WTO Panel Issues Report Regarding US Duties on Canadian Softwood Lumber

On 24 August the WTO circulated the dispute panel report in the case brought by Canada in “United States — Countervailing Measures on Softwood Lumber from Canada” (DS533).

This dispute relates to countervailing measures imposed by the United States on softwood lumber from Canada.

The USDOC’s Rejection of Regional Benchmarks

Canada claimed that the USDOC improperly rejected prices of stumpage from certain regions in Canada proposed by Canadian interested parties to the USDOC as benchmarks for determining the adequacy of remuneration for provision of standing timber by Canadian provinces subject to the investigation. According to Canada, the USDOC ought to have considered using, as a starting point, benchmarks from within each region in question for determining the adequacy of remuneration for standing timber in respect of each province, as such regional benchmarks would relate to the “prevailing market conditions” for standing timber provided by each province in accordance with Article 14(d) of the SCM Agreement. The Panel found that the USDOC acted inconsistently with Article 14(d) by failing to provide a reasoned and adequate explanation for rejecting the regional benchmarks proposed by the Canadian interested parties for determining adequacy of remuneration for Crown timber provided to the respondent companies by Alberta, British Columbia, Ontario and Québec respectively.

For procedural reasons, the Panel declined to rule on Canada’s claim under Article 14(d) of the SCM Agreement in respect of the USDOC’s use of Irving’s purchases of Nova Scotia private timber as a stumpage benchmark for determining the adequacy of remuneration for Crown timber provided by New Brunswick. Considering that Canada did not properly make out that claim, the Panel found that it had no basis, and declined, to rule on Canada’s claim under Article 14(d) that the USDOC improperly rejected the proposed stumpage benchmark in New Brunswick to determine the adequacy of remuneration for Crown timber provided to the respondent companies by that province.

The USDOC’s Use of the Nova Scotia Benchmark

The Panel also found that the USDOC’s use of benchmark prices from Nova Scotia for determining the adequacy of remuneration for Crown timber provided by Alberta, Ontario, and Québec was inconsistent with Article 14(d) of the SCM Agreement, as the USDOC erroneously found that the Nova Scotia benchmark price reasonably reflected the prevailing market conditions in the other provinces. The Panel also found that the USDOC acted inconsistently with Article 14(d) of the SCM Agreement by failing to make adjustments to the Nova Scotia benchmark to ascertain that the benchmark price related to prevailing market conditions in Alberta, Ontario, and Québec.

Canada also claimed that the Nova Scotia survey, based on which the USDOC determined the Nova Scotia benchmark, was unreliable and hence the USDOC acted inconsistently with the chapeau of Article 14 and Article 19.4 of the SCM Agreement, and Article VI:3 of the GATT 1994, by using the Nova Scotia survey. The Panel upheld Canada’s claim under the chapeau of Article 14 of the SCM Agreement as it found that an objective and unbiased investigating authority would not have relied on the Nova Scotia survey for determining the benchmark price. The Panel exercised judicial economy in respect of Canada’s claims under Article 19.4 of the SCM Agreement and Article VI:3 of the GATT 1994.

The USDOC’s Use of the Washington Logs Benchmark

Canada claimed that the USDOC acted inconsistently with Article 14(d) of the SCM Agreement in selecting an out-of-country benchmark based on Washington log prices to assess the adequacy of remuneration for standing timber provided by British Columbia to Canadian producers. The Panel upheld Canada’s claims challenging this out-of-country benchmark on the ground that the USDOC failed to adequately adjust this benchmark to reflect prevailing market conditions in the country of provision, as provided under Article 14(d) of the SCM Agreement.

Full Cost of Standing Timber

Canada also claimed that the USDOC acted inconsistently with Article 14(d) of the SCM Agreement by comparing the administered price for stumpage in various provinces to the price paid for privately owned standing timber in Nova Scotia without adjusting the administered price to account for various other charges paid by tenure-holders to provincial governments. Canada contended that by so doing the USDOC failed to take into account the full cost of standing timber and conditions of purchase and sale in Alberta, Ontario, Québec, and New Brunswick, as required under Article 14(d) of the SCM Agreement. The Panel upheld Canada’s claim.

The USDOC’s Setting to Zero of Certain Comparison Results in Determination of the Benefit Amount

Canada claimed that the USDOC acted inconsistently with Articles 1.1(b), 14(d), 19.3, and 19.4 of the SCM Agreement and Article VI:3 of the GATT 1994 in calculating the amount of benefit conferred on investigated producers in New Brunswick and British Columbia by setting-to-zero all negative results obtained on comparing an examined transaction with the corresponding benchmark price. The Panel upheld Canada’s claim under Article 14(d) of the SCM Agreement, finding that in the context of the particular facts of this case, by setting the negative comparison results to zero, the USDOC failed to assess the adequacy of remuneration in relation to the prevailing market conditions of the Crown timber provided to the investigated producers by New Brunswick and British Columbia. The Panel exercised judicial economy in respect of Canada’s claims under Articles 1.1(b), 19.3, and 19.4 of the SCM Agreement and Article VI:3 of the GATT 1994.

The USDOC’s Characterization of Certain Reimbursements as Grants That Conferred Benefit

Canada claimed that the USDOC erred by finding certain reimbursements that Québec and New Brunswick made to investigated producers for performing certain silviculture activities to be financial contributions in the form of grants. Canada further claimed that the USDOC improperly found the reimbursements to confer a benefit on the relevant harvesters in the total amount of the reimbursement received. The Panel found that the USDOC did not provide a reasoned and adequate explanation for characterizing the reimbursements provided by New Brunswick and Québec as financial contributions in the form of grants under Article 1.1(a)(1)(i) of the SCM Agreement. The Panel also found that, consequently, the USDOC’s benefit findings in respect of the reimbursements provided by New Brunswick and Québec were tainted and hence inconsistent with Article 1.1(b) of the SCM Agreement.

Export-Permitting Process for British Columbia Logs

Canada claimed that the USDOC acted inconsistently with Article 1.1(a)(1)(iv) of the SCM Agreement in finding that the Governments of British Columbia and Canada entrusted or directed log sellers to provide goods to Canadian producers. The Panel upheld Canada’s claims. However, the Panel exercised judicial economy on Canada’s claims under Articles 11.2 and 11.3 of the SCM Agreement challenging the USDOC’s initiation of an investigation against the export-permitting process.

The USDOC’s Use of Certain Benchmarks for Provincial Electricity Programmes

Canada claimed that the USDOC erred by finding that provincial electricity programmes in British Columbia, Quebec and New Brunswick conferred a benefit on producers of softwood lumber.

A. With respect to British Columbia, the Panel found that by selecting a benchmark that reflected prevailing market conditions for the sale of electricity at the retail level, where the prevailing market conditions were not shaped by the same regulatory regime as the financial contribution at issue (namely, the utility’s purchase of electricity from softwood lumber producers) the USDOC acted inconsistently with Article 1.1(b) and 14(d). The Panel found that Canada did not make a prima facie case that the USDOC acted inconsistently with Articles 1.1(b) and 14(d) by rejecting an alternative benchmark to determine whether the purchases of electricity were made for more than adequate remuneration. The Panel upheld Canada’s claim that the USDOC acted inconsistently with Articles 1.1(b) and Article 14(d) respect to turn-down payments made by the utility, finding that the USDOC improperly treated the payments as a grant, rather than a purchase of electricity and therefore improperly determined whether any benefit was conferred.

B. With respect to Québec, the Panel followed the same reasoning with respect to British Columbia and upheld Canada’s claims under Articles 1.1(b) and 14(d) concerning the benchmark the USDOC used to determine whether the purchases of electricity were made for more than adequate remuneration.

C. With respect to New Brunswick, the Panel upheld Canada’s claims that the USDOC erred by characterizing the programme at issue as a financial contribution in the form of revenue foregone, rather than a purchase of goods consistent with Article 1.1(a)(1)(iii), and therefore it also failed to properly assess the alleged benefit in accordance with Article 1.1(b) and the first sentence of Article 14(d).

D. The Panel exercised judicial economy with respect to Canada’s claims under Articles 10, 19.1, 19.3, and 19.4 of the SCM Agreement and Article VI:3 of the GATT 1994 that the USDOC’s failed to properly ascertain the precise amount of subsidies attributable to the product under investigation.

Specificity of the Accelerated Capital Cost Allowance for Class 29 Assets

Canada challenged the USDOC’s determination that the provisions of Canada’s Income Tax Regulations concerning the accelerated capital cost allowance for Class 29 assets was specific within the meaning of Article 2 of the SCM Agreement. The Panel, however, rejected Canada’s claim.

Maritime Stumpage Benchmark

Canada challenged as a measure of “present and continued application” or, alternatively, “ongoing conduct” what it described as the “Maritimes Stumpage Benchmark”, and challenged the consistency of this measure with Article 14(d) of the SCM Agreement. The Panel found that Canada had not established the existence of this measure, and therefore did not rule on Canada’s claim under Article 14(d).

To view just the findings and conclusions, click here.

To view the full panel report, click here.

Source: World Trade Organization