DISPUTE SETTLEMENT: DISPUTE DS257

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


This summary has been prepared by the Secretariat under its own responsibility. The summary is for general information only and is not intended to affect the rights and obligations of Members.

  

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Current status  back to top

 

Key facts  back to top

Short title:
Complainant:
Respondent:
Third Parties:
Agreements cited:
(as cited in request for consultations)
Request for Consultations received:
Panel Report circulated: 29 August 2003
Appellate Body Report circulated: 19 January 2004
Article 21.5 Panel Report circulated: 1 August 2005
Article 21.5 Appellate Body Report circulated: 5 December 2005
Mutually Agreed Solution notified: 12 October 2006

  

Summary of the dispute to date  back to top

The summary below was up-to-date at
See also: One-page summary of key findings of this dispute

Consultations

Complaint by Canada.

On 3 May 2002, Canada requested consultations with the United States. 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 the United States’ 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 the 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.

 

Panel and Appellate Body proceedings

At its meeting on 1 October 2002, the DSB established a panel. The European Communities, 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 the 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 refrained from addressing and making a ruling on these claims. Accordingly, the panel recommended that the DSB request the United States to bring its measure into conformity with its obligations under the SCM Agreement and the GATT 1994.

On 2 October 2003, the United States notified the DSB of 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 was conditional on the United States' right to file a new notice of appeal within the timeframe permitted by the DSU.

On 21 October 2003, the United States notified the DSB of 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 circulated 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 United States 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 United States 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 United States had acted inconsistently with provisions of the SCM Agreement and the GATT 1994 by failing to analyse 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 United States 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.

 

Reasonable period of time

On 5 March 2004, the United States informed the DSB that it intended to comply with the recommendations and rulings of the DSB in a manner that respects its WTO obligations. The United States also stated that it would need a reasonable period of time to do so and was ready to discuss this matter with Canada in accordance with Article 21.3(b) of the DSU. 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.

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

 

Compliance proceedings

On 30 December 2004, Canada requested the establishment of a panel under Article 21.5 of the DSU.  Canada considered that the measures allegedly taken by the United States to comply with the DSB's recommendations and rulings were inconsistent with the United States' obligations under Articles 10 and 32.1 of the SCM Agreement and Article VI:3 of the GATT 1994. At its meeting on 14 January 2005, the DSB agreed to refer the matter raised by Canada to the original panel.  China and the European Communities reserved their third party rights.

On 14 January 2005, Canada and the United States notified the DSB of an Understanding regarding procedures under Articles 21 and 22 of the DSU, which provided that the Article 22.6 arbitration be suspended until adoption by the DSB of the recommendations and rulings in the compliance proceedings.

Due to the unavailability of one of the Members of the original panel, the parties, pursuant to their Understanding regarding procedures under Articles 21 and 22 of the DSU, agreed on a replacement panelist on 7 February 2005.

On 1 August 2005, the compliance panel report was circulated to Members. The compliance 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 the DSB of its decision to appeal to the Appellate Body certain issues of law covered in the compliance panel report and certain legal interpretations developed by the compliance panel in this dispute.

On 2 November 2005, 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 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 report was circulated to Members.  The Appellate Body, referring to previous cases, confirmed that the question of what measures may be examined by a compliance panel 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 compliance panel.  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 compliance panel.

The Appellate Body highlighted that the compliance 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 compliance 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 compliance 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 compliance panel with respect to the pass-through analysis in the First Assessment Review, the Appellate Body declined to disturb the compliance 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 compliance panel had acted within the scope of its jurisdiction in making such findings.

At its meeting of 20 December 2005, the DSB adopted the Appellate Body report and compliance panel report, as upheld by the Appellate Body report.

 

Proceedings under Article 22 of the DSU (remedies)

On 30 December 2004, simultaneous to its request for compliance proceedings (see above), Canada requested the DSB authorization to suspend concessions or other obligations with respect to the United States under Article 22.2 of the DSU in an amount that will be established each year based on the portion of the applicable countervailing duty rate for that year which is illegal due to the failure of Commerce to conduct an appropriate “pass-through” analysis. For 2005, Canada requested authorization to suspend concessions or other obligations covering trade in the amount of CAD 200,000,000. On 13 January 2005, the United States objected to the level of suspension of concessions or other obligations proposed by Canada and 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. Due to the unavailability of one of the Members of the original panel to serve in the Article 22.6 arbitration proceedings, the parties, pursuant to their Understanding regarding procedures under Articles 21 and 22 of the DSU, agreed on a replacement arbitrator on 7 February 2005. As a result the same individuals serving as panelists in the compliance proceeding (see above) accepted to serve in the arbitration.

Pursuant to the Understanding regarding procedures under Articles 21 and 22 of the DSU, the Article 22.6 arbitration proceedings were suspended until either party requests their resumption following adoption by the DSB of the recommendations and rulings in the compliance proceedings. In light of the mutually agreed solution of 12 October 2006 (see below), the suspended Article 22.6 arbitration proceedings were withdrawn.

 

Mutually agreed solution

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 DS236, DS247, DS257, DS264, DS277 and 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.

 

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