stumpage in the U.S. is comparable to stumpage in Canada with respect to “overall price, quality, availability, marketability, transportation and other conditions of sale.”  Decision Memo at 33-34.  In the Preliminary Determination, the Department had indicated that prices from locations other than the United States could not be used because of the expense that would be incurred in transporting logs from other countries, and thus, only U.S. prices were considered.  Nothing in the Final Determination indicates a change in this position.  

      For each province, Commerce compared the stumpage price with certain cross-border stumpage benchmark prices, making various adjustments in an attempt to create   a comparable price.  Adjustments were made for items such as road construction and maintenance costs, silviculture costs, fire protection and insect management costs, and forest planning expenses.  Commerce’s chosen benchmarks with respect to each province at issue are summarized as follows: 

 

      The Canadian  Parties challenge the agency’s determination on the following grounds: (1) that Commerce’s construction of the relevant statutory and regulatory sections to permit the use of an out-of-country benchmark is contrary to law: (2) that stumpage prices in the U.S. do not constitute a valid “world market price” and that consequently Commerce’s use of such prices is contrary to law; (3) that Commerce is bound to its prior determinations that cross-border comparisons are arbitrary and capricious; and (4) that the  Department’s use of cross-border benchmarks is unsupported by substantial evidence.  Similar arguments are raised individually by the provinces. 

      Although agreeing that the agency properly made its determination pursuant to the statutory mandate and the regulations, and thus supporting the determination, the Coalition also raises several issues relating to the agency’s attempts to adjust for market conditions in Canada. 

      Commerce contends that its use of a world market price is consistent with the regulations and is supported by substantial evidence because: (1) there are world market prices for timber; (2) U.S. timber prices would be commercially available to Canadian lumber producers; (3) the benchmarks were calculated using the most comparable timber in the U.S.; and (4) proper adjustments were made for differences in market conditions in Canada. 

      As an initial matter, and as discussed above, Commerce’s regulations are entitled to a high level of deference.  See Koyo Seiko, 258 F.3d at 1347.  Under Chevron, assuming that Congress has not spoken directly to the question at issue, the question is whether the agency’s construction of the statute is permissible.  The Panel is to “reject administrative constructions,…that are inconsistent with the statutory mandate or that frustrate the policy Congress sought to implement.”  Hoechst Aktiengesellschaft, 917 F.2d at 526.

 

      Both the Coalition and Commerce point out that the Canadian Parties do not contest the validity of the regulation.  Nevertheless, it could be argued that, on its face, the regulation is inconsistent with the statute and thus should not be read to permit a benchmark based upon market conditions for the good or service other than within the country providing it.  The WTO Panel report in United States – Preliminary Determinations with Respect to Certain Softwood Lumber from Canada (September 27, 2002), found that SCM Article 14(d) is “very clear: the adequacy of remuneration is to be determined in relation to prevailing market conditions for the good or service in question in the country of provision or service. … [T]he ordinary meaning of [this provision] excludes an analysis based on market conditions other than those in the country of provision of the goods, i.e., Canada.”  WT/DS236/R at ¶7.44.  However, the panel feels that it does not have to address this argument in order to dispose of the case.    

      The regulation provides in part, that a “world market price” may be used where “it is reasonable to conclude that such price would be available to purchasers in the country in question.”  19 C.F.R. § 351.511(a)(2)(ii).  The Canadian Parties argue that U.S. stumpage is not available in Canada because trees growing in the U.S. can only be harvested in the U.S.  This argument is not without appeal.  The Department has found a subsidy to exist with regard to the granting of tenures and the stumpage programs. If the subsidy was found to apply to lumber, or even to logs, of course, it would make more sense to say that the U.S. benchmark product might be available in Canada, as lumber and logs are movable.  In fact, in its brief, Commerce does, at times, identify the subject goods as logs, and attempts to argue around the fact that in some cases the export of logs from the U.S. is restricted.  (In this connection, the record establishes that during the period of investigation, Washington State restricted the export of logs harvested on state-owned lands, as did Idaho and Montana.11 )  

      In addition, the Department seems, in its brief, to attach significance to the fact that some Canadian companies own private lands in the United States, can and do bid at auction on U.S. stumpage, and can and do import U.S. logs.  There is considerable evidence, for instance, that U.S. logs are routinely imported into Québec, and at the hearing Commerce stated that where logs move across the Canada-U.S. border the Canadian lumber industry then operates under open and competitive market conditions.  However, the Panel fails to understand the significance of whether or not U.S. stumpage can be acquired by Canadian companies.  The nationality of the purchaser of the rights to harvest timber cannot make the goods any more or less “available” in Canada.   

      Consequently, the Panel has difficulty with the notion that U.S. standing timber is “available” in Canada.  Nevertheless, the Panel is not making a finding on this point, as there is a more fundamental reason for rejecting the use of a cross-border benchmark in this case.

      As indicated previously, in the Preamble to the regulations, the Department addressed the use of “world market prices” as a measure of the adequacy of remuneration.  The Preamble states that the Department will: 

      63 Fed. Reg. 65377. 

      The Panel considers this policy statement to be a defensible construction of the regulation (notwithstanding that it is not to be accorded the same level of deference to which the regulation itself is entitled) if the facts permit it.  However, at the heart of this case is that the facts here do not permit application of the stated policy. 

      First, the reasoning of the Preamble, by its own terms, would seem to require that the goods or service at issue possess a set of unifying characteristics that would enable one to determine whether or not there is a “world market price.”  Particular note is taken of the examples given in the preamble, and the reference to “internationally traded goods.”   

      The determination in Final Negative Countervailing Duty Determination: Live Cattle from Canada, 64 Fed. Reg. 57040 (Oct. 22, 1999), is the only instance in which the Department has ever applied the second tier benchmark and attempted to find a “world market price” in a countervailing duty investigation.  In that case, the Department examined whether the Canadian Wheat Board provided a benefit to producers of live cattle by subsidizing the price of feed barley.  Commerce compared the price of barley in the United States (the “world price”) with the alleged subsidized Canadian price, and concluded that the U.S. price was not higher than the Canadian price.  Thus, it found no countervailable subsidy.  Notably, the product involved, feed barley, is a commodity, and thus the determination fits nicely into the Preamble description of goods for which a “world market price” of “internationally traded goods” might be found. 

      However, the Live Cattle precedent is a far cry from the finding that standing timber is such a product.  It is neither a commodity, nor is it a good which is commonly traded across borders.  Indeed, it is hard to imagine any such product which meets the Department’s definition that is not subject to description in terms of objective standards and specifications.  Thus, it is possible to imagine a standard price for other commodities such as crude oil, or even manufactured goods such as semiconductors, or even conceivably television receivers of standard specifications.  However, the Panel is of the view that timber is not such a good or service, and that there is not a world market price for timber that meets the terms of the Preamble or of the statutory and regulatory requirements. 

      The Canadian Parties have submitted for the record a list of Factors That Affect Stumpage Prices compiled by the New York State, Division of Lands, Department of Environmental Conservation, which is illustrative of the inherent problems in attempting to contrive a single price for timber.  They are: timber quality, volume to be cut by acre, logging terrain, market demand, distance to market, season of the year, distance to public roads, labor costs, size of the average tree, type of logging equipment, percentage of timber species in the area, end product of manufacturing, landowner requirements, landowner knowledge of market value, property taxes, performance bond requirements, and insurance costs.  Further, the comment is made that “[c]omparisons among different jurisdictions and locations tend to increase the number and potential magnitude of the factors affecting stumpage value relative to a single jurisdiction, such as New York State.”  When you try to make comparisons from country to country, you of course can add to these factors such things as differing tax regimes, environmental regulations, and currency exchange.   

      The Department has recognized the difficulties which such factors present.  In fact, in Lumber I Commerce noted that “…there is not a unified price for stumpage, because each individual stand of timber is unique due to a variety of factors, such as species combination, density, quality, size, age, accessibility, and terrain and climate.” Certain Softwood Lumber Products from Canada, 48 Fed. Reg. 24159, 24168 (May 31, 1983).  Commerce further stated that “[w]e believe that a comparison of Canadian stumpage prices with U.S. prices would be arbitrary and capricious….”  Id. 

      Similarly, in Lumber III , the Department noted that “[w]e find that other factors which could adversely affect the comparability of adjacent U.S. and Canadian timber (e.g., exchange rate fluctuations) merely underscore the appropriateness of remaining within the relevant jurisdictions.”  Certain Softwood Lumber Products from Canada, 57 Fed. Reg. 22507 (May 8, 1992).  

      Commerce has not presented substantial evidence to support that market conditions in Canada and the United States are comparable, nor that its attempted adjustments adequately account for such conditions.  Stumpage prices vary widely within and between locales, even within the United States.  Commerce’s use of different U.S. prices as benchmarks for different provinces demonstrates that there is not even a single U.S. price, let alone a world price.12   

      Commerce asserts that the above-quoted statements were made in the context of a different legal framework and that it is not bound by its prior determinations.  Clearly Commerce is not necessarily “bound” by its prior determinations and must address factual issues on a case-by-case basis.  Yamaha Motor Corp. v. United States, 910 F. Supp. 679, 684 (CIT 1995).  Each determination is based on a separate administrative record, and this Panel must restrict its examination of the facts to the administrative record.  However, if Commerce “intends to depart from a prior position, . . . it must give its reasons for doing so, thereby allowing the Court to understand the basis of the agency’s action and . . . judge the consistency of that action with the agency’s mandate.’”  Hoogovens Staal BV, 4 F. Supp. 2d at 1217.   

      Most of the reasons listed by Commerce for rejecting cross-border comparisons in the prior lumber determinations are factual in nature.  Most of the factual differences exist today and, as discussed in this opinion, are present in the administrative record in this case.  Although not necessarily bound by its prior determinations, the opinions expressed by Commerce in those decisions indicate the difficulties inherent in comparing timber harvested in the U.S. with that harvested in Canada.  In the Panel’s view, Commerce has not offered an adequate explanation for its reversal of its earlier position and does not offer new factual circumstances that would now make cross-border comparisons any more reasonable.  It is disingenuous for the Department to suggest that a new statutory regime could justify the use of what it already has described as an arbitrary and capricious exercise.  

      Without burdening this opinion with all the instances of Commerce’s heroic effort to divine and then adjust U.S. stumpage prices, a few of the more problematic issues deserve mention.  First, the auctions on which the Department bases many of its U.S. prices are for short-term harvesting rights and, in most cases, for mixed species forests, and the harvests were over several years.  The Canadian harvests are from land subject to long-term tenure rights, the stumpage is calculated based upon actual harvests of known species, and were done during the period of investigation. 

      Indicative of the kind of problems encountered by the Department in making its comparisons is that of its use of Washington state benchmarks for British Columbia.  In the Preliminary Determination, Commerce indicated that it could not use public (WDNR) auction prices for timber sales, because of log export restrictions imposed by the WDNR.  However, in the Final Determination, having insufficient data on private timber prices, it decided to use the WDNR prices as a proxy for private sales.  However, there is nothing in the record to support the speculation that the two are comparable.   

      With respect to the use of Minnesota as a benchmark for Alberta and Saskatchewan, the notion of comparable forests is not supported by substantial evidence.  There is no common border between either province and Minnesota.  Alberta’s major forests are 370 to 750 miles north, and 600 miles east of Minnesota.  In addition, there is a significantly different species mix between the two, different climatic conditions resulting in significantly different size trees, and transportation costs to mill are dramatically different.   

      Likewise, the predominant species in the Boreal forest region, where the vast majority of timber destined for Ontario sawmills is harvested, are softwood trees, especially black spruce and jack pine.  Commerce verified that nearly 76% of the standing timber in the Boreal forest is softwood trees.  Michigan and Minnesota (benchmarks for Ontario), however, are dominated by hardwoods, which constitute approximately 75% and 69% of the standing timber in the forests of Michigan and Minnesota, respectively.   Significant differences in stumpage arrangements, including the rights and obligations of tenure holders, are also present. 

      In the Preliminary Determination, the Department declined to use USFS auction prices because there appeared to be a lack of credible evidence that the data available yielded reliable open market values.  Yet, in the Final Determination, on the same evidence, USFS prices were used to create benchmarks.     

      Great difficulties were encountered when trying to equate bid prices for tracts of forest in western Washington because of the species mix.  Due to the high value of Western Red Cedar, a common tree in coastal Washington forests, compared with the low value of other species, the parties recognized that using WDNR auction prices for the whole area to be cut, resulted in substantially undervaluing the cedar compared to the other trees.  Commerce’s attempt to isolate the cedar prices through a regression analysis seems problematic, and in any event, necessarily only an approximation. 

      Canadian stumpage fees are determined with reference to the cubic metric volume of timber harvested.  The U.S. timber harvests are measured in board feet.  Commerce, in its Decision Memo, indicates that it tried to arrive at a figure which would convert board feet into cubic meters, and finally arrived at two conversion factors, one for western Washington, and another for the rest of the U.S.  The difficulties in arriving at a factor to be used across a broad variety of tree sizes, different scaling techniques, different tree characteristics, taper and other factors made this exercise very problematic.  In the end the Department did not develop its own conversion factor, but rather used a study by the ITC from 1983.  Reading the Decision Memo suggests that Commerce based the adoption of this factor more as a matter of convenience than following a rigorous analysis of its accuracy.  The Panel does not suggest that it would, or even could, substitute its judgment for that of the Department and find a different conversion factor.  However, it is difficult for us to say that the adoption of the Department’s final position is supported by substantial evidence. 

      The previous examples of inconsistencies, approximations, assumptions, and compromises demonstrate that it is not possible to conclude that there is a “world market price” for timber. 

      The Panel is of the opinion that the statute requires an analysis based on market conditions in Canada.  By basing its price comparison on prices in the U.S., adjusted inadequately to account for differences in Canadian market conditions, Commerce has construed the statute in a manner that is contrary to law.  Pursuant to the Supreme Court’s Chevron ruling, the Panel owes no deference to Department interpretations of a statute where those interpretations do not reflect a permissible construction of the statute. 

      There is another point to be made.  In Lumber I, the Department commented as follows: 

      In other words, as noted in the Canadian Parties’ brief, by attempting to value Canadian timber at U.S. prices whether or not adjusted for supposed market conditions, the Commerce methodology turns the law of comparative advantage into a law of comparative disadvantage.  No country would negotiate a trade agreement with such an intended result. 

      In sum, the Panel finds that Commerce’s determination with respect to the use of cross-border benchmarks under the authority of Part 351.511(a)(2)(ii) of the Regulations is unsupported by substantial evidence and is contrary to law.  The Panel remands this determination to Commerce for further analysis under the statute and regulations in light of the Panel’s decision. 

      In their briefs and in oral argument before the Panel, both the Coalition and the Department suggested that an appropriate measure of adequacy of remuneration would be “fair market value,” or what the sellers of timber would receive absent the involvement of the government.  Suffice it to say that these standards are not the law as reflected in the statute, the regulations, or even in the Preamble which speaks to actual market transactions as the preferred standard.  The Panel rejects this argument.

  1. SPECIFICITY
 

      In order to find a countervailable subsidy there is another requirement to be met, namely that the subsidy be specific within the meaning of statute.  The relevant statutory provision is as follows: 

      19 U.S.C. § 1677(5A)(D). 

      The Department found the provincial stumpage programs to be specific under the statute, stating that stumpage programs are “… limited to those companies and individuals specifically authorized to cut timber on crown lands” and that [t]hese companies are pulp and paper mills and the saw mills and the remanufacturers which are producing the subject merchandise.”  Decision Memo at 52.  Thus, according to Commerce, the users of provincial stumpage programs are “limited in number” within the meaning of 19 U.S.C. § 1677(5A)(D)(iii)(I). 

   Commerce argues that it is only required to undertake the specificity test “as an initial screening mechanism to winnow out only those foreign subsidies which truly are broadly available and widely used throughout an economy.”  SAA to the URAA at 4242.  It cites, as examples of subsidies that are broadly available and widely used, roads, bridges, schools, police and fire protection.  In contrast, the Department  points out that the actual recipients of stumpage benefits are a group of wood products industries, including saw, pulp, and paper mills-both primary mills and remanufacturers.   

      The Department points out that in applying the statute it need not be concerned about why the recipients are limited in number, but rather it is only required to determine whether the actual recipients were limited in number. 

      Commerce asserts that it has broad discretion to interpret the Act and regulations.  Because its de facto specificity findings are evidentiary in nature, the Department’s specificity finding must be upheld unless the interpretation is precluded by the statute.  Commerce also contends that there is no record evidence that provincial stumpage tenures were widely available to industries beyond the timber processing sector and, taking into account the diversity of the Canadian economy, stumpage programs are not broadly available or widely used.  

      The Canadian Joint Parties argue that: (1) Commerce is required to conduct a case-specific inquiry into whether the stumpage programs are provided to a specific class of users; (2) Commerce’s conclusion that stumpage programs are not broadly available and widely used is contrary to law; (3) Commerce’s determination that it need not consider which industries actually use stumpage is contrary to law; and (4) Commerce’s conclusion ignores evidence that enterprises in more than 23 classes of industries use stumpage programs and is therefore unsupported by substantial evidence.   

      Of particular significance to the Canadian Joint Parties is that, as noted in their brief, in prior lumber cases, the Department  “… found that the universe of stumpage users did not constitute a specific group.”  In Lumber I, Commerce concluded that “… in view of its use by wide-ranging and diverse industries, we determine that stumpage is not provided to a “specific group of industries.”  48 Fed. Reg. at 24167. 

      Likewise, the reviewing panel in Lumber III rejected the proposition that the subsidy was specific because it was used by timber processing industries, concluding that defining the users of the subsidy as a “group of timber processing industries” was  a “… circular (analysis) … depending on the identification and labelling of the group of stumpage users, rather than upon a reasoned analysis of the businesses in which those users were engaged.”  FTA Panel Decision (December 17, 1993), at 35.  The Canadian Parties argue that the facts have not changed materially since the earlier cases. 

      Canada has placed upon the record studies that establish that at least 23 separate classes of industries that produce over 200 goods use stumpage programs.  As a result, the Canadian Parties take issue with the Department’s failure to examine the nature of the stumpage programs, their use, the number of recipients who received the alleged benefits, the number of products affected and the diversification of economic activities in the provinces.  In addition, they note that by standard industrial classification, 23 classes of industry utilize stumpage programs, and that the forest product sector was responsible for 2.3% of Canada’s gross domestic product. 

      It follows, according to the Canadian Joint Parties, that Commerce must undertake an analysis to ascertain the actual recipients of the subsidy, and it should not have looked at those companies or industries which did not receive the alleged benefit.  Further, in order to determine who receives the benefit, one must first determine what industries are represented.  Since the term “industry” is not defined in the context of the specificity test, resort should be had to the definition of “industry” in 19 U.S.C. § 1677(4), which defines the term as “producers as a whole of a domestic like product.” 

      The Department’s rejoinder is that none of this supports the notion that the alleged subsidy is available beyond the timber industry, and that in common understanding, the term “industry” should be taken to refer to the general class of products, rather than to any precise end product.  It cites several decisions that indicate that subsidies may be de facto specific even to an industry that is broadly defined. 

      Lastly, the Canadian Parties argue that Commerce was mistaken in its conclusion that the users of stumpage programs are limited to a “group” of wood product industries, as such a “group” does not share common characteristics.   

      The argument posed by the Canadian Joint Parties with respect to Commerce’s findings in the prior Lumber cases is not persuasive.  In Lumber I, Commerce found the Canadian stumpage program not to be specific, based on the “inherent characteristics” test and under a prior statutory regime that was subsequently amended by Congress in 1988.  The “inherent characteristics” test was rejected by the CIT in Cabot Corp. v. United States, 620 F. Supp. 722 (CIT 1985) and was then abandoned by Commerce. 

      Commerce’s determination in Lumber III was based on the 1988 statute and relied on a factor contained in the 1989 Proposed Regulations.  The Panel in Lumber III ruled that Commerce could not base its decision solely on evidence of the number of industries represented by program recipients, but that