DISPUTE SETTLEMENT: DISPUTE DS264

United States — Final Dumping Determination on 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: 13 April 2004
Appellate Body Report circulated: 11 August 2004
Article 21.3(c) Arbitration Report circulated: 13 December 2004
Article 21.5 Panel Report circulated: 3 April 2006
Article 21.5 Appellate Body Report circulated: 15 August 2006
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 13 September 2002, Canada requested consultations under Article 4.8 of the DSU (urgency procedure) with the United States concerning the final affirmative determination of sales at less than fair value (dumping) with respect to certain softwood lumber products from Canada (Inv. No. A-122-838) announced by the US Department of Commerce (USDOC) on 21 March 2002 pursuant to Section 735 of the Tariff Act of 1930, as amended on 22 May 2002 (Final Determination). The measures at issue include the initiation of the investigation, the conduct of the investigation and the Final Determination.

Canada considered these measures and, in particular, the determinations made and methodologies adopted therein by the DOC under authority of the United States Tariff Act of 1930, to violate Articles 1, 2.1, 2.2, 2.4, 2.6, 5.1, 5.2, 5.3, 5.4, 5.8, 6.1, 6.2, 6.4, 6.9 and 9.3 of the Anti-Dumping Agreement and Articles VI and X:3(a) of the GATT 1994.

On 6 December 2002, Canada requested the establishment of a panel. At its meeting of 19 December 2002, the DSB deferred the establishment of a panel.

 

Panel and Appellate Body proceedings

Further to a second request by Canada, a panel was established by the DSB at its meeting on 8 January 2003. The European Communities and India reserved their third-party rights. On 15 January 2003, Japan reserved its third-party rights. On 25 February 2003, the panel was composed.

On 25 August 2003, the Chairman of the panel informed the DSB that due to the complexity of the matter, the panel would not be able to complete its work in six months. The panel expected to issue its final report to the parties in December 2003. On 2 December 2003, the Chairman of the panel informed the DSB that the panel expected to issue its final report to the parties in February 2004.

On 13 April 2004, the panel report was circulated to Members. The panel found that, in its final dumping determination, the USDOC failed to comply with the requirements of Articles 2.4.2 of the Anti-Dumping Agreement because the DOC did not take into account all export transactions by applying the “zeroing” methodology when calculating the margin of dumping. (One member of the panel issued a dissenting opinion regarding the finding on “zeroing”.) The panel found that all other claims submitted by Canada failed.

On 13 May 2004, 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. On 8 July 2004, the Chairman of the Appellate Body informed the DSB that it would not be possible for the Appellate Body to complete its work within 60-day period due to the time required for completion and translation of the report. The Appellate Body expected to complete its work no later than 11 August 2004.

On 11 August 2004, the Appellate Body report was circulated to Members. The Appellate Body:

  • upheld the panel’s finding that the United States had acted inconsistently with the Anti‑Dumping Agreement by calculating margins of dumping on the basis of a methodology incorporating the practice of “zeroing”;
     
  • reversed the panel’s finding that the United States did not act inconsistently with the Anti‑Dumping Agreement when calculating the amount of financial expense attributable to the production of softwood lumber for Abitibi, one of the Canadian companies under investigation. Although the Appellate Body reversed the panel on this issue, it was not required itself to rule on whether the United States had acted inconsistently with its WTO obligations in this regard; and
     
  • upheld the panel’s finding that the United States did not act inconsistently with certain provisions of the Anti-Dumping Agreement when calculating the amount for by-product revenue from the “sale” of wood chips for Tembec, another Canadian company under investigation. The Appellate Body did not disturb the panel’s finding that the United States had not acted in a biased, non-objective, or other than even-handed manner.

At its meeting on 31 August 2004, the DSB adopted the Appellate Body report and the Panel report, as modified by the Appellate Body report.

 

Reasonable period of time

At the DSB meeting on 27 September 2004, the United States stated that it intended to implement the recommendations and rulings of the DSB in a manner that respected its WTO obligations, and that it would require a reasonable period of time to do so.  It was ready to consult with Canada in accordance with Article 21.3(b) of the DSU.

As Canada and the United States had been unable to agree on a reasonable period of time, on 18 October 2004 Canada requested that the reasonable period of time be determined through binding arbitration pursuant to Article 21.3(c) of the DSU. Canada stated that it stood ready to enter into consultations with the United States with a view to reaching agreement on an arbitrator within the 10-day period provided for in footnote 12 of the DSU. Canada and the United States were unable to agree on an arbitrator within 10 days of the matter being referred to arbitration. On 29 October 2004, Canada requested the Director-General to appoint an arbitrator to determine the reasonable period of time for implementation, pursuant to footnote 12 to Article 21.3(c) of the DSU. In a joint letter dated 1 November 2004, the parties indicated that in discussions that took place following Canada's request to the Director-General they agreed that Mr Lockhart act as arbitrator under Article 21.3(c) of the DSU. On 4 November 2004, Mr Lockhart informed Canada and the United States that he accepted the appointment as arbitrator.

On 6 December 2004, Canada and the United States informed the DSB that, pursuant to Article 21.3(b) of the DSU, both parties had mutually agreed that the reasonable period of time to implement the recommendations and rulings of the DSB shall be seven and one-half months, that is from 31 August 2004 to 15 April 2005. In addition, they informed the DSB that, in light of the agreement, the proceeding under Article 21.3(c) of the DSU was terminated. On 13 December 2004, the report of Arbitrator was circulated taking note of the parties' agreement and specifying that it was not necessary for the arbitrator to issue an award.

On 14 February 2005, Canada and the United States informed the DSB that both parties had agreed to modify the reasonable period of time so as to expire on 2 May 2005.

 

Compliance proceedings

On 19 May 2005, Canada requested the establishment of a panel under Article 21.5 of the DSU. On 27 May 2005, Canada and the United States notified the DSB of an Understanding regarding procedures under Articles 21 and 22 of the DSU.

At its meeting on 1 June 2005, the DSB decided to refer the matter raised by Canada to the original panel. China, India, Japan and the European Communities reserved their third party rights. Subsequently, New Zealand and Thailand reserved their third party rights.  On 3 June 2005, the formalities in composing the panel were completed. 

On 3 August 2005, the Chairman of the compliance panel resigned following his appointment as a Deputy Director-General of the WTO Secretariat.  On 18 August 2005, Canada requested the Director-General to appoint a replacement Chairperson. On 26 August 2005, the Director-General appointed a new Chairman.  On 16 September 2005, the Chairman of the compliance panel informed the DSB that it would not be possible for the compliance panel to complete its work in 90 days in light of the withdrawal of the Chairman of the compliance panel and consequent need to appoint a new Chairman, and scheduling conflicts.  The compliance panel expected to complete its work in February 2006.

On 3 April 2006, the compliance panel report was circulated to Members. This proceeding concerned the implementation by the United States of part of the DSB recommendations and rulings relating to the finding that the use of “zeroing” by the USDOC in the underlying investigation was inconsistent with Article 2.4.2 of the Anti-Dumping Agreement in the context of a comparison of “a weighted average normal value with a weighted average of all comparable export transactions”.

In order to implement the DSB's recommendations and rulings, the USDOC calculated new rates for the exporters subject to the anti-dumping duty order, based on a comparison of normal value and export prices on a transaction-to-transaction basis. The USDOC used zeroing in its transaction-to-transaction methodology.

Canada claimed that the USDOC's continued use of zeroing under the transaction-to-transaction comparison methodology was inconsistent with Articles 2.4.2 and 2.4 of the Anti-Dumping Agreement. The compliance panel concluded that the determination of the USDOC in the Section 129 proceeding investigation was not inconsistent with the asserted provisions of Articles 2.4 and 2.4.2 of the Anti‑Dumping Agreement.  The compliance panel therefore considered that the United States had implemented the DSB's recommendations and rulings to bring its measure into conformity with its obligations under the Anti-Dumping Agreement. 

On 17 May 2006, Canada notified the DSB of its decision to appeal to the Appellate Body certain issues of law and certain legal interpretations covered in the panel report. On 14 July 2006, 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 15 August 2006.

On 15 August 2006, the Appellate Body report was circulated to Members.  The Appellate Body reversed the compliance panel's findings and found, instead, that the use of zeroing was not permitted under the transaction-to-transaction methodology set out in Article 2.4.2 of the Anti‑Dumping Agreement because “the ‘margins of dumping’ established under this methodology are the results of the aggregation of the transaction-specific comparisons of export prices and normal value”, and “in aggregating these results, an investigating authority must consider the results of all of the comparisons and may not disregard the results of comparisons in which export prices are above normal value”.

In addition, the Appellate Body found that the use of zeroing under the transaction-to-transaction comparison methodology in the Section 129 Determination was inconsistent with the “fair comparison” requirement in Article 2.4 of the Anti-Dumping Agreement because it distorted the price of certain export transactions, which were not considered at their real value, and artificially inflated the magnitude of dumping, resulting in higher margins of dumping and making a positive determination of dumping more likely.

The Appellate Body reversed the compliance panel's conclusion that the United States had implemented the DSB recommendations and rulings and recommended that the DSB request the United States to bring its measure into conformity with its obligations under the Anti-Dumping Agreement.

At its meeting on 1 September 2006, the DSB adopted the Appellate Body report and the compliance panel report, as reversed by the Appellate Body report.

 

Proceedings under Article 22 of the DSU (remedies)

Simultaneous to the request for compliance proceedings (see above) on 19 May 2005, 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 representing the portion of the total anti‑dumping duties illegally collected and not refunded as a result of the United States' non‑compliance (i.e. the United States' failure to eliminate the practice of zeroing), specifying that for 2005, this amount will be approximately CAD 400 million. Canada stated it intended to implement this suspension of tariff concessions and related obligations under the GATT 1994 by imposing additional import duties above bound custom duties on products originating in the United States. On 31 May 2005, the United States objected to the level of suspension 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 1 June 2005, parallel to referring the compliance issue to the compliance panel (see above), the DSB agreed that the matter raised by the United States be referred to arbitration in accordance with Article 22.6 of the DSU. Pursuant to the Understanding regarding procedures under Articles 21 and 22 of the DSU, the Article 22.6 arbitration proceeding was suspended until the completion of the Article 21.5 proceeding.

In light of the mutually agreed solution (see below), the suspended Article 22.6 arbitration proceeding was 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 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.

 

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