DISPUTE SETTLEMENT

DS: United States — Countervailing Measures on Supercalendered Paper 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

 

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Key facts

 

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Summary of the dispute to date

The summary below was up-to-date at

Consultations

Complaint by Canada

On 30 March 2016, Canada requested consultations with the United States regarding countervailing duties adopted by the United States on supercalendered paper, and the investigation underlying the imposition of those duties. The request for consultations also concerns an alleged ongoing conduct regarding the application of adverse facts available to “discovered” information during the course of a countervailing duty investigation.

Canada claims that the measures are inconsistent with:

  • Articles 1.1(a)(1), 1,1(b), 2, 10, 11.1, 11.2, 11.3, 11.6, 12.1, 12.2, 12.3, 12.7, 12.8, 14, 14(d), 19.1, 19.3, 19.4, 22.3, 22.5, 32.1 of the SCM Agreement; and
     
  • Article VI:3 of the GATT 1994.

 

Panel and Appellate Body proceedings

On 9 June 2016, Canada requested the establishment of a panel. At its meeting on 22 June 2016, the DSB deferred the establishment of a panel.

At its meeting on 21 July 2016, the DSB established a panel. Brazil, China, the European Union, India, Japan, Korea, Mexico and Turkey reserved their third-party rights. On 22 August 2016, Canada requested the Director-General to compose the panel. On 31 August 2016, the Director-General composed the panel.

On 27 January 2017, the Chair of the panel informed the DSB that the beginning of the panel's work had been delayed as a result of a lack of available experienced lawyers in the Secretariat. The panel expected to issue its final report to the parties before the end of 2017. On 5 July 2018, the Chair of the panel informed the DSB that the panel issued its final report to the parties on 15 December 2017. In its communication, the Chair indicated that although public circulation of the report was scheduled for 21 March 2018, the parties requested on several occasions that circulation of the report be delayed, with the most recent request for delay until 5 July 2018. The Chair informed the DSB that, accordingly, the panel report would be circulated on 5 July 2018.

On 5 July 2018, the panel report was circulated to Members.

  1. This dispute concerns the imposition by the United States of certain countervailing measures on imports of SC Paper from Canada, as well as the United States' alleged ongoing conduct of applying adverse facts available (AFA) in respect of programmes discovered during the course of a CVD investigation.
  2. Canada presented a series of claims concerning: (a) the USDOC's determinations in the original CVD investigation with respect to Port Hawkesbury Paper LP (PHP), including claims regarding the provision of electricity to PHP by Nova Scotia Power Incorporated (NSPI); the assistance under the hot idle funding and the Forestry Infrastructure Fund (FIF); and the provision of stumpage and biomass; (b) the USDOC's determinations in the original CVD investigation with respect to Resolute FP Canada Inc. (Resolute), including the claims regarding the application of AFA in relation to information discovered at verification; Resolute's purchase of Fibrek General Partnership (Fibrek); and the alleged subsidies provided under the Federal Pulp and Paper Green Transformation Programme (PPGTP), the Ontario Forest Sector Prosperity Fund (FSPF) and the Ontario Northern Industrial Electricity Rate (NIER) programme; (c) the USDOC's determinations in the original CVD investigation with respect to the all-others rate affecting the non-investigated companies Irving Paper Ltd. (Irving) and Catalyst Paper Corporation (Catalyst); (d) the USDOC's determinations in the expedited reviews conducted for the non-investigated companies Irving and Catalyst; and (e) the United States' alleged “ongoing conduct” of applying AFA in respect of programmes discovered during the course of a CVD investigation, or “Other Forms of Assistance-AFA” measure.
  3. On the claims concerning the USDOC's determination in the original CVD investigation with respect to PHP, the Panel concluded as follows:
    1. The USDOC acted inconsistently with Article 1.1(a)(1)(iv) of the SCM Agreement, by making a finding of entrustment or direction with respect to the provision of electricity by NSPI.
    2. The USDOC acted inconsistently with Articles 1.1(b) and 14(d) of the SCM Agreement, when it determined that the provision of electricity by NSPI to PHP conferred a benefit.
    3. The USDOC acted inconsistently with Article 12.8 of the SCM Agreement, by failing to disclose to interested parties the essential fact that, in the view of the USDOC, Section 52 of the Public Utilities Act entrusted or directed NSPI to provide electricity to all customers, including PHP.
    4. The USDOC acted inconsistently with Article 1.1(b) of the SCM Agreement, by finding that the hot idle funding conferred a benefit on PWCC/PHP.
    5. The USDOC acted inconsistently with Article 1.1(b) of the SCM Agreement, by finding that the second FIF amount conferred a benefit on PWCC/PHP.
    6. The USDOC acted inconsistently with Article 11.3 of the SCM Agreement, by failing in its obligation to evaluate the accuracy and adequacy of the evidence in the application with respect to the existence of a benefit in the provision of stumpage and biomass by the Government of Nova Scotia to PHP.
  4. On the claims concerning the USDOC's CVD determination in the original investigation with respect to Resolute, the Panel concluded as follows:
    1. The USDOC acted inconsistently with Article 12.7 of the SCM Agreement, by applying facts available to the discovered programmes.
    2. The Panel declined to rule on Canada's claims under Articles 11.2, 11.3, 12.1, 12.2, 12.3, and 12.8 of the SCM Agreement, regarding the discovered programmes.
    3. The USDOC acted inconsistently with Article 1.1(b) of the SCM Agreement, by finding, on the basis of an alleged lack of relevant evidence, that the benefit conferred on Fibrek through the PPGTP was not extinguished when Fibrek was acquired by Resolute.
    4. The Panel declined to rule on Canada's claims under Articles 10, 14, 19.1, 19.3, and 19.4 of the SCM Agreement and Article VI:3 of the GATT 1994, regarding the USDOC's finding that the benefit conferred on Fibrek through the PPGTP was not extinguished when Fibrek was acquired by Resolute.
    5. The Panel declined to rule on Canada's claims under Articles 1.1(b), 10, 14, 19.1, 19.3, and 19.4 of the SCM Agreement and Article VI:3 of the GATT 1994, regarding the USDOC's finding that the benefit conferred on Fibrek was not extinguished when Fibrek was acquired by Resolute, with respect to the alleged assistance discovered during the verification of Fibrek.
    6. The USDOC acted inconsistently with Articles 10, 19.1, 19.3, and 19.4 of the SCM Agreement and Article VI:3 of the GATT 1994, by attributing to the production of SC Paper subsidies provided to Resolute and Fibrek under the PPGTP, FSPF, and NIER Programmes.
    7. The Panel declined to rule on 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, regarding the attribution to the production of SC Paper of the alleged assistance discovered during the verification of Fibrek.
  5. On the claims concerning the CVD determinations with respect to Irving and Catalyst, the Panel concluded as follows:
    1. The USDOC acted inconsistently with Articles 10, 19.1, 19.3, 19.4, and 32.1 of the SCM Agreement and Article VI:3 of the GATT 1994, by constructing the all-others rate relying on Resolute's rate, which was mainly calculated using AFA.
    2. The Panel declined to rule on Canada's claim under Article 12.7 of the SCM Agreement, regarding the construction of the all-others rate relying on Resolute's rate.
    3. The Panel rejected Canada's claims under Articles 10, 19.1, 19.3, 19.4, and 32.1 of the SCM Agreement and Article VI:3 of the GATT 1994, regarding the USDOC's failure to adjust the all-others rate in respect of subsidies that were not available to non-investigated exporters.
    4. The USDOC acted inconsistently with Article 19.3 of the SCM Agreement, by including new subsidy allegations in the context of the expedited reviews undertaken for Catalyst and Irving.
    5. The Panel declined to rule on Canada's claims under Articles 11.2 and 11.3 of the SCM Agreement, regarding the USDOC's alleged initiation of an investigation into new subsidy allegations during the expedited reviews of Catalyst and Irving.
  6. On the claims concerning the “Other Forms of Assistance-AFA measure”, the Panel concluded as follows:
    1.  Canada adduced sufficient evidence to establish that the challenged “Other Forms of Assistance-AFA measure” constitutes “ongoing conduct” and, therefore, the Panel did not consider it necessary to address Canada's argument that the challenged measure amounts to a “rule or norm of general and prospective application”.
    2. The unwritten “ongoing conduct” measure challenged by Canada is inconsistent with Article 12.7 of the SCM Agreement.
    3. The Panel declined to rule on Canada's claims under Articles 10, 11.1, 11.2, 11.3, 11.6, 12.1, and 12.8 of the SCM Agreement, with respect to the “Other Forms of Assistance-AFA measure”.

On 27 August 2018, the United States notified the DSB of its decision to appeal to the Appellate Body certain issues of law and legal interpretations in the panel report.

On 24 October 2018, the Appellate Body informed the DSB that it would not be able to circulate the Appellate Body report in this appeal by the end of the 60-day period, nor within the 90-day timeframe provided for in Article 17.5 of the DSU. The Appellate Body referred to the size of the panel record and the complexity of issued that had been appealed. The Appellate Body also noted the backlog of appeals pending with the Appellate Body, and the overlap in the composition of all divisions resulting in part from the reduced number of Appellate Body members. In its communication the Appellate Body indicated that Division members could spend only very little time preparing for this appeal and that it would not be possible for the Division to focus on the consideration of this appeal and be fully staffed for some time. On 9 December 2019, the Chair of the Appellate Body informed the DSB that the Appellate Body intended to circulate its report in this appeal on 6 February 2020.

On 6 February 2020, the Appellate Body report was circulated to Members.

Existence of the OFA‑AFA measure as “ongoing conduct”

At the outset, the Appellate Body disagreed with Canada's contention that the United States' appeal fell outside the scope of appellate review. To the Appellate Body, the United States' appeal concerned the Panel's understanding and application of the legal standard for “ongoing conduct” in WTO dispute settlement.

The United States appealed the Panel's finding that the OFA-AFA measure is “ongoing conduct” that could be challenged in WTO dispute settlement. The Appellate Body agreed with the Panel that the differences referred to by the United States did not detract from the fact that the substance of the USDOC's conduct remained the same in relation to the elements of the measure. The Appellate Body also disagreed with the United States that repeated application must be demonstrated through a string of determinations made sequentially in successive proceedings over an extended period of time. Finally, the Appellate Body agreed with the Panel that the consistent manner in which the USDOC refers to the OFA-AFA measure, the frequent reference to previous applications of the measure in USDOC determinations, the fact that the USDOC refers to the measure as its “practice”, and the USDOC's characterization of a departure from the measure as an “inadvertent error” all support the conclusion that the measure is likely to continue to be applied. The Appellate Body therefore upheld the Panel's finding that the OFA‑AFA measure exists as “ongoing conduct” that could be challenged in WTO dispute settlement.

In a separate opinion, one Appellate Body Member considered that the Panel erred by characterizing the USDOC's conduct in an unacceptably vague manner. To that Appellate Body Member, the Panel did not examine the comparability of the CVD proceedings used as evidence of the “ongoing conduct”, which undermined the Panel's ability to define the precise content, repeated application, and likelihood of continued application of the measure. That Appellate Body Member also noted that the CVD order in Supercalendered Paper from Canada 2015 had been revoked. To that Appellate Body Member, as this was the only CVD proceeding involving Canada in this dispute, there was no real dispute between the participants. In this respect, the majority noted that the United States filed its appeal after the revocation of that CVD order and that both participants confirmed that there was a dispute between them.

Article 12.7 of the SCM Agreement

The Appellate Body disagreed with the United States' claim that the Panel erred under Article 12.7 of the DSU by failing to provide a “basic rationale” for its finding under Article 12.7 of the SCM Agreement. To the Appellate Body, the Panel incorporated its earlier analysis concerning Article 12.7 of the SCM Agreement into its examination of the OFA-AFA measure.

The Appellate Body also disagreed with the United States' claim that the Panel erred in finding that the OFA‑AFA measure is inconsistent with Article 12.7 of the SCM Agreement. The Appellate Body first found that the Panel did not inappropriately ignore the “significantly impedes” ground for using “facts available” under Article 12.7 of the SCM Agreement. This was because the Panel's analysis was limited to circumstances where the USDOC uses “facts available” when a respondent fails to provide “necessary information”. Further, to the Appellate Body, the Panel faulted the USDOC for mechanically concluding that necessary information had not been provided and that the discovered assistance amounted to a countervailable subsidy. The Appellate Body agreed with the Panel that the USDOC could not simply reach conclusions without further analysis and regard to the facts available on the record and the due process rights of interested parties. The Appellate Body thus concluded that the United States had not demonstrated that the Panel erred in its analysis under Article 12.7 of the SCM Agreement. Consequently, the Appellate Body upheld the Panel's finding that the OFA-AFA measure is inconsistent with Article 12.7 of the SCM Agreement.

At its meetings held on 28 February and 5 March 2020, the DSB adopted the Appellate Body report and panel report, as upheld by the Appellate Body report.

 

Proceedings under Article 22 of the DSU (remedies)

On 16 April 2020, Canada requested the Chair of the DSB to circulate to Members a communication where it indicated that it understood that the United States had not informed the DSB of its intension to implement the recommendations adopted by the DSB on 5 March in this dispute, as required by Article 21.3 of the DSU. Canada further indicated its intention to request authorization from the DSB, pursuant to Article 22 of the DSU, to suspend the application to the United States of concessions at the next DSB meeting held after the end of the suspension of such meetings. On 17 April 2020, the United States requested the Chair of the DSB to circulate to Members a response to Canada's communication of 16 April. In its response, the United States objected to the premise in Canada's communication that the DSB adopted recommendations in this dispute on 5 March 2020. The United States reproduced its statements at the DSB meeting of 5 March 2020 setting out the reasons why it considered that the report should be adopted by positive consensus and why it could not join such consensus. The United States thus considered that there is no recommendation for the United States to bring a measure into conformity with a covered agreement in this dispute.

 

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