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Final Countervailing Duty Determination with respect to certain Softwood Lumber from Canada

Key Facts
Short Title: US — Softwood Lumber IV
Respondent: United States
Third Parties: China; European Communities; Japan; India;
Complaintant(s): Canada;
Dispute Number: DS257
Link to Dispute Site: http://www.wto.org/english/tratop_e/dispu_e/cases_e/ds257_e.htm
Dispute Subject(s): Countervailing Duty; Lumber;
Dispute Status: Concluded
Complaint by Canada.

On 3 May 2002, Canada requested consultations with the US. The request concerned the final affirmative countervailing duty determination by the US Department of Commerce (File No. C-122839) issued on 25 March 2002, with respect to certain softwood lumber from Canada. The measures at issue include the initiation and conduct of the investigation, the final determination, provision of expedited reviews, and other matters related to these measures. Canada contended that these measures were inconsistent with, and violate US' obligations under Articles 1, 2, 10, 11, 12, 14, 15, 19, 22 and 32.1 of the SCM Agreement and Articles VI:3 and X:3 of GATT 1994.

On 18 July 2002, Canada requested the establishment of a panel. At its meeting on 29 July 2002, the DSB deferred the establishment of a panel. On 19 August 2002, Canada requested the withdrawal of its previous request for the establishment of a panel and submitted a new request . In particular, Canada claimed that in initiating the Lumber IV investigation, the United States had violated Articles 10, 11.4 and 32.1 of the SCM Agreement. In all the other claims, the new request corresponded to the previous one (18 July 2002). At its meeting on 30 August 2002, the DSB deferred the establishment of a panel. At its meeting on 1 October 2002, the DSB established a panel. The EC, India and Japan reserved their third-party rights to participate in the panel proceedings. On 8 November 2002, the panel was composed.

On 29 August 2003, the Panel report was circulated to Members. The Panel found that the USDOC Final Countervailing Duty Determination was inconsistent with Articles 10, 14, 14(d) and 32.1 SCM Agreement and Article VI:3 of GATT 1994. The Panel decided to apply judicial economy as regards Canada's claims under Article 19.4 SCM Agreement and Article VI:3 of GATT 1994 concerning the methodologies used to calculate the subsidy rate; and its claims of violation of the procedural rules of evidence set forth in Article 12 SCM Agreement. Further to Canada's statement at the first substantive meeting of the Panel with the parties that it did not consider it appropriate to press its claims under Articles 10, 11.4 and 32.1 of the SCM Agreement concerning the initiation of the investigation, the Panel also refrain from addressing and making a ruling on these claims. Accordingly, the Panel recommended that the DSB requests the United States to bring its measure into conformity with its obligations under the SCM Agreement and GATT 1994.

On 2 October 2003, the United States notified its decision to appeal to the Appellate Body certain issues of law covered in the Panel Report and certain legal interpretations developed by the Panel. However, on 3 October 2003, the United States withdrew its notice of appeal for scheduling reasons, although the withdrawal is conditional on the US right to file a new notice of appeal within the timeframe permitted by the DSU.

On 21 October 2003, the United States notified its decision to re-file its appeal to the Appellate Body of certain issues of law covered in the Panel Report and certain legal interpretations developed by the Panel.

On 17 December 2003, the Chairman of the Appellate Body informed the DSB that the Appellate Body would not be able to circulate its Report within the 60-day period due to the time required for completion and translation of the Report and it estimated that the Appellate Body Report would be circulate to WTO Members no later than 19 January 2004.

On 19 January 2004, the Appellate Body Report was circulated to Members. The Appellate Body:

* upheld the Panel's finding that the US had correctly determined that harvesting rights granted by Canadian provincial governments in respect of standing timber constituted the provision of goods under Article 1.1 of the SCM Agreement;

* reversed the Panel's interpretation of Article 14(d) of the SCM Agreement and the Panel's finding that the US had improperly determined the existence and amount of the "benefit" resulting from the financial contribution provided. Then the Appellate Body found that it was unable to complete the legal analysis of whether the US had correctly determined benefit in this investigation, due to insufficient factual findings by the Panel and insufficient undisputed facts in the Panel record; and

* upheld the Panel's finding that the US had acted inconsistently with provisions of the SCM Agreement and the GATT 1994 by failing to analyze whether subsidies were passed through in sales of logs by sawmill-owning harvesters to unrelated lumber producers. On the other hand, the Appellate Body reversed the Panel's findings that the US acted inconsistently with its WTO obligations by failing to consider whether subsidies were passed through in sales of primary lumber by sawmills to unrelated lumber remanufacturers, because both primary and remanufactured lumbers were products subject to USDOC's aggregate investigation.

At its meeting on 17 February 2004, the DSB adopted the Appellate Body report and the Panel report, as modified by the Appellate Body report.

Appellate Body and Panel Compliance Reports (Article 21.5) Adopted

Considering that the measures allegedly taken by the United States to comply with the DSB's recommendations and rulings were inconsistent with US obligations under relevant WTO Agreements, on 30 December 2004 Canada requested the DSB of the establishment of a panel under Article 21.5 of the DSU.

Canada considers that the measures allegedly taken by the United States to comply with the DSB's recommendations and rulings were inconsistent with US obligations under Articles 10 and 32.1 of the SCM Agreement and Article VI:3 of the GATT 1994:

On 14 January 2005, Canada and the United States sent to the DSB the understanding between the parties regarding procedures under Articles 21 and 22 of the DSU, which provides that Article 22.6 arbitration be suspended until adoption by the DSB of the recommendations and rulings in the Article 21.5 compliance proceedings.

At its meeting of 14 January 2005 the DSB decided to refer the matter raised by Canada to the original panel. China and the European Communities reserved their third party rights.

On 1 August 2005, the Article 21.5 Panel circulated its Report to Members. The Panel found that the United States remains in violation of Article 10 and 32.1 of the SCM Agreement, and Article VI:3 of the GATT 1994. On 6 September 2005, the United States notified its decision to appeal to the Appellate Body certain issues of law covered in the Panel Report and certain legal interpretations developed by the Panel in this dispute.

On 2 November 2005, the Appellate Body informed the DSB that due to the time required for completion and translation of the Report, the Appellate Body would not be able to circulate its Report within the 60-day period, and that it estimated that the Appellate Body Report would be circulated to WTO Members no later than 5 December 2005.

On 5 December 2005, the Appellate Body circulated its Report to Members. In its Report, the Appellate Body, referring to previous cases, confirmed that the question of what measures may be examined by a panel acting pursuant to Article 21.5 is a question to be answered by panels and the Appellate Body, rather than by the parties to the dispute. Although a Member's declaration that a specific measure is the one that it has "taken to comply" will always be relevant to this question, such a declaration is not determinative. Some measures with a very close relationship to the declared "measure taken to comply", and to the recommendations and rulings of the DSB in the original proceedings, may also be susceptible to review by a panel acting under Article 21.5. In order to determine whether a specific measure does fall within its jurisdiction, a panel will need to scrutinize the relationships between relevant measures and to examine the timing, nature and effects of these measures. The Appellate Body found that this was precisely the approach taken by the Panel.

The Appellate Body highlighted that the Panel had not found that all of the First Assessment Review fell within its jurisdiction, but only the pass-through analysis employed by USDOC in that proceeding. The Appellate Body found that the Panel had correctly relied upon multiple and specific links between the pass-through analysis in the First Assessment Review, the Section 129 Determination and the final countervailing duty determination that was at issue in the original proceedings. All three proceedings involved the issue of pass-through, and covered imports of softwood lumber from Canada. The publication dates of the First Assessment Review and the Section 129 Determination coincided very closely in time (within four days of each other). In addition, the First Assessment Review directly affected the Section 129 Determination because the cash deposit rate resulting from the Section 129 Determination (which reflected a small reduction due to the pass-through analysis contained therein) was replaced after 10 days by the cash deposit rate resulting from the First Assessment Review (which reflected no reduction from the pass-through analysis contained therein).

For these reasons, the Appellate Body upheld the Panel's finding that the First Assessment Review fell within the scope of these Article 21.5 proceedings, insofar as the pass-through analysis is concerned.

As the United States did not request the Appellate Body to examine the substance of the findings made by the Panel with respect to the pass-through analysis in the First Assessment Review, the Appellate Body declined to disturb the Panel's findings that this analysis was inconsistent with the United States' obligations under the SCM Agreement and the GATT 1994. Instead, the Appellate Body simply found that the Panel had acted within the scope of its jurisdiction in making such findings.

At its meeting of 20 December 2005, the DSB adopted the Article 21.5 Appellate Body report and Panel report, as upheld by the Appellate Body report.

Implementation Status of Adopted Reports

On 5 March 2004, the United States informed by letter that it intended to comply with the recommendations and rulings of the DSB in a matter that respects its WTO obligations. In that connection, the United States also stated that it would need a reasonable period of time to implement the said recommendations and rulings and stood ready to discuss this matter with Canada in accordance with Article 21.3(b) of the DSU. At the DSB meeting on 19 March 2004, the United States stated likewise. On 28 April 2004, Canada and the United States informed the DSB that they had agreed that the reasonable period of time shall be ten months, that is from 17 February 2004 to 17 December 2004.

On 10 November 2004, the United States submitted its first status report to the DSB pursuant to the DSU 21.6, which explained that the US Department of Commerce had been collecting and analysing information relevant to the recommendations and rulings of the DSB in its countervailing duty investigation of softwood lumber products from Canada, and, on the basis of that information, intended to issue a determination in that investigation in the near future.

At the DSB meeting of 17 December 2004, the United States informed the DSB that it had complied with its rulings and recommendations.

Considering that the measures allegedly taken by the United States to comply with the DSB's recommendations and rulings were inconsistent with US obligations under relevant WTO Agreements, on 30 December 2004 Canada requested the DSB of both the establishment of a panel under Article 21.5 of the DSU and authorization to suspend concessions or other obligations with respect to the United States under Article 22.2 of the DSU.

On 14 January 2005, Canada and the United States sent to the DSB the understanding between the parties regarding procedures under Articles 21 and 22 of the DSU, which provides that Article 22.6 arbitration be suspended until adoption by the DSB of the recommendations and rulings in the Article 21.5 compliance proceedings.

In respect of the the Article 22 proceeding,, on 13 January 2005 the United States requested this matter to be referred to arbitration in accordance with Article 22.6 of the DSU. At its meeting of 14 January 2005, the DSB agreed that the matter raised by the United States was referred to arbitration in accordance with Article 22.6 of the DSU. In respect of the Artcile 21.5 proceeding, at its meeting of 14 January 2005 the DSB decided to refer the matter raised by Canada to the original panel. China and the European Communities reserved their third party rights.

On 7 February 2005, the parties agreed on the panelists (in respect of the Article 21.5 proceeding) and arbitrators (in respect of the Article 22.6 proceeding). Pursuant to the joint request by the parties on 15 February 2005, the Article 22.6 arbitration proceeding was suspended.

For details of the Article 21.5 panel, see above.

On 12 October 2006, the United States and Canada informed the DSB that they had reached a mutually agreed solution under Article 3.6 of the DSU in the disputes WT/DS236, WT/DS247, WT/DS257, WT/DS264, WT/DS277 and WT/DS311. In the light of this mutually agreed solution, the suspended Article 22.6 arbitration proceeding was withdrawn.

Mutually Agreed Solutions notified under Article 3.6 of the DSU

On 12 October 2006, the United States and Canada informed the DSB that they had reached a mutually agreed solution under Article 3.6 of the DSU in the disputes WT/DS236, WT/DS247, WT/DS257, WT/DS264, WT/DS277 and WT/DS311. This solution was in the form of a comprehensive agreement (Softwood Lumber Agreement) between the United States and Canada, dated 12 September 2006. On 23 February 2007, the United States and Canada informed the DSB that on 12 October 2006 they had concluded a further Agreement, which amended the original Agreement to facilitate its entry into force.

Panel Proceedings
Brief DateBrief Description
04/04/2003Answers of the United States of america to the Panel's Questions in Connection with the Second Substantive Meeting (pdf)
04/03/2003Executive Summary of the U.S. Oral Presentation at the Second Panel Meeting (pdf)
03/25/2003Oral Statement of the United States of the Second Panel Meeting (pdf)
03/14/2003Executive Summary of the Second Written Submission of the United States (pdf)
02/24/2003Answers of the United States to the Panel's First Set of Questions (pdf)
02/21/2003Answers of the United States to the Panel's First Set of Questions (pdf)
02/12/2003Closing Statement of the United States at the First Panel Meeting (pdf)
02/11/2003Opening Statement of the United States at the First Panel Meeting (pdf)
01/22/2003First Written Submission of the United States, Exhibit List (pdf)
01/22/2003First Written Submission of the United States (pdf)

Appeal Proceedings
Brief DateBrief Description
11/20/2003Oral Statement of the United States (pdf)
11/05/2003Appellee's Submission of the United States (pdf)
10/21/2003Appellant's Submission of the United States (pdf)

Recourse by Canada to Article 21.5 of the DSU
Brief DateBrief Description
05/03/2005of the United States on the Answers by Canada and the Third Parties to the Panel's Questions (pdf)
04/29/2005Answers of the United States to Questions by the Panel (pdf)
04/21/2005Oral Statement of the United States (pdf)
03/31/2005Second Written Submission of the United States (pdf)
03/10/2005First Written Submission of the United States (pdf)

Recourse by Canada to Article 21.5 of the DSU: Appeal Proceedings
Brief DateBrief Description
10/12/2005Oral Statement of the United States (pdf)
10/05/2005Additional Memorandum of the United States (pdf)
09/13/2005Appellant Submission of the United States (pdf)