Meeting of the WTO Dispute Settlement Body

28 September 2020

Statement by Canada

1. United States COUNTERVAILING MEASURES ON SOFTWOOD LUMBER FROM CANADA (DS533)

• Thank you, Mr. Chairperson.
• Canada would first like to thank the members of the Panel and the WTO Secretariat for their work in this dispute.
• We would also like to acknowledge our appreciation for the contribution of the third parties in this case.
• Mr. Chairperson, Canada welcomes the findings and recommendations of the Panel regarding the U.S. Department of Commerce’s final countervailing duty determination concerning softwood lumber from Canada.
• The Panel reviewed thousands of pages of written submissions and supporting evidence to prepare a thorough and balanced report.
• The Panel repeatedly found that the Department of Commerce improperly determined that the Canadian provinces provide subsidies to softwood lumber producers by selling Crown timber for less than adequate remuneration.    
• Canada will first address the contents of the Report itself and will then discuss the implications of the United States’ decision to appeal this report while it simultaneously blocks appointments to the Appellate Body.
• At the outset, Canada re-iterates that it strongly believes that all Members are entitled to take appropriate measures to address unfair trade practices.
• However, ensuring the security and predictability of the multilateral trading system demands that any such measures conform to the obligations that the Members undertook in the WTO agreements.
• In this dispute, the Panel conducted an objective assessment of the matter before it. To this end, the Panel examined whether the Department of Commerce provided "reasoned and adequate" explanations as to how the record evidence supported its findings and whether Commerce had assessed that evidence in an objective and unbiased manner. 
• The Panel found that the Department of Commerce had failed to meet these requirements in relation to 16 different claims. The Panel concluded that the Department of Commerce repeatedly failed to act in an objective and unbiased manner and that its treatment of the evidence undermined the due process rights set out in Article 12.1 of the SCM Agreement.    
• Canada would like to highlight three important aspects of the Report for the Dispute Settlement Body.
• First, the Panel provided valuable guidance on benchmark selection under Article 14(d) of the SCM Agreement. Canada argued that an investigating authority is required to determine adequacy of remuneration on the basis of the market conditions that prevail for the government-provided good. In particular, Canada argued that markets for standing timber were regional in nature and that the Department of Commerce had improperly rejected regional provincial market prices and instead made a comparison to prices outside these regional markets.   
• The Panel indicated that there was “ample” and “copious” amounts of evidence that indicated that provincial stumpage markets in the B.C. Interior, Quebec, Alberta and Ontario were regional markets.  The Panel therefore found that Commerce was under an obligation to have considered using market-determined benchmarks from within each of those regions as a starting point in its Article 14(d) benefit analysis.
• The Panel also agreed with Canada that the Department of Commerce had acted inconsistently with Article 14(d) by rejecting prices from provincial auction systems and other market-based benchmarks in British Columbia, Alberta, Québec, and Ontario.
• Second, the Panel determined that the Department of Commerce erred by expressly ignoring “remuneration” in the form of mandatory charges or in-kind obligations that were incurred in exchange for Crown timber.  The failure to account for this “remuneration” artificially inflated the amount of alleged subsidy.
• Third, the Panel upheld Canada's claim that the British Columbia Log Export Permitting process does not constitute a financial contribution under Article 1.1(a)(1)(iv) of the SCM Agreement. The Panel agreed with Canada that there was no evidence that the Governments of British Columbia and Canada require log suppliers to provide their logs to anyone, or direct them to sell those logs at any particular price.
• We note that the report is not limited to the items we have just discussed. While we will not discuss the remaining findings in any detail, the Panel found, for example, that the Department of Commerce’s calculation of benefit for various electricity programs was not consistent with Articles 1.1(b) and 14(d) of the SCM Agreement. 
• We estimate that nearly 3 billion U.S. dollars have already been collected in duties on Canadian exports of softwood lumber as a result of the Department of Commerce’s errors—a clear violation of the United States’ WTO obligations. Nor is this the first time that the United States has imposed trade remedy measures on Canadian softwood lumber that were ultimately found to be inconsistent with the WTO agreements.
• In the face of overwhelming evidence that Canada’s market-based mechanisms do not result in countervailable subsidies, the United States continues to treat Canadian softwood lumber producers in a manner that is neither unbiased nor objective.  
• We will now address the systemic implications of the United States’ appeal in this dispute.
• In a statement at the last DSB meeting, the United States stated that, despite the ongoing Appellate Body impasse, the dispute settlement system still worked.
• The United States’ behaviour in this dispute and in previous disputes contradicts its statement.
• We recall that all WTO Members, including the United States, agreed to the Dispute Settlement Understanding. It provides that, when a panel report is issued, it can be either adopted or appealed. When there is an appeal, the Appellate Body must issue a report in that appeal. In either case, the Dispute Settlement Body will be in a position to adopt recommendations if violations have been found. In the event that the respondent does not bring its measures into compliance with its WTO obligations, a complainant may adopt counter-measures.
• In this dispute, in the absence of a functioning Appellate Body, Canada offered to the United States to enter into an appeal-arbitration agreement that would have allowed the United States to seek review of the Panel Report if it so wished. Having refused that offer, Canada would have hoped that the United States would have allowed the adoption of the Panel report and implemented its recommendations and rulings as soon as possible.
• By appealing this Panel Report to an Appellate Body that it made non-functional through its blockage of AB member appointments, the United States is compounding the unfair treatment accorded to Canadian softwood lumber producers. An appeal, in the current circumstances, has the effect of denying Canada its right, under the Dispute Settlement Understanding, to prompt settlement of this dispute.
• Canada was surprised that the United States has appealed given the stated position of the US Trade Representative that there is no need for an Appellate Body. 
• In the interests of a clear and predictable settlement of our differences, rather than compounding the uncertainty created by the effective suspension of the appellate body, Canada calls upon the United States to accept the decision of the panel and fully implement the recommendations of the Panel in this dispute. 
• More broadly, Canada is deeply concerned by the United States’ actions which frustrate the proper functioning of the dispute settlement system.
• The United States’ behaviour significantly reduces the security and predictability that we collectively value in international trade.