 WORLD TRADE  
ORGANIZATION  WT/DS277/R 
22 March 2004 
 (04-1077) 
 Original: English 
   
 
   
 
UNITED STATES – INVESTIGATION OF THE 
INTERNATIONAL TRADE COMMISSION IN 
SOFTWOOD LUMBER FROM CANADA 
 
 
Report of the Panel 
 
 
The report of the Panel on United States-Investigation of the International Trade Commission in 
Softwood Lumber from Canada  is being circulated to all Members, pursuant to the DSU.  The report 
is being circulated as an unrestricted documen t from 22 March 2004 pursuant to the Procedures for 
the Circulation and Derestriction of WTO Document s (WT/L/452).  Members are reminded that in 
accordance with the DSU only parties to the dispute may appeal a panel report.  An appeal shall be 
limited to issues of law covered in the Panel report and legal interpretations de veloped by the Panel.  
There shall be no ex parte  communications with the Panel or  Appellate Body concerning matters 
under consideration by the Panel or Appellate Body.   
 
 
Note by the Secretariat :  This Panel Report shall be adopted by the Dispute Settlement Body (DSB) within 60 
days after the date of its circulation unless a party to  the dispute decides to app eal or the DSB decides by 
consensus not to adopt the report.  If the Panel Report is appealed to the Appellate Body, it shall not be 
considered for adoption by the DSB until after the completion of the appeal.  Information on the current status of the Panel Report is available from the WTO Secretariat. 
 WT/DS277/R 
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TABLE OF CONTENTS 
Page  
 
LIST OF ANNEXES ............................................................................................................................... ............iv  
I. INTRODUCTION ............................................................................................................................... ........1  
II. FACTUAL ASPECTS .............................................................................................................................1  
III. PARTIES' REQUESTS FOR FINDINGS AND RECOMMENDATIONS .......................................3  
A. CANADA ............................................................................................................................... ...................3  
B. UNITED  STATES ............................................................................................................................... ......3 
IV. ARGUMENTS OF THE PARTIES .......................................................................................................3  
A. FIRST  WRITTEN  SUBMISSION  OF CANADA .....................................................................................3  
1. Standard of Review ............................................................................................................................... 4 
2. The Requirement Under Article 3.1 of the Anti-Dumping Agreement and Article 15.1 of the SCM 
Agreement to Base Injury Determinations on “Positive Evidence” and an “Objective Examination” ........4  
3. The Requirement Under Article 3.8 of the Anti-Dumping Agreement and Article 15.8 of the SCM 
Agreement to Consider and Decide Threat of Injury with “Special Care” ...................................................4  
4. The Requirements of Article 12 of the Anti-Dumping Agreement and Article 22 of the SCM  
Agreement to Provide a Reasoned Explanation for Injury Determinations, Including the Bases for 
Rejecting Relevant Arguments of the Parties .................................................................................................5  
5. The United States Has Acted Inconsistently with Article 3.7 of the Anti-Dumping Agreement and 
Article 15.7 of the SCM Agreement ...............................................................................................................5  
6. Volume and Price Effects of Subject Imports (Article 3.2 of the Anti-Dumping Agreement and  
Article 15.2 of the SCM Agreement) ............................................................................................................10  
7. Impact of Imports on Domestic Industry (Article 3.4 of the Anti-Dumping Agreement and  
Article 15.4 of the SCM Agreement) ............................................................................................................11  
8. The United States Has Acted Inconsistently with Article 3.5 and 3.7 of the Anti-Dumping  
Agreement and Article 15.5 and 15.7 of the SCM Agreement Which Require the Demonstration of a 
Causal Relationship Between the Dumped and Subsidized Imports and the Injury to the Domestic  Industry ............................................................................................................................... .........................11
 
9. The Commission Combined Injury Analysis is Inconsistent with the SCM Agreement and the Anti-
Dumping Agreement ............................................................................................................................... .....13  
B. FIRST  WRITTEN  SUBMISSION  OF THE  UNITED  STATES .............................................................13  
1. The ITC’s Determinations Are Consistent with US Obligations Under Article 3 of the Anti- 
Dumping Agreement and Article 15 of the SCM Agreement ........................................................................14  
2. The ITC’s Consideration of All Factors and Facts Relevant to the Threat of Material Injury  
Analysis in this Case and Its Findings Are Consistent with US Obligations Under the Covered Agreements
 .............................................................................................................................. ..............................16  
3. ITC’s Determinations are Consistent with US Ob ligations Under Articles 3.2 and 3.4 of the Anti--
Dumping Agreement and Articles 15.2 and 15.4 of the SCM Agreement ....................................................20  
4. The ITC’s Determinations are Consistent with US Obligations Under Article 3.5 of the Anti- 
dumping Agreement and Article 15.5 of the SCM Agreement .....................................................................21  
5. The ITC’s Combined Investigations are Consistent with US Obligations Under Covered  
Agreements ............................................................................................................................... ...................22  
C. FIRST  ORAL  STATEMENTS   OF CANADA .......................................................................................23  
1. Opening Statement of Canada at the First Meeting of the Panel ........................................................23  
2. Closing Statement of Canada at the First Meeting of the Panel .........................................................26  
D. FIRST  ORAL  STATEMENTS  OF THE  UNITED  STATES ...................................................................27  
1. Opening Statement of the United Sates of America at the First Meeting of the Panel ........................27  
2. Closing Statement of the United States of America at the First Meeting of the Panel ........................31  
E. SECOND  WRITTEN  SUBMISSION  OF CANADA ..............................................................................31  
1. Introduction ............................................................................................................................... ..........31  
2. No Present Injury ............................................................................................................................... .33 WT/DS277/R 
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3. Threat Finding Not Supported ............................................................................................................34  
4. Causation ............................................................................................................................... .............38  
5. Adverse Trade Trends .........................................................................................................................40  
F. SECOND  WRITTEN  SUBMISSION  OF THE  UNITED  STATES ........................................................41  
1. Overview ............................................................................................................................... ..............42  
2. Continuum of an injurious condition ascending from threat to injury. ...............................................43  
3. The facts and likely events demonstrating the progre ssion or change in circumstances which would 
create a situation in which the dumping and subsidies would cause injury included: .................................44  
4. Specific issues regarding the threat of material injury analysis. ........................................................45  
5. The ITC’s finding of likely substantial increases in subject imports. ..................................................46  
6. Likely price effects. ..............................................................................................................................4 6 
7. Inventories. ............................................................................................................................... ...........47  
8. Nature of the subsidies. .......................................................................................................................47  
9. Articles 3.2 and 3.4 of the Antidumping Agreement and Articles 15.2 and 15.4 of the SCM 
Agreement. ............................................................................................................................... ....................47  
10. The ITC demonstrated a causal relationship between the dumped and subsidized imports  
and the threat of injury to the domestic industry. ........................................................................................48  
11. The ITC examined any known causal factors to ensure injury was not attributed to subject 
 imports. ............................................................................................................................... ........................49  
12. Conclusion. ............................................................................................................................... ......50  
G. SECOND  ORAL  STATEMENTS  OF CANADA ...................................................................................50  
1. Opening Statement of Canada at the Second Meeting of the Panel ....................................................50  
2. Closing Statement of Canada at the Second Meeting of the Panel .....................................................55  
H. SECOND  ORAL  STATEMENTS  OF THE  UNITED  STATES ..............................................................57  
1. Opening Statement of the United States at the Second Meeting of the Panel .....................................57  
2. Closing Statement of the United States at the Second Meeting of the Panel .......................................60  
V. ARGUMENTS OF THE THIRD PARTIES ...........................................................................................62  
A. THIRD  PARTY  WRITTEN  SUBMISSION  OF THE  EUROPEAN  COMMUNITIES ..........................62  
1. The Applicable Standard of Review ....................................................................................................62  
2. Threat of Injury Determination ...........................................................................................................64  
B. THIRD  PARTY  ORAL  STATEMENT  OF THE  EUROPEAN  COMMUNITIES ..................................66  
1. Introduction ............................................................................................................................... ..........66  
2. Interpretation of Articles 3.5 ADA/15.5 SCM Agreement ...................................................................66  
3. Standard of Review .............................................................................................................................68  
C. THIRD  PARTY  WRITTEN  SUBMISSION  OF JAPAN ........................................................................68  
1. Introduction ............................................................................................................................... ..........68  
2. Argument ............................................................................................................................... ..............69  
3. Conclusion ............................................................................................................................... ...........72  
D. THIRD  PARTY  ORAL  STATEMENT  OF JAPAN ................................................................................72  
1. Introduction ............................................................................................................................... ..........72  
2. Insufficient Threat Analysis By ITC ....................................................................................................72  
3. Consideration to Factors Enumerated in Articles 3.7 And 15.7 .........................................................74  
4. Conclusion ............................................................................................................................... ...........75  
E. THIRD  PARTY  WRITTEN  SUBMISSION  OF KOREA .......................................................................75  
1. Introduction ............................................................................................................................... ..........75  
2. Article 3.1 of the Anti-Dumping Agreement and Ar ticle 15.1 of the SCM Agreement Require the 
Injury Determination to be Based on “Positive Evidence” and an “Objective Examination.” ..................76  
3. The United States Violated the Requirement of Article 3.5 of the Anti-dumping Agreement and  
Article 15.5 of the SCM Agreement to Demonstrate that the Dumped or Subsidized Imports were Causing 
Injury. ............................................................................................................................... ............................76  
4. There are at Least Two Facts that Would Lead the Panel to the Inevitable Conclusion that the US 
Investigating Authority Did Not Demonstrate the Existence of a “Causal Relationship” Between the 
Imports and the Injury to the US Market. ....................................................................................................76  
5. USITC’s Presumption of Likelihood of Threat of Dumping is Inconsistent with Article 17.6 of the 
Anti-dumping Agreement. ............................................................................................................................78  
6. Conclusion ............................................................................................................................... ...........78  
F. THIRD  PARTY  ORAL  STATEMENT  OF KOREA ...............................................................................79  WT/DS277/R 
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VI. INTERIM REVIEW .............................................................................................................................81  
VII. FINDINGS ............................................................................................................................... ..............84  
A. INTRODUCTION ............................................................................................................................... ....84 
B. FACTUAL  ASPECTS .............................................................................................................................84  
C. CLAIMS  SET  FORTH  IN CANADA'S  PANEL  REQUEST ..................................................................86  
D. STANDARD  OF REVIEW .....................................................................................................................86  
E. BURDEN  OF PROOF .............................................................................................................................89  
F. ALLEGED  VIOLATIONS  OF ARTICLE  3.1 OF THE  AD AGREEMENT  AND  ARTICLE  15.1  OF  
THE  SCM  AGREEMENT  - OBLIGATIONS  REGARDING  “POSITIVE  EVIDENCE”  AND  “OBJECTIVE  
EXAMINATION” ............................................................................................................................... .............90  
G. ALLEGED  VIOLATIONS  OF ARTICLE  3.8 OF THE  AD AGREEMENT  AND  ARTICLE  15.8   
OF THE  SCM  AGREEMENT  REQUIREMENTS  REGARDING  “SPECIAL  CARE” .....................................92  
H. ALLEGED  VIOLATIONS  OF ARTICLE 12  OF THE  AD AGREEMENT  AND  ARTICLE 22   
OF THE  SCM AGREEMENT .........................................................................................................................94  
I. ALLEGED  VIOLATIONS  OF ARTICLE 3.7  OF THE  AD AGREEMENT  AND  ARTICLE 15.7  OF 
THE  SCM AGREEMENT ............................................................................................................................... 96 
1. "Change in circumstances" .................................................................................................................96  
2. Consideration of factors in Article 3.7 of the AD Agreement and Article 15.7 of the 
 SCM Agreement ............................................................................................................................... .........100  
J. ALLEGED  VIOLATIONS  OF ARTICLES 3.2  AND  3.4 OF THE  AD AGREEMENT  AND  
ARTICLES 15.2  AND  15.4  OF THE  SCM AGREEMENT ...........................................................................108  
K. ALLEGED  VIOLATIONS  OF ARTICLES 3.5  AND  3.7 OF THE  AD AGREEMENT  AND  
ARTICLE 15.5  AND  15.7  OF THE  SCM AGREEMENT .............................................................................112  
1. Alleged failure to demonstrate a causal relationship ........................................................................113  
2. Alleged absence of the required non-attribution analysis .................................................................114  
L. ALLEGED  VIOLATIONS  OF THE  SCM AGREEMENT  AND  THE  AD AGREEMENT  IN THE  
USITC’S  COMBINED  INJURY  ANALYSIS ...............................................................................................118  
VIII. CONCLUSIONS AND RECOMMENDATION ..........................................................................121  
 WT/DS277/R 
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LIST OF ANNEXES 
 
 
ANNEX A 
 
PARTIES' RESPONSES TO QUESTIONS 
FROM THE FIRST MEETING 
 
 
Contents Page 
Annex A-1 Canada's Responses to Questions from the Panel and the 
United States - First Meeting A-2 
Annex A-2 United States Response to Questions from the Panel – First 
Meeting A-21 
 
 
 
ANNEX B 
  
PARTIES RESPONSES TO QUESTIONS 
FROM THE SECOND MEETING 
 
 
Contents Page 
Annex B-1 Canada's Responses to Questi ons from the Panel - Second Meeting B-2 
Annex B-2 United States' Responses to Questions from the Panel - Second 
Meeting B-6 
 
 
 
ANNEX C 
  
THIRD PARTY RESPONSES TO 
QUESTIONS FROM THE PANEL 
 
Contents Page 
Annex C-1 European Communities Responses to Questions from the Panel and 
the United States – Third Party Session C-2 
Annex C-2 Japan's Responses to Questions from the Panel - Third Party 
Session C-9 
 
 WT/DS277/R 
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I. INTRODUCTION 
1.1 On 20 December 2002, Canada requested consul tations with the United States pursuant to 
Article 4 of the Understanding on Rules and Proce dures Governing the Settlement of Disputes ("the 
DSU"), Article XXII of GATT 1994, Article 17 of th e Agreement on Implementation of Article VI of 
GATT 1994 ("the Anti-Dumping Agreement"), and Ar ticle 30 of the Agreement on Subsidies and 
Countervailing Measures ("SCM Agreement") concerning, inter alia , the United States International 
Trade Commission's (USITC) investigation and final determination in Softwood Lumber from 
Canada.1 The United States and Canada consulted on 22 Ja nuary 2003, but failed to settle the dispute.  
1.2 On 3 April 2003, Canada requested the Dispute Settlement Body ("the DSB") to establish a 
panel pursuant to Articles 4 and 6 of the DSU, Article XXIII of the GATT 1994, Article 17 of the 
Anti-Dumping Agreement and Article 30 of the SCM Agreement.2 
1.3 At its meeting on 7 May 2003, the DSB established a panel in accordance with Article 6 of 
the DSU to examine the matter referred to the DS B by Canada in document WT/DS277/2. At that 
meeting the parties to the dispute also agreed that the panel should have standa rd terms of reference. 
The terms of reference are, therefore, the following: 
"To examine, in the light of the relevant provisions of the covered agreements cited 
by Canada in documents WT/DS277/2, the matter referred to the DSB by Canada in 
that document and to make such findings as will assist the DSB in making the recommendations or in giving the rulings provided for in those agreements."   
1.4 On 12 June 2003, Canada requested the Director -General to determine the composition of the 
panel, pursuant to paragraph 7 of Article 8 of th e DSU. On 19 June 2003, the Director-General 
composed the Panel as follows:
3          
Chairman: H.E. Mr. Hardeep Singh Puri Panellists: Mr. Paul O'Connor   Ms. Luz Elena Reyes de la Torre 
1.5  The European Communities, Japan  and Korea reserved their rights to participate in the panel 
proceedings as third parties. 
1.6 The Panel met with the parties on 4-5 September 2003 and on 7 October 2003. It met with the 
third parties on 5 September 2003. 
II. FACTUAL ASPECTS 
2.1 This dispute concerns the investigation and de termination of the USITC in Softwood Lumber 
from Canada and the final definitive anti-dumpi ng and countervailing duties applied following the 
final determination. 
2.2 In this case, the USITC instituted prel iminary anti-dumping and countervailing duty 
investigations in response to a petition filed on 2 April 2001 on behalf of the US softwood lumber 
industry.  In the preliminary phase, the USITC determined, on 16 May 2001, that there was a 
reasonable indication that an industry in the United States was threatened with material injury by 
                                                     
 
1 WT/DS277/1. 
2 WT/DS277/2. 
3 WT/DS277/3. WT/DS277/R 
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reason of imports from Canada of softwood lumber that were alle ged to be subsidized by the 
Government of Canada and sold in the Unite d States at less than fair value (“LTFV”).
4  
2.3 Subsequent to United States Department of Commerce's ("USDOC") affirmative preliminary 
determination that imports of softwood lumber from Canada were subsidized and sold in the United 
States at dumped prices, the USITC institute d the final phase of its investigations.  
2.4 On 16 May 2002, the USITC unanimously determin ed that an industry in the United States 
was threatened with material injury by reason of  imports of softwood lumber from Canada found to 
be subsidized and sold in the United States at LTFV.5  On 22 May 2002, the USDOC issued 
antidumping and countervailing duty or ders on imports of softwood lu mber from Canada found by the 
USDOC to be subsidized and sold in the United States at LTFV.6 
2.5 In its final determination, the USITC found a single domestic like product consisting of 
softwood lumber products. Based on the domestic li ke product determination, the USITC concluded 
that there was a single domestic industry, which included all producers of softwood lumber in the United States.  The USITC found that several cond itions of competition pertinent to the softwood 
lumber industry were relevant to its analysis.
7 In particular, these conditions included the recently 
expired United States/Canada Softwood Lumber Agreement (“SLA”); demand, including factors 
affecting demand, actual demand da ta and forecasts;  supply conditions; species of lumber and 
substitutability; prices; and integration of the Nort h American lumber market. The USITC determined 
that the domestic softwood lumber industry was not materially injured by reason of subject imports 
from Canada found to be sold at LTFV and to be subsidized, but found that there was a threat of 
material injury by reason of such imports. 
2.6 The USITC found that the domestic industry producing softwood lumber was vulnerable to 
injury in light of declines in its performance over th e period of investigation, particularly its financial 
performance.  The USITC noted that the USDOC had determined that there were 11 programmes that 
conferred countervailable subsidies to Canadian  producers and exporters of softwood lumber, 
including:  the Provincial Stumpage programmes in the Provinces of Quebec, British Columbia, 
Ontario, Alberta, Manitoba, and Saskatchewan; tw o programmes administered by the Government of 
Canada; two programmes administered by the Pr ovince of British Columbia; and one programme 
administered by the Province of Quebec. The US ITC found that subject imports were likely to 
increase substantially based on:  Canadian produ cers’ excess capacity and projected increases in 
capacity, capacity utilization, and production; the ex port orientation of Canadian producers to the US 
market; the increase in subject imports over the period of investigation; the effects of expiration of the 
SLA; subject import trends during periods when th ere were no import restraints; and forecasts of 
strong and improving demand in the US market.  The USITC found that there was a moderate degree of substitutability between subject imports of so ftwood lumber from Cana da and the domestic like 
product, and that prices of different species affected the prices of other species.
 Given its finding of 
likely significant increases in subject import volum es, and its finding of at least moderate 
substitutability between subject imports and domes tic product, the USITC concluded that subject 
imports were likely to have a significant price depr essing effect in the immediate future.  The USITC 
recognized that while inventories generally were not substantial in the softwood lumber industry, 
Canadian producers’ inventories as a share of pr oduction had increased and we re consistently higher 
than that reported by US producers during the period of investigation.  Finally, the USITC noted that a number of domestic producers had reported actual an d potential adverse effects on their development 
                                                     
 
4 66 Fed. Reg. 28541 (23 May 2001).  (CDA-4). 
5 67 Fed. Reg. 36022 (22 May 2002).  (CDA-2) and the USITC Report in Softwood Lumber form 
Canada, Investigations Nos. 701-TA-414 and 731-TA-928 (Final), Publication 3509, (May 2002). 
6 67 Fed. Reg. 36068-36077 (22 May 2002).  (CDA-2). 
7 USITC Report at 21-27 (Exhibit CDA-1). WT/DS277/R 
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and production efforts, growth, investment, and ab ility to raise capital due to subject imports of 
softwood lumber from Canada. 
2.7 Thus, the USITC determined that further significant increases in dumped and subsidized 
imports were imminent, that these imports were likely to exacerbate price pressure on domestic producers, and that material injury to the domestic industry would occur.   
III. PARTIES' REQUESTS FOR FINDINGS AND RECOMMENDATIONS  
A. CANADA 
3.1 Canada requests the Panel to find that the inves tigation and final determ ination of threat of 
material injury by the USITC in Softwood Lumber  from Canada and the definitive anti-dumping and 
countervailing duties imposed as a result violate Articles 1, 3.1, 3.2, 3.4, 3.5, 3.7, 3.8, 12 and 18.1 of 
the Anti-Dumping Agreement  and 10, 15.1, 15.2, 15.4, 15.5, 15.7, 22 and 32.1 of the SCM Agreement  
and Article VI:6 (a) of GATT 1994. 
3.2 Canada requests that the panel recommend that  the United States bring its measures into 
conformity with its WTO obligations, including by revoking the final determination of threat of 
material injury, ceasing to impose anti-dumping and countervailing duties and returning the cash 
deposits collected as a result of the United States'  actions in Softwood Lumber from Canada.   
B. UNITED
 STATES 
3.3 The United States requests the panel to rej ect Canada's claims in their entirety. 
IV. ARGUMENTS OF THE PARTIES 
4.1 The arguments of the parties are set out in thei r written and oral submissions to the Panel, and 
their answers to questions.  The parties' arguments  as presented in their submissions are summarized 
in this section. The parties' written answers to questi ons are set out in full as Annexes to this report. 
(see List of Annexes, page iv). 
A. FIRST  WRITTEN  SUBMISSION  OF CANADA 
4.2 The following summarizes Canada's arguments in its first submission. 
4.3 At issue in this dispute is the injury inves tigation of the United States International Trade 
Commission (Commission) in Softwood Lumber from Canada  and the final definitive anti-dumping 
and countervailing duties applied as a result of th e Commission’s final determination made on 
16 May 2002. In its final determination, the Commi ssion concluded that the US domestic softwood 
lumber industry was not materially injured by reason of subj ect imports from Canada.  However, it 
determined that the industry was threatened  with material injury by reason of such imports. 
4.4 As will be demonstrated below, the Commission’ s threat of material injury determination 
violated the requirements of Article VI of the General Agreement on Tariffs and Trade  (“GATT 
1994 ”), the Agreement on Implementation of Article VI  of the General Agreement on Tariffs and 
Trade 1994  (“Anti-dumping Agreement ”), and the Agreement on Subsidies and Countervailing 
Measures  (“SCM Agreement ”).  As a result of these violations, the United States imposed 
countervailing and anti-dumping duties inconsistently  with these Agreements.  Accordingly, these 
duties are not legal and should be withdrawn. 
 WT/DS277/R 
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1. Standard of Review 
4.5 As this dispute involves both the Anti-dumping Agreement and the SCM Agreement, both 
Article 11 of the Understanding on Rules and Pr ocedures Governing the Settlement of Disputes 
(DSU) and Article 17.6 of the Anti-Dumping Agreem ent apply. Article 11 of the DSU sets out the 
appropriate standard of review fo r panels established under all the c overed agreements, subject to the 
special provisions that apply in the case of the An ti-Dumping Agreement. Given the Appellate Body’s 
and panel’s interpretations of Article 11 in past  cases, this Panel should consider whether the 
Commission: evaluated all the relevant factors that it was required under the Agreements to 
investigate;  examined all the fact s in the record before it and all of the relevant facts it could have 
obtained (including those facts which might have supp orted a negative determin ation); and provided a 
reasoned and adequate explanation of how the f acts as a whole supported the findings made on each 
legal issue.  According to the Appellate Body in US – Lamb Safeguard, if there is a plausible alternative explanation of the facts as a whole, in the light of which the Commission’s explanation 
does not seem adequate, the Panel should find th at the Commission has not provided a reasoned and 
adequate explanation of how the facts support its determination.   
4.6 In US – Hot-Rolled Steel , the Appellate Body determined that certain elements of Article 17.6 
of the Anti-Dumping Agreement complement or supplement the standard of review contained in 
Article 11 of the DSU.  With respect to the oblig ation of panels to make an objective assessment of 
the facts of the matter before them, the Appellate Bo dy found that both provisions require panels to 
“assess” the facts and that this “clearly necessitates an  active review or examination of the pertinent 
facts”.
  Noting the duty of panels under Article 11 to ma ke an objective assessme nt of the facts, the 
Appellate Body stated that it is “inconceivable that  Article 17.6(i) should require anything other than 
that panels make an objective ‘assessment of the facts of the matter’.”    
2. The Requirement Under Article 3.1 of the Anti-dumping Agreement and Article 15.1 of 
the SCM Agreement to Base Injury Determin ations on “Positive Evidence” and an 
“Objective Examination”  
4.7 Given that “injury” is explicitly defined in the Anti-Dumping Agreement  and the SCM 
Agreement  to include both “material injury” and “threat of  material injury” to a domestic industry, all 
of the requirements set forth in Article 3 of the Anti-Dumping Agreement  and Article 15 of the SCM 
Agreement  regarding injury determina tions apply equally in the context of threat of injury 
determinations. Article 3.1 of the Anti-Dumping Agreement  and Article 15.1 of the SCM Agreement  
contain fundamental, substantive obligations that apply to  Members and their investigating authorities 
instructing them on how they must conduct their injury investigations and make their injury 
determinations.  Both of these Articles require that a determination of injury, which includes threat of 
material injury, shall be “based on positive evidence and involve an obj ective examination of both: (a) 
the volume of the dumped [or subsidized] imports and the effect of the dumped [or subsidized] 
imports on prices in the domestic market for like products; and (b) the consequent impact of these 
imports on domestic producers of such products”.   As demonstrated below, the Commission’s 
evaluation of the requirements contained in paragra phs 2 through 7 of Articles 3 and 15 falls short of 
the fundamental, overarching obligations contained in Articles 3.1 and 15.1. 
3. The Requirement Under Article 3.8 of the Anti-Dumping Agreement  and Article 15.8 of 
the SCM Agreement  to Consider and Decide Threat of Injury with “Special Care” 
4.8 The Commission also failed to satisfy the requirements of Article 3.8 of the  Anti-Dumping 
Agreement  and Article 15.8 of the  SCM Agreement  which stipulate that “with respect to cases where 
injury is threatened by dumped [subsidized] imports, the application of anti-dumping [countervailing] WT/DS277/R 
Page 5 
  
 
measures shall be considered and decided with special care”.  As demonstrated below, the 
Commission’s failure to take “special care” permeates its entire determination. 
4. The Requirements of Article 12 of the  Anti-Dumping Agreement  and Article 22 of the  
SCM Agreement  to Provide a Reasoned Explanation for Injury Determinations, 
Including the Bases for Rejecting Relevant Arguments of the Parties 
4.9 Article 12.2 of the Anti-Dumping Agreement and Article 22 of the  SCM Agreement  impose 
upon investigating authorities the obligation to prov ide a reasoned and adequate explanation for the 
injury determinations they make.  In particular , these provisions require investigating authorities to 
publish a notice of final determination of injury th at provides: in sufficient detail, the findings and 
conclusions reached on all issues of fact and law cons idered material by the investigating authorities; 
all relevant information on the matte rs of fact and law and reasons wh ich have led to the imposition of 
final measures;  the reasons for the acceptance or rejection of relevant arguments or claims made by the exporters or importers; and c onsiderations relevant to the injury determination as set out in 
Article 3 and Article 15. As demonstrated belo w, the Commission’s Repor t falls short of these 
obligations, and is thus inconsis tent with Article 12.2 of the Anti-dumping Agreement  and Article 22 
of the SCM Agreement . 
5. The United States Has Acted Inconsistently with Article 3.7 of the  Anti-Dumping 
Agreement  and Article 15.7 of the  SCM Agreement   
4.10 Article 3.7 of the  Anti-Dumping Agreement  and Article 15.7 of the  SCM Agreement  establish 
three distinct requirements for threat of injury determ inations.  First, they require that a determination 
of threat of material injury “shall be based on fact s and not merely on allegati on, conjecture or remote 
possibility.”  Second, they require that “the change  in circumstances which would create a situation in 
which the dumping [or subsidies] would cause inju ry must be clearly foreseen and imminent”.  
Finally, they require consideration of specific enumer ated factors, the totality of which “must lead to 
the conclusion that further dumped [or subsidized ] exports are imminent and that, unless protective 
action is taken, material injury would occur”. 
4.11 The Commission’s Determination Failed to Identify the Clearly Foreseen and Imminent 
Change in Circumstances Necessary to Establish a Threat of Injury.   The panel in Egypt – Steel 
Rebar  observed that in a threat of injury investiga tion, “… the central question is whether there will 
be a ‘change in circumstances’ that would cause th e dumping [or subsidies] to begin to injure the 
domestic industry”.  In this case, the Commission failed to provide a reasoned answer to this 
fundamental question.  In particular, the Commission did not explain how the evidence before it 
provided a non-conjectural basis for concluding that the status quo  would change such that subject 
imports that were found to be non- injurious to the domestic industry during the period of investigation 
would cause material injury in the imminent future. 
4.12 Indeed, one of the few “change in circ umstances” identified in the Commission’s 
determination – its forecast of “strong and improving  demand” in the US lumber market “as the US 
economy rebounds from recession” – would appear to make threat of injury less likely , rather than 
more likely.  In fact, the demand forecasts endor sed by the Commission forecast steady growth in 
lumber demand beginning in the second half of 2002,  leading to all-time record softwood lumber 
consumption by 2003 (within the period the Commissi on considered imminent).  In the face of this 
evidence, the Commission never explained how the in crease in imports it predicted would outstrip the 
strong and growing demand forecasted and therefore r esult in a material increase in Canadian market 
share above the 34 per cent level found non-injurious during the period of investigation.  Thus, the 
Commission’s finding of “strong and improving demand”, combined with its finding of a relatively stable subject import market share in its negative current material injury determination, suggests a 
“change in circumstances” that would appear to make the threat of injury less likely, not more likely.  
Accordingly, the Commission failed to provide a re asoned, adequate and c onsistent explanation WT/DS277/R 
Page 6  
 
supporting a finding that there was a change in circum stances that would create a situation in which 
the dumping or subsidy would cause injury imminently.  
4.13 The Commission Did Not Properly Consider the Enumerated Factors in Article 3.7 of 
the Anti-Dumping Agreement and Article 15.7 of the SCM Agreement .  The Commission also 
failed to consider properly the factors listed in  Article 3.7 of the Anti-Dumping Agreement and 
Article 15.7 of the SCM Agreement and other rele vant factors based on the evidence before it.  
Canada demonstrates that proper consideration of th e totality of the relevant factors does not support 
the Commission’s affirmative threat of injury determination. 
4.14 The Nature of the Subsidies in Question.
  Pursuant to paragraph (i) of Article 15.7 of the  SCM 
Agreement , the Commission should have considered th e “nature of the subsidy or subsidies in 
question and the trade effects likely to arise there from”.  The Commission’s evaluation falls short of 
the requirements of Article 15.7 because the Commissi on failed to consider all the relevant evidence 
before it concerning the nature of the subsidies and,  in particular, the trade effects likely to arise 
therefrom. Specifically, the Commission failed to cons ider properly all the relevant evidence before it 
regarding the absence of trade effects from the prim ary subsidies at issue – the provincial “stumpage” 
programmes.  
4.15 The Commission had before it relevant economic  evidence from an eminent natural resources 
economist demonstrating that the subsidy progra mmes in question do not increase the production of 
logs or lumber or lower their prices, or increase the quantity or lower the prices of lumber exports to 
the United States, in comparison with the outcome in a market in which government is not involved.  In other words, there was signi ficant evidence before the Commissi on that the subsidies at issue 
would have no trade effects.  
4.16 The Commission’s mere acknowledgement of  the Canadian Trade Lumber Alliance 
(CLTA)’s argument regarding the absence of trade ef fects does not constitute adequate consideration 
of this factor.  If the nature of the subsidy was su ch that it would not lead to an increase in imports 
above the non-injurious level observed over the period of investigation, then the Commission’s 
finding that imports were likely to increase substan tially and cause material injury could not be based 
on positive evidence.  
4.17 Moreover, the Commission’s characterization of  the CLTA’s evidence contains fundamental 
errors. First, the Commission erroneously stated that  “Ricardian rent theory relies on the assumption 
of fixed supply”, which it does not. Second, the Commission’s observation that “ lumber  supply is not 
necessarily fixed” [emphasis added] is irrelevant be cause the stumpage subsidies relate to the market 
for timber , which is upstream from the market for lumber. 
4.18 Significant Rate of Increase of Dumped and Subsidized Imports.
  By virtue of paragraph (i) of 
Article 3.7 of the Anti-Dumping Agreement and paragraph (ii) of Article 15.7 of the SCM Agreement , 
the Commission should have considered whether ther e was “a significant rate of increase of [dumped 
or subsidized] imports into the domestic market indicating the likelihood of substantially increased 
importation”.  
4.19 The Commission did not make the proper consideration required by these provisions.  It 
merely observed that the “volume of subject im ports from Canada increased by 2.8 per cent from 
1999 to 2001” and that “[a]s a share of apparent domestic consumption, subject imports from Canada 
increased from 33.2 per cent in 1999 to 34.3 per cent in 2001”.  It did not co nduct any evaluation of 
whether the rate of increase was “significant” and, if so, whether that rate of increase indicated a 
“likelihood of substantially increased importation”.  In short, the Commissi on failed to “go beyond a 
mere recitation of trends in the abstract and put the import figures into context”, as it was obligated to 
do. WT/DS277/R 
Page 7 
  
 
4.20 Sufficient Disposable Capacity or Immi nent Substantial Increase in Capacity.   Pursuant to 
paragraph (ii) of Article 3.7 of the  Anti-dumping Agreement  and paragraph (iii) of Article 15.7 of the  
SCM Agreement , the Commission should have considered whether there was “sufficient freely 
disposable, or an imminent, substantial increase in , capacity of the exporter indicating the likelihood 
of substantially increased dumped  [subsidized] e xports to the importing Member’s market, taking 
into account the availability of other export mark ets to absorb any additional exports”.  The 
Commission failed to consider properly either of the two elements of this requirement.  
4.21 With respect to “an imminent, substantial incr ease in capacity of the exporter indicating the 
likelihood of substantially increased dumped  [subs idized] exports”, the Commission did not find that 
there was an imminent, substantial increase in  capacity, nor could the evidence before the 
Commission reasonably be construed to support such  a finding.  With respect to “sufficient freely 
disposable… capacity of the exporter indicating the likelihood of substantially increased dumped  
[subsidized] exports”, the Commission li mited its consideration to the mere existence  of Canadian 
producers’ freely disposable capacity without expl aining how that theoretical ability to increase 
imports would translate into the likelihood of subs tantially increased dumped and subsidized exports 
to the United States that the Agreements require.  The Commission ignored evidence of projections it 
solicited from Canadian producers regarding how they  intended to distribute the projected increased 
production between their three principal markets – Canada, the United States, and third countries.  These projections showed that exports to the United States were expected to increase only slightly in 
absolute terms from the non-injurious levels that occurred during 2001. 
4.22 Price Depression and Suppression.
  Under Article 3.7(iii) of the  Anti-Dumping Agreement  and 
Article 15.7(iv) of the  SCM Agreement , the Commission should have cons idered whether “imports are 
entering at prices that will have a significant de pressing or suppressing effect on domestic prices and 
would likely increase demand for further imports”. 
4.23 In its threat of injury analysis, the Commission st ated the following with respect to the effect 
of the pricing of the subject goods: “Given our findi ng of likely significant increases in subject import 
volumes, and our finding of at least moderate s ubstitutability between subj ect imports and domestic 
product, we conclude that subject imports are likely to have a  significant price depressing effect in the 
future .  Therefore, we find that subject imports from Canada are entering at prices that are likely to 
have  a significant depressing or suppressing effect on domestic prices, and are likely to increase 
demand for further imports”. [emphasis is added] 
4.24 In the last sentence of the above excerpt, the Co mmission stated that the subject imports from 
Canada “are entering at prices that are likely to  have a significant depressing or suppressing effect on 
domestic prices, and are likely to increase demand for further imports”.  However, that is simply a restatement of the wording in Article 3.7(iii) of the Anti-Dumping Agreement  and Article 15.7(iv) of 
the SCM Agreement , and is not grounded in any way in the analysis that precedes it. That analysis 
deals with the impact of forecasted volumes  of subject imports on prices, not with the impact of 
current  import prices  as required by Article 3.7(iii) of the Anti-Dumping Agreement  and 
Article 15.7(iv) of the SCM Agreement .  
4.25 Moreover, this absence of a proper evaluation b ecomes all the more striking when one recalls 
the Commission’s findings that there was no ev idence on the record to demonstrate significant 
underselling by the subject imports, nor was there any evidence that the subject imports had significant price effects either prior to, or following, the filing of the petition.   
4.26 In addition, because the Commission’s pred iction of inju rious price effects derives 
exclusively from its finding that the volume of im ports was likely to increase substantially, the 
fundamental flaws in that finding, in particular the absence of any basis for concluding that such 
increase would upset the non-injurious status quo  by outpacing strong and improving demand, render 
the Commission’s affirmative threat findi ng unsupported by any evidence at all.  WT/DS277/R 
Page 8  
 
 
4.27 Inventories of the Product Being Investigated.
  The Commission failed to properly consider 
“inventories of the product being investigated”, as required by Article 3.7(iv) of the  Anti-Dumping 
Agreement  and Article 15.7(v) of the  SCM Agreement .  The Commission’s consideration of this factor 
was limited to a single sentence: “[w]hile inventor ies generally are not substantial in the softwood 
lumber industry, Canadian producers’ inventor ies as a share of production increased and were 
consistently higher than that reported by US pr oducers during the period of investigation”.  The 
footnote appended to this sentence reveals that th e “increase” to which the Commission referred was 
not significant – 0.6 percentage points over th e 1999-2001 period.  The Commission provided no 
further elaboration regarding how this observation, wh ich relates solely to the period of investigation 
during which no material injury due to the s ubject imports was found, supported the Commission’s 
determination of threat of material injury to the domestic industry.   
4.28 None of the Other Factors Cited in Support of the Commission’s Finding that Imports 
Would Increase Substantially Supports it s Affirmative Threat Determination .  The 
Commission’s affirmative threat of injury determination is grounded in its finding of a likely 
substantial increase in the subject imports. On  the basis of this finding alone, the Commission 
concluded that the subject imports were likely to  have a significant depressing or suppressing effect 
on domestic prices in the future.  Canada has alr eady demonstrated how this central finding of the 
Commission is not supported by its analysis of the factors listed in Article 3.7 of the  Anti-Dumping 
Agreement  and Article 15.7 of the  SCM Agreement .   
4.29 The other factors examined by the Commission th at led to its finding that subject imports 
were likely to increase substantially were: foreca sts of strong and improving demand in the US 
market; the export-orientation of Canadian produ cers to the US market; the annual allowable cut 
(AAC) requirements; the effects of the expiration of the Softwood Lumber Agreement between the 
Government of Canada and the Government of the United States of America  (“SLA”); and subject 
import trends during periods when there were no impor t restraints.  As shown below, none of those 
factors points to a clearly foreseen and imminent  change in circumstances that would create a 
situation in which the subject imports would cause material injury. 
4.30 Forecasts of Strong and Improving Demand in the US Market.   One predicate for the 
Commission’s conclusion that subject imports woul d increase substantially in the imminent future 
was its finding of “forecasts of strong and improving  demand in the US market” in 2002-2003.  As 
discussed above, “strong and improving demand” would a ppear to be a factor making threat of injury 
to the domestic industry less likely, not more likely.   
4.31 The Commission failed to evaluate how this f actor supported its finding of a substantial 
increase in imports in the future and, more sp ecifically, how moving from a period of “relatively 
stable” demand to a period of “strong and improving demand” would upset the non-injurious status 
quo and make future injury likely.  It ignored a cruc ial consideration – the projected market share held 
by Canadian imports.  Only if the increase in Cana dian exports was likely to outstrip the “strong and 
growing demand” in the US market could Canadian market share increase materially above the 34 per 
cent level the Commission considered non-injurious. But the Commission did not make that finding.  Therefore, there was no basis for it to conclude th at the increased demand in the US market supported 
either a finding that imports would increase substantially  or an affirmative finding of threat of injury. 
4.32 The Export-Orientation of Canadian Producers to the US Market.
  The Commission observed 
that “Canadian producers are predominantly export-o riented toward the US market, with exports to 
the United States accounting for 68 per cent of their production in 2001.”  The Commission provided no further elaboration regarding the significance of this  finding to its affirmative threat determination.  
Significantly, the Commission failed to address the fact that Canadian producers were similarly export-oriented during the period of investigation, over which the Co mmission made a negative injury WT/DS277/R 
Page 9 
  
 
finding and over which the level of imports fro m Canada was non-injurious.  The Commission failed 
to demonstrate the change that is  necessary to upset the non-injurious status quo .   
4.33 The Annual Allowable Cut.   The Commission observed that “many Canadian provinces 
subject tenure holders (lumber producers) to requireme nts to harvest at or near their annual allowable 
cut (“AAC”) or be subject to penalties/reducti ons in future AACs”.  In its view, these cut 
requirements “increase production even when demand is low and thus increase the incentive to export 
more softwood lumber to the US market”.  
4.34 The Commission failed to explain how these annual allowable cut requirements, which 
applied to Canadian producers throughout the peri od of investigation during which the level of 
imports from Canada did not increase to injurious levels, would nonetheless provide an incentive to 
Canadian producers to increase their exports to injuri ous levels in the imminent future.  If anything, 
the record indicated that the Canadian cut requirements would have less impact in the imminent 
future:  the Commission acknowledged that to the extent cut requirements created an incentive to 
increase exports, such incentive would occur “whe n demand is low”;  however the Commission found 
that the imminent future would be characterized by “strong and improving” demand, rather than the 
“relatively stable” demand that occurred over the period of investigation.   
4.35 Moreover, the Commission recognized that Québec, Alberta, New Brunswick and Nova 
Scotia did not have minimum cut requirements, yet failed to take these facts into account when 
making its conclusion that imports were likel y to increase substantially in the future. 
4.36 The Effects of the Expiration of the SLA.   Under the SLA, the United States agreed for a five-
year period not to initiate investigations or othe rwise take action under sever al United States’ trade 
statutes with respect to imports of softwood lu mber from Canada, in exchange for Canada’s 
commitment to impose export fees on shipments to  the United States of lumber produced in the 
provinces of British Columbia, Alberta, Ontario and Québec above a negotiated baseline.  The 
investigations that resulted in the final determina tion at issue were initiated on 2 April 2001, two days 
after the expiration of the SLA.   
4.37 The Commission found that the “SLA appears to  have restrained the volume of subject 
imports from Canada at least to some extent ”, and had “ some  restraining effects on the volume of 
subject imports [emphasis added]. However, the Commission failed to explain how these inconclusive statements supported its finding that “subject im ports are likely to increase substantially”.    
4.38 It is notable that the Commission did not  find that the SLA had a “significant” or 
“substantial” restraining effect on the volume of subject imports.  Nor did the Commission find that 
the SLA’s removal would lead to an increase in im port volumes sufficient to raise Canadian market 
share to injurious levels in an expanding US mark et.  The Commission’s finding regarding the effect 
of the SLA may reflect its recognition that attributi ng a greater effect to the SLA could not be squared 
with the evidence that Canadian import volumes and market share did not  increase substantially 
following the SLA’s expiration.  Indeed, the data showed that subject import market share increased 
only 0.4 percentage points after the expiry of the SLA between April and December 2001 compared 
to the same period in 2000.  
4.39 The Commission did not consider the slight incr ease in market share that took place after the 
expiration of the SLA to be sufficient to translate in to material injury.  To the contrary, it made a 
negative material injury finding for the period that included a full year after the SLA expired.  The fact that any restraining effect from the SLA was not significant or substantial is also consistent with 
the Commission’s finding that “the record does no t indicate that subject imports had a significant 
price effect either prior to or following the f iling of the petition”, which occurred on the business day 
following the expiry of the SLA.  Thus, the alleged restraining effects of the SLA do not explain why 
subject imports did not increase to injurious levels in  the year following its e xpiration.  It logically WT/DS277/R 
Page 10  
 
follows that the Commission lacked a reasoned b asis for concluding that imports would increase 
substantially in the imminent fu ture in the SLA’s absence.   
4.40 Subject Import Trends During Period When There Were No Import Restraints
.  The 
Commission observed that imports of softwood lu mber from Canada increased during periods in 
which there were no restraints on their entry into the US market, i.e., prior to the SLA between 1994 
and 1996, and during the period immediately afte r the SLA expired and before suspension of 
liquidation in these investigations (April to Augu st 2001).  It did not evaluate how these facts 
supported its conclusion that subject imports were  likely to increase substantially in the future. 
4.41 With respect to the Commission’s reference to  imports during 1994-1996, import trends for 
that time period say nothing about likely import tre nds some eight years later without a finding that 
market conditions in the two periods were simila r.  Yet the Commission cited these prior import 
trends without conducting any analysis whatsoever re garding market conditions in this earlier period 
or otherwise explaining its reliance on 6-8 year old data, well before the period of investigation, to 
project the likely level of imports in the foreseeable future.    
4.42 With respect to the Commission’s reference to imports during the period of April to 
August 2001, the Commission failed to evaluate wh ether the observed increase in imports over that 
period represented:  (i) a measure of the allegedly higher level of imports that would have arrived 
absent any import restraint;  or, instead, (ii) a shift in the timing of imports that otherwise would have 
been shipped to the United States because impor ters knew well in advance when the SLA would 
expire and when suspension of liquidation would begi n, and had every incentive to delay or accelerate 
imports to avoid both SLA expor t fees and bonding requirements. 
4.43 Moreover, the Commission failed to explain th e inconsistency between: (i) its position that 
trends in imports in the “no restraint” period from April to August 2001 were indicative of what 
would happen in the absence of import restraints; and (ii) its statement that “we do not find that 
material injury by reason of subject merchandise that is subsidized and sold at less than fair value 
would have been found but for any suspension of liqui dation of entries of such merchandise”.  Under 
the Commission’s logic, given that the imposition of suspension of liquidation was the only 
intervening event after August 2001, it must have  been the factor that prevented imports from 
increasing substantially, and material injury fro m ripening, prior to the Commission’s vote in 
May 2002.  However, the Commission explicitly concluded that it was not  the suspension of 
liquidation that prevented injury from occurring. Thus, import trends for the April to August period cannot logically support a finding that imports woul d increase substantially and to injurious levels in 
the imminent future absent protective action.   
4.44  Conclusions.
  On the basis of the foregoing, it is clear that the totality of these factors do not 
provide a non-conjectural basis for concluding that “subject imports are likely to increase substantially”, much less lead to a substantial in crease in Canadian market share in a US lumber 
market experiencing strong and improving demand.  Accordingly, the single factor that forms the 
foundation for the Commission’s affirmative threat of  injury determination – a likely substantial 
increase in subject imports – is not supported by  the evidence. For these reasons, the Commission’s 
threat of injury determination does not comply with Articles 3.1 and 3.7 of the Anti-Dumping 
Agreement  and Articles 15.1 and 15.7 of the SCM Agreement.   
6. Volume and Price Effects of Subject Imports (Article 3.2 of the  Anti-Dumping 
Agreement  and Article 15.2 of the  SCM Agreement)  
4.45 Article 3.2 of the  Anti-Dumping Agreement  and 15.2 of the  SCM Agreement  require an 
investigating authority to consider whether there has been a significant incr ease in the volume of the 
dumped or subsidized imports, either in absolute te rms or relative to production or consumption in the WT/DS277/R 
Page 11 
  
 
importing Member, whether there has been signi ficant price undercutting by those imports, and 
whether the effect of such imports is to otherwise depress or suppress prices to a significant degree. 
4.46 The Commission failed to explain properly how it could reach its affirmative threat of injury 
determination in the light of its findings that: there had been a small increase in subject imports’ 
market share during the period of investigation; it could not draw any conclusion from the collected 
pricing data as to whether there had been signifi cant underselling by the subject imports; and it could 
not conclude from the record that the subject impor ts had a significant price effect during the period 
of investigation.  By failing to do so, the Commission did not comply with Article 3.2 of the Anti-
Dumping Agreement  and Article 15.2 of the SCM Agreement  in the context of threat of injury. 
7. Impact of Imports on Domestic Industry (Article 3.4 of the  Anti-Dumping Agreement  
and Article 15.4 of the  SCM Agreement)    
4.47 When investigating authorities have determined  that there will likely be an increase in 
dumped or subsidized imports, they must assess the likely impact of such an increase on the domestic 
industry. In Mexico – High-Fructose Corn Syrup , the Panel recognized that “an investigating 
authority cannot come to a reasoned conclusion {regarding threat}, based on an unbiased and 
objective evaluation of the facts, without taking in to account the Article 3.4 factors relating to the 
impact of imports on the domestic industry”.  As a resu lt, it held that “the listed factors in Article 3.4 
must be considered in all cases,” along with “other relevant economic factors in the circumstances of a particular case”.  
4.48 In the section of its report concerning threat of material injury, the Commission assessed the 
current state of the domestic softwood lumber indus try but failed to evaluate the likely state of the 
domestic industry in the future, and, in particular , how further dumped and s ubsidized imports would 
affect the domestic industry’s condition during the period of  “strong and improving demand” the 
Commission predicted for the imminent future.  This constitutes a fatal deficiency in the 
Commission’s threat of injury analysis.  Without such an evaluation, it is impossible to reach a 
reasoned conclusion regarding threat of material injury.  
4.49 The Commission did address a number of the mandatory factors listed in Article 3.4 of the 
Anti-Dumping Agreement  and Article 15.4 of the SCM Agreement , but only with respect to the past.  
The Commission did not assess how any of the listed factors was likely to evolve in the future.  
Therefore, it failed to undertake any meaningful ev aluation of the listed factors for the purpose of its 
threat of injury analysis.  
4.50 Consequently, the United States has acted in consistently with its obligations under 
Articles 3.1 and 3.4 of the  Anti-dumping Agreement  and under Articles 15.1 and 15.4 of the  SCM 
Agreement . 
8. The United States Has Acted Inconsistently with Article 3.5 and 3.7 of the Anti-Dumping 
Agreement  and Article 15.5 and 15.7 of the SCM Agreement  Which Require the 
Demonstration of a Causal Relationship Between the Dumped and Subsidized Imports 
and the Injury to the Domestic Industry   
4.51 The Commission failed to comply with the re quirements in Articles 3.5 and 3.7 of the Anti-
Dumping Agreement  and Articles 15.5 and 15.7 of the SCM Agreement  relating to causation.  The 
requirements of Articles 3.5 and 15.5 can be broken down into two main elements:  first, as confirmed 
by Articles 3.7 and 15.7, there must be a demonstration of a causal relationship between the dumped or subsidized imports and the injury to the domestic  industry, which must be based on an examination 
of all relevant evidence before the authorities; and, second, the authorities must examine any known 
factors other than the dumped or subsidized imports  which at the same time are injuring the domestic WT/DS277/R 
Page 12  
 
industry, and the injuries caused by these other fact ors must not be attributed to the dumped or 
subsidized imports (“non-attribution” requirement). 
4.52 The Absence of a Causal Relationship Be tween the Dumped and Subsidized Imports 
and the Threat of Injury.   With respect to the first element, now here in its determination of threat of 
injury did the Commission explain how its predicte d substantial increase in the volume of subject 
imports would be likely to have a significant price depressing effect in the future and therefore would 
threaten to cause injury to the domestic industry.  In particular, the Commission failed to examine and 
evaluate all evidence before it relevant to the demonstration of the necessary causal relationship, 
including several “conditions of competition” it c oncluded were “pertinent to the softwood lumber 
industry” and “relevant to our analysis”.   
4.53 One such finding was the Commission’s acknowledgment that the United States is not self-
sufficient in lumber and that a significant volume of  imports is needed to fulfil demand. This finding, 
together with the Commission’s prediction of “strong and improving demand” in the US market, 
suggests that any increase in imports would continue serving demand that the US industry could not meet, and thus not upset the non-injurious status quo .     
4.54 The Commission also failed to evaluate the im plications of its finding that subject imports 
were “at least moderately substitutable” with domest ic product.  That finding necessarily includes the 
concept that competition between subject imports and the domestic product is attenuated to some 
extent.  Notwithstanding this, the Commission made no effort to assess what portion of the substantial 
increase in subject imports it predicted might serve end uses for which US species such as Southern 
Yellow Pine are not well suited, or that US produc ers otherwise cannot meet or can meet only to a 
limited extent.  
4.55 The Commission further failed to integrate into its causation analysis its findings that there 
was increasing integration in the North American  lumber market, and that US domestic producers 
were responsible for purchasing or importing “a sizab le volume” of the subject imports.  A reasonable 
inference, and one supported by the factual record in this case, is that domestic producers purchase 
subject imports to complement their own producti on, not displace it, and hence such imports are 
unlikely to adversely affect the domestic industry.   
4.56 The Absence of the Required Non-attribution Analysis.  In the reasons for its affirmative 
threat determination, the Commission fa iled to identify, much less examine, any other known factors 
that could threaten injury to the domestic indus try in addition to the subject imports.  Having 
neglected even to identify other causal factors,  the Commission also did not separate out and 
distinguish the injurious effects of those other fact ors from the alleged injurious effects of the dumped 
and subsidized imports.  
4.57 This deficiency in the Commission’s determin ation is particularly acute given the strong 
evidence before it that factors other than the subj ect Canadian softwood lumber imports were having 
substantial adverse effects on th e US domestic industry during the period of investigation.  The 
Commission found that:  “the deterioration in the condition of the domestic industry during the period 
of investigation is largely the result of substantial declines in price .  In light of our finding that subject 
imports have not had a significant price effect, and the small increase in their market share, we conclude that subject imports did not have a si gnificant impact on the domestic industry”. [emphasis 
added]   
4.58 This finding indicates that there were very significant “other factors” that adversely affected 
the US domestic softwood lumber industry.  The Commission explicitly identified another known 
source of injury to the domestic industry in its curr ent injury analysis that it deemed sufficient to 
break any alleged causal link between subject imports and injury, i.e., the industry’s own contribution  
to the oversupply that led to the price declines over the period of investigation.  The domestic WT/DS277/R 
Page 13 
  
 
industry’s likely response to the “strong and improving demand” conditions that the Commission 
forecast for the US market in the imminent future (i.e., increased output) was thus a potential source 
of injury, in addition to any lik ely increase in subject imports, that the Commission was obligated to 
take into account in its threat analysis.  Howeve r, the Commission failed to do so. Similarly, the 
Commission failed to examine the likely future role of non-subject imports and their potential 
contribution to any threatened injury to the US  industry, as well as other known factors potentially 
injurious to the domestic industry, such as changes in the patterns of consumption.  
4.59 Accordingly, the United States acted inconsis tently with Articles 3.1 and 3.5 of the Anti-
Dumping Agreement  and Articles 15.1 and 15.5 of the SCM Agreement . 
9. The Commission Combined Injury Analysis is Inconsistent with the SCM Agreement  
and the Anti-Dumping Agreement  
4.60 The Anti-Dumping Agreement  and the SCM Agreement  each contain detailed provisions 
outlining the specific requirements that must be fulf illed by an investigating authority when making a 
determination of injury, or threat of injury, in an anti-dumping or subsidy investigation.  When an 
investigation involves both dumped and subsidized im ports, the investigating authority is obliged to 
comply with the specific requirements of both the Anti-Dumping Agreement  and the SCM Agreement , 
as well as of Article VI of GATT 1994 .   
4.61 The Commission’s threat of injury analysis combined dumped and subsidized imports .  In 
these circumstances, in order to a pply both anti-dumping and counterv ailing duties, the United States 
was obliged to comply with the specific requirements of both the Anti-Dumping Agreement  and the 
SCM Agreement , as well as of Article VI of GATT  1994 .   
4.62 The Commission failed to comply with these requi rements by failing to undertake all of the 
necessary evaluations specified in the  Anti-Dumping  Agreement and SCM Agreement  respectively.  
The Commission’s failures in this regard include, for example: (i) it did not properly consider the 
nature and trade effects of the subsidies in question as required by Article 15.7(i) of the SCM 
Agreement  and failed to provide a reasoned and adequate explanation of how this factor, as well as the 
other factors set out in Articles 3.7 and 15.7, supported its threat of injury determination; (ii) it failed 
to consider all the mandatory factors under Articles 3.4 of the Anti-dumping Agreement  and 
Article 15.4 of the SCM Agreement ; and (iii) it failed to conduct a proper causation analysis under 
Article 3.5 of the Anti-Dumping Agreement  and Article 15.5 of the SCM Agreement .  Moreover, the 
Commission never provided a reasoned explanation of why, in the particular circumstances of this 
case, it was appropriate to conduct its analysis as it did. 
B. FIRST  WRITTEN  SUBMISSION  OF THE  UNITED  STATES 
4.63 The following summarizes the United States' arguments in its first written submission. 
4.64 In this dispute, Canada challenges the dete rminations of the US International Trade 
Commission ("ITC") that an industry in the United States producing softwood lumber is threatened with material injury by reason of imports of soft wood lumber from Canada f ound to be subsidized and 
sold in the United States at less than fair value ("LTFV"). 
4.65 The ITC’s determinations are based on positive evidence and on an objective examination of 
all relevant factors and facts.  Moreover, the IT C articulated reasoned and adequate explanations 
demonstrating how the facts as a whole support its de terminations, permitting th e Panel to adequately 
discern the rationale for the ITC’s findings.  Contrary  to Canada’s claims, the ITC’ s determinations 
are consistent with US obligati ons under Article 3 of the Antidum ping Agreement and Article 15 of 
the SCM Agreement.  As such, there is also no basi s for Canada’s claim that the ITC’s determinations WT/DS277/R 
Page 14  
 
are inconsistent with Articles 1 and 18.1 of the Anti-Dumping Agreement, Articles 10 and 32.1 of the 
SCM Agreement, or Article VI:6(a) of the GATT 1994. 
4.66 Standard of Review .  This dispute is covered by both th e standard of review set forth in 
Article 11 of the DSU and the special standard of  review for disputes arising under the Anti-Dumping 
Agreement, set forth in Article 17.6 of that Agreemen t.  In considering the relationship of Article 17.6 
of the Antidumping Agreement to Article 11 of the DSU, the Appellate Body has indicated that these 
provisions are complementary or supplementary.  Canada, however, ignores the Appellate Body’s 
explicit statements that neither of these article s permits, let alone requires, a Panel to conduct a de 
novo  review of the evidence or to substitute the Panel’s conclusions for those of the competent 
authority.  Instead, Canada repeatedly, whether im plicitly or explicitly, requests the Panel to reweigh 
the evidence and decide the case de novo  by substituting Canada’s view of the evidence for that of the 
ITC. 
4.67 Objective Assessment Is Not De Novo  Review .  Canada tends to blur the distinction 
between the functions of a panel and those of an investigating authority.  In making an "objective 
assessment" of the matter, the Appellate Body has st ated that a panel is to consider whether the 
national "authorities had examined all the relevant facts and had provided a reasoned explanation of 
how the facts supported their determination".  The A ppellate Body describes the panel’s role as one of 
evaluating a competent authority’s acts rather than directly evaluating the underlying facts.  The Appellate Body has recognized that  it is for the investigating author ity to "determine, objectively, and 
on the basis of positive evidence, th e importance to be attached to each  potentially relevant factor and 
the weight to be attached to it". 
4.68 Obligation to Base Determinations on Positive Evidence .  The investigating authority must 
ensure that its determination of injury is made on the basis of "positive ev idence", which involves the 
facts underpinning and justifying the injury determin ation, and involves an "objective examination", 
which is concerned with the investigative process itself.  The ITC considered the totality of the 
evidence and based its determination on "positive eviden ce";  that is, evidence which is affirmative, 
objective, verifiable and credible.  Moreover, the ITC conducted an "objective examination" in which 
the "identification, investigation and evaluation of  the relevant factors [was] . . . even-handed". 
4.69 Obligation to Provide Reasoned and Adequate Explanations .  The requirement to provide 
a reasoned explanation has not been interpreted to  impose any specific method for assessing the injury 
or for explaining the basis for such a determination.  The Appellate Body in EC-Pipe  recognized that 
the evaluation of a factor does not necessarily require an explicit separate evaluation of that factor if 
the analysis of the factor is implicit in the analy ses of other factors.  The guidance essentially is that 
the investigating authority "must be in a position to de monstrate that it did address the relevant issues"  
As evident in the Views of the Commission, the ITC considered all relevant arguments raised b.y 
parties and provided adequate explanations.  Moreover, the Views of the Commission "contain a 
persuasive explanation as to how the evaluation of rele vant factors led to the determination of injury". 
1. The ITC’s Determinations Are Consistent with US Obligations Under Article 3 of the 
Antidumping Agreement and Article 15 of the SCM Agreement 
4.70 A common thread in Canada’s claims is its repeated assertions that there could be no threat of 
material injury because there allegedly were no inju rious effects found in the present material injury 
analysis and that the ITC did not identify any immine nt and abrupt change in the status quo.  Canada 
portrays the ITC’s present material injury findi ng as a negative with no subsidiary findings or 
evidence to support an affirmative finding.  This si mply is wrong. The ITC found, based on the facts 
as a whole, that the volume of imports was significant and thus supported an affirmative present material injury finding.  However, while the subj ect imports had resulted in some price effects, the 
ITC recognized that excess supply of both importe d and domestic products had contributed to price 
declines, particularly in 2000, and thus could not find that subject imports had had significant price WT/DS277/R 
Page 15 
  
 
effects.  The condition of the domestic industry, pa rticularly its financial performance, had declined 
during the period of investigation as a result of th e price declines.  The ITC found that the domestic 
industry was vulnerable to injury.  The ITC’s subs idiary findings regarding present material injury 
foreshadow and clearly support the existence of a threat of material injury. 
4.71 The ITC considered all factors relevant to a threat of material injury determination  
provided for in the covered Agreements, including Articles 3.2, 3.4, and 3.7 of the Anti-Dumping 
Agreement and Articles 15.2, 15.4, and 15.7 of the SCM Agreement.  Canada has not met its burden 
of establishing a prima facie  case of any violation or inconsistencies with US obligations under the 
covered Agreements 
4.72 Continuum of an Injurious Condition Ascending from Threat to Injury .  Threat of material 
injury is material injury that has not yet occurred, but remains a future event whose actual 
materialization cannot be assured with absolute certain ty but with clear likelihood.  Threat of injury, 
thus, is an anticipation of material injury that must be on the verge of occurring, i.e., clearly foreseen 
and imminent. 
4.73 The Anti-Dumping Agreement and the SCM Agreem ent recognize that injury to the domestic 
industry does not generally occur s uddenly, but rather often involves a progression of injurious effects 
ascending from a threat of material injury, and if not prevented, to present material injury.  Therefore, 
a determination that an industry is threatened with material injury would be warranted when 
conditions of trade clearly indicate that material inju ry likely will occur imminently if demonstrable 
trends in trade adverse to the domestic industry c ontinue, or if clearly foreseeable adverse events 
occur. 
4.74 Canada reads the threat provision to require the investigating authority to identify "a" change 
in circumstances, i.e., "an event," that will abruptly change the status quo from a threat of material 
injury to present material injury , rather than the clearly foreseeable  result of a sequence of events.  
Canada argues that the ITC should ha ve identified a specific event or ch ange in the status quo in order 
to justify its threat determination.  But this interp retation is not necessitated, if even justified, by the 
text of the covered Agreements, the negotiating hi story of the Agreements, or the Appellate Body’s 
analysis in other dispute settlement proceedings involving the threat of injury.  Rather, as the 
Appellate Body in US-Line Pipe  recognized, generally there is a c ontinuum of an injurious condition 
of a domestic industry that ascends from a threat of injury up to injury. 
4.75 Future-Oriented Analysis Based on Proj ections Extrapolating from Existing Data .  A threat 
analysis is a future-oriented analysis, based not on al legation or conjecture but rather on the facts.  But 
facts by definition pertain to the present and past rather than the future.  While the occurrence of 
future events can never be definitely proven by facts, projections necessarily are based on 
extrapolations from existing data.  In US-Lamb Meat , the Appellate Body discussed this tension 
between the future-oriented threat analysis and the need for a fact-based determination, and 
recognized that ultimately it calls for a degree of "c onjecture" about the likelihood that the threat will 
ascend to injury.  While the prospective nature of th e analysis will not provide for certainty, the use of 
facts from the present and the past provides th e basis for projections about the future. 
4.76 Meaning of "Special Care" .  Article 3.8 of the Antidumping Agreement and Article 15.8 of 
the SCM Agreement provide no discussion regarding what constitutes "special care," nor has any 
panel explicitly interpreted this pr ovision.  Canada’s argument notwithstanding, the "special care" 
provision does not mean that there is a stricter, higher standard of review for threat analysis than for 
present material injury analysis in the context of the covered Agreements.  In fact, in the safeguards 
context, the Appellate Body suggested that the dis tinction between threat of injury and present injury 
"serves the purpose of setting a lower threshold  for establishing the right  to apply a safeguard 
measure".  The same logic would apply to the covered Agreements. WT/DS277/R 
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4.77 Meaning of "Consider"
.  The covered Agreements require  the ITC to consider all listed 
factors.  What Canada fails to recognize  is that they do not require the ITC to make findings  on each 
factor.  The term "consider" has been interpreted to mean, " inter alia : ‘contemplate mentally, 
especially in order to reach a conclusion;’ ‘give a ttention to’; and ‘reckon with; take into account.’"  
Accordingly, the term "consider" has not been read to require an explicit "finding" by the 
investigating authority.  Rather it is sufficient, if it is apparent in the relevant  documents in the record, 
that the ITC has given attention to and taken the factor into account. 
4.78 In EC-Pipe , the Appellate Body recognized that consideration of a factor does not necessarily 
require an explicit separate evaluation of that factor if the analysis of the factor is implicit in the 
analyses of other factors.  In the same manner, the investigating authority is not required to explicitly 
address every minute detail or specific aspect of every argument that is raised by parties.  Canada fails 
to acknowledge that the ITC clearly considered the relevant evidence and arguments raised by parties 
but found other evidence to be more persuasive.  
2. The ITC’s Consideration of All Factors and Facts Relevant to the Threat of Material 
Injury Analysis in this Case and Its Findings Are Consistent with US Obligations Under 
the Covered Agreements 
4.79 The ITC found that there was a likelihood of su bstantial increases in subject imports based on 
evidence regarding, inter alia , Canadian producers’ excess production capacity and projected 
increases in capacity, capacity utilization and pr oduction, the export orientation of Canadian 
producers to the US market and subject import tr ends during periods when  there were no import 
restraints, such as the SLA.  Furthermore, each of the six subsidiary factors considered by the ITC 
related directly to threat factors set forth in Article 3.7 of the Antidumping Agreement and 
Article 15.7 of the SCM Agreement, specifically wh ether there is a significant rate of increase in 
imports and sufficient freely disposable production cap acity.  The ITC addressed the effect of each of 
these factors in its findings.  The ITC determined  that these increases in imports were likely to 
exacerbate price pressure on domestic producers, and that material injury to the domestic industry 
would occur.  Moreover, the ITC found that the domes tic industry was vulnerable to injury in light of 
declines in its performance over the period of inves tigation, particularly its  financial performance. 
4.80 The ITC’s Finding of Likely Substa ntial Increases in Subject Imports:   a) Demand in US 
Market – Forecasts and Possible Effects Supports ITC’s Determinations .  Canada emphasizes a single 
factor, demand in the US market, which was only one of six subsidiary factors considered by the ITC in its determinations.  Canada a ttempts to persuade the Panel that  a purported significant increase in 
US demand for softwood lumber was imminent and that this anticipated spike in demand would 
restore the US industry’s financial health and insulate it from any further adverse effects from 
additional subject imports from Canada.  The Achilles h eel in Canada’s argument is that it disregards 
substantial portions of the investigatory record and, despite the presence of significant contrary 
evidence, offers little more than conjecture to suppor t its theory that future increases in demand would 
improve prices. The ITC considered and rejected th is theory because it was not supported by the facts. 
4.81 Contrary to Canada’s theory, strong demand ove r the period of investigation not only did not 
translate into price improvements but did not prevent substantial declines in prices for softwood lumber.  Moreover, the evidence demonstrated that supply rather than demand had played the pivotal 
role in the movement of prices of softwood lu mber in the US market, as the excess supply had 
resulted in price declines through 2000.  Canada has not refuted the fact that even with strong demand 
during the period of investigation, prices dec lined and the condition of  the domestic industry 
deteriorated – effects opposite to those Canada spec ulates should occur in the future.  Nevertheless, 
Canada argues that the ITC should have agreed to th is optimistic theory about what effects growth in 
demand would have on industry performance and prices. WT/DS277/R 
Page 17 
  
 
4.82 Moreover, Canada has not refuted the ITC’s fi nding regarding forecasts for US demand,  that 
the US market would continue to be a very a ttractive and necessary one for Canadian lumber (a 
market that accounts for about 65 per cent of Cana dian production), that subject imports would 
continue to play an important role in the US mark et, and even that there would likely be increases in 
such imports.  Rather, Canada contends, relying again largely on the thin premise of increases in 
demand, so great as to outpace supply increases, that  increases in subject import volumes and market 
penetration would not be injurious. 
4.83 b)  Canadian Producers’ Excess Capacity and Projected Increases in Capacity, Capacity 
Utilization, and Production Su pport ITC’s Determinations .  The ITC found that the evidence 
demonstrated that Canadian producers had excess capacity, and increases in capacity and production 
were projected in 2002 and 2003.  In addition, Cana dian producers, which rely on sales in the US 
market for about two-thirds of their sales, had incentives to produce more softwood lumber and export 
it to the US market.  In light of those facts, th e ITC reasonably found that excess capacity and further 
projected increases in Canadian production would likely result in substantial increases of subject 
imports. 
4.84 The Canadian producers rely on sales in the US market for about two-thirds of their 
production .  The significance of Canada’s export-orientation is clear.  When a single market accounts 
for two-thirds of a country’s production, the expor ting industry’s success, and probably survival, is 
tied to the importing market.  Canada’s argument ignores the ITC’s affirmative finding in its present injury analysis that the volume of imports fro m Canada, equal to one-third of US apparent 
consumption, was significant.  The evidence dem onstrated that the US market had been very 
important to Canadian producers and was expected to continue to be. 
4.85 The Canadian producers had excess capacity .  Canadian producers’ capacity utilization had 
peaked in 1999 at 90 per cent, and then declined to  84 per cent in 2001.  This contrasted with the 
relatively stable level for Canadian capacity utiliz ation in the three years prior to the period of 
investigation, while operating under the SLA.  The Canadian producers projected increases in 
capacity and production, and improvements  in capacity utilization in 2002 and 2003 .  The evidence 
showed that there had been a steady increase in  Canadian producers’ capacity from 1995 to 1999, 
with a more gradual increase from 1999 to 2001.  T hus, despite the excess capacity already available 
in 2001 as capacity utilization declined to 84 per cent, the evidence demonstrated that Canadian 
producers expected to further incr ease their ability to supply the US  softwood lumber market.  In 
particular, capacity utilization was projected to increase to 90 per cent in 2003, as capacity also was 
projected to increase. 
4.86 There was evidence of incenti ves to produce more softwood lumber and export it to the US 
market .  The ITC found there was evidence that manda tory cut requirements stimulated increased 
production even when demand was low and thus in creased the incentive to export more softwood 
lumber to the US market.  The ITC found that  imports with the annual allowable cut ("AAC") 
requirements in place were at significant levels in its  present injury analysis.  It is disingenuous for 
Canada not to acknowledge that one of the provi nces with AAC requirements is British Columbia, 
which accounts for almost 50 per cent of Canadian  softwood lumber production and 50 per cent of 
imports to the US market. 
4.87 Canadian producers’ export projections .  The ITC found that more weight should be given to 
actual data showing excess Canadian capacity, declin es in home market shipments, and declines in 
exports to other markets, as well as projected incr eases in production than to the export projections, 
which were inconsistent with the other data. While Canadian producers projected that exports to the 
US market would increase slightly in 2002 and 2003,  these projected increases in exports to the 
United States accounted for only about 20 per cent of  the planned increases in production.  The US 
market accounted for 68 per cent of the Canadian  softwood lumber producti on in 2001.  It was 
reasonable, given the evidence as a whole, for the ITC to discount the Canadian producers’ projected WT/DS277/R 
Page 18  
 
export data and assume that projected increases in production would likely be distributed between the 
US market, home market, and other non-US export ma rkets in shares simila r to those prevailing 
during the last five years.  Canada has offered no positive evidence to refute the ITC’s reasonable 
position that production increases would be distributed according to historic proportions.  In this case, 
the evidence demonstrated that the US market ha d been very important to Canadian producers and 
was expected to continue to be. 
4.88 c) Likely Increases in Subject Imports Support ITC’s Determinations
.  In evaluating whether 
there was a likelihood of substantially increased imports of softwood lumber from Canada, the ITC 
considered, inter alia , evidence regarding the increase in imports  over the period of investigation, the 
effects of expiration of the SLA, and subject impor t trends during periods when imports were not 
subject to restraints.  The ITC found that the evidence demonstrated that the volume of subject 
imports was already significant and had increased even with the restraining effect of the SLA in place, 
and that subject imports had increased substantially  during periods without export restraints as well.  
Canada is simply incorrect in contending that th e ITC found such levels of  import penetration were 
insufficient, much less "non-injurious", in its presen t material injury finding. Moreover, contrary to 
Canada’s charges, the ITC did not find that the 2.8 per cent increase in the volume of imports during 
the period of investigation was insignificant.  It expressly found the volume of imports significant and 
that such imports would be injurious if combined  with evidence of significant price and impact 
effects. 
4.89 In this case, the threat analysis begins w ith subject import volumes already at significant 
levels.  The evidence demonstrates that subject impor ts will continue to enter the US market at this 
significant level and are projected to increase.  Ca nada acknowledges that imports at this level would 
continue and even increase; its argument princi pally concerns whether the increases would be 
substantial. 
4.90 Restraining effects of the SLA .  Canada ignores the evidence supporting the ITC’s finding that 
trade during most of the period of investigation was affected by the SLA.  Canada claims that imports 
after the SLA increased by only 0.4 per cent, but its comparison of import data for 
April-December 2001 to April-December 2000 ignores the imposition of other trade restraining 
measures, i.e., preliminary countervailing duties, in A ugust 2001.  Thus, Canada’s argument is 
predicated on a false notion – that trade during the identified period was free of trade incumberances.  
In contrast, when the period with no formal trad e restraining measures is considered, the evidence 
shows that subject imports increased by 11.3 pe r cent for the April-August 2001 period compared 
with the same 2000 period.  The facts are, there is  a distinction in the le vel of imports depending on 
whether restraints are in place and the import vol umes are substantially higher during periods when 
they are not subject to restraining measures. 
4.91 Trends in subject imports during periods when su ch imports were not subject to some type of 
formal or informal restraint .  Subject imports during these non-restraint periods increased 
substantially.  The ITC considered import trends during the period prior to the adoption of the SLA, 
between 1994 and 1996.  During the seven quarters,  from August 1994, when the appeals for the 
1991-1992 cases were terminated and imports of soft wood lumber from Canada were not subject to 
any trade restraining measure, until the SLA took eff ect in April 1996, subject imports’ market share 
increased from 32.6 per cent in 3  rd quarter 1994 to 37.4 per cent in 1 st quarter 1996. With the SLA in 
effect, the market share for softwood lumber fro m Canada declined to 34.3 per cent in 1997 and 
remained fairly stable within a range of 2.7 per centage points.  The ITC appropriately considered 
these trends.  It did not rely solely on this evidence to support its affirmative threat determination.  
Moreover, the evidence for the earlier period was cons istent with the evidence for the more recent 
restraint-free period (April-August 2001), which showed that imports substantially increased. 
4.92 Subject imports increased during the period i mmediately after the SLA expired (April 2001) 
and before suspension of liquidation (August 2001).  Subject imports by volume for the period of WT/DS277/R 
Page 19 
  
 
April to August 2001 were higher than the compar able April-August period in each of the preceding 
three years (1998-2000) by a range of 9.2 per cent to 12.3 per cent. This evidence provides a clear indicator of how subject imports have entered, and w ould enter, the US market in the imminent future 
if not subject to trade restraints, and supports th e ITC’s finding of likely substantial increases in 
subject imports. 
4.93 Canada’s claim that the ITC should have consid ered if this increase was due to a shift in 
timing resulting from the pending imposition of duties i gnores the simple fact that imports would be 
entering the US market without restraints in subs tantially increased amounts,  and continues to focus 
on the magnitude of increases rather than the underlying fact that imports already are, and would continue to be, at injurious levels .  Canada’s attempts to portray th e ITC’s finding as inconsistent with 
its negative finding on the misunderstood "but for" pr ovision in US law that must be considered in 
affirmative threat determ inations also fails for a number of reasons.  First, the ITC found that the 
volume of imports supported a present material inju ry finding; there would have been no need to 
change its determination from threat to present if it had been based only on this factor.  Second, 
Canada is suggesting that the ITC should have base d its entire present material injury determination 
on one factor based on only five months of data.  However, as the Appellate Body in US-Lamb Meat  
explained in the safeguards context, the data for th e entire period of investigation must be assessed in 
making a threat of injury determination. 
4.94 Canada fails to refute the simple fact that w ithout restraints imports have increased:  increases 
stopped when the SLA was imposed; substantial incr eases in imports occurred when the SLA expired; 
and increases in imports stopped when preliminary duties were imposed.  Canada offers nothing but 
speculation about other reasons why imports were not restrained during those periods. 
4.95 The ITC’s Finding of Likely Pr ice Effects by Subject Imports.   At the heart of Canada’s 
arguments regarding the ITC finding of likely price effects is its disagreement with the finding of a 
likely substantial increase in subject imports.  Canada again mischaracterizes the evidence and 
findings in the ITC’s present material injury analysis. 
4.96 In evaluating the present price effect s of the subject imports, the ITC found that the 
substantial volume of subject imports had some  adverse effect on prices  for the domestic like 
product during the period of investigation, albeit not  significant effects.  The ITC concluded that 
while subject imports had adversely affected prices of domestic products, it could not find significant 
price effects because the price dec lines were due to excess supply in 2000 by both Canadian exports 
and domestic product.  While the evidence again showed  substantial declines in prices in the third and 
fourth quarters of 2001, to levels as low as 2000, the evidence regarding supply, which generally was 
considered the cause for the substantial price dec lines in 2000, indicated that US producers had 
curbed their production, but that overproduction "remai ns a problem in Canada".  Therefore, the ITC 
reasonably found that the additional subject imports , which it concluded were likely, would further 
increase the excess supply in the market, putting furt her downward pressure on prices.  Moreover, the 
evidence demonstrated that pressure would come  from excess Canadian supply rather than a 
combination of import and domestic supply. 
4.97 Canada would have the Panel preclude findings of likely price effects in a threat analysis 
because present price effects were not found.  Th is view simply has no basis in the covered 
Agreements, particularly when, as here, prices declined at the end of the period of investigation.  The 
ITC’s explanation regarding likely price effects build s, in particular, on its explanation in its present 
price effects discussion, among others. 
4.98 The ITC’s Consideration of the Nature of the Countervailable Subsidies .  The ITC also 
considered the nature of the s ubsidies granted by Canada, consis tent with the requirement of 
Article 15.7(i) of the SCM Agreement. The ITC exam ined the information presented to it by the US 
Department of Commerce regarding the 11 progr ammes that it found conferred countervailable WT/DS277/R 
Page 20  
 
subsidies to Canadian producers and exporters of softwood lumber.  The ITC took into account that 
none of the subsidies were of the kind described  in Article 3 or 6.1 of the SCM Agreement. 
4.99 At the centre of Canada’s claim is a misper ception that the SCM Agreement requires the ITC 
to make a finding concerning the nature of the subs idies and their likely trade effects.  However, the 
plain language of the Agreement requires the ITC to consider this factor but not to make a finding. 
4.100  While the ITC clearly considered parties’ argumen ts on the nature and effect of the subsidies, 
it declined to adopt the positions of any of the parties due to the conflicting evidence and economic 
theories regarding the effects of stumpage fees on lu mber output.  Canada has provided the Panel with 
a one-sided analysis of this issue, and ignored the conflicting evidence presented to the ITC regarding 
the applicability of the economic models and their alleged effects.  Canada  would have the Panel 
believe that the Canadian producers’ economic theory  was the only information before the ITC on this 
issue and that this theory was a proven fact. Neither assertion is true.  The domestic producers 
presented the ITC with arguments, economic analys is and economic studies to refute the economic 
theory provided by Canadian parties.  Indeed, ev idence presented to the ITC during its investigation 
squarely placed in question whether the Ricardian rent  theory was applicable to the timber and lumber 
markets, whether the underlying premise to the theory regarding fixed supply was correct, and 
whether the results regarding the effects of the st umpage fees on output were very different.  The ITC 
made an objective examination of this issue by considering all of the evidence and arguments 
presented. 
4.101  The ITC found that, despite all the evidence of  record, the uncertainties regarding these 
competing economic theories provided by the parties were such as to preclude reasoned and adequate 
conclusions.  Therefore, the ITC appropriately co nsidered the parties’ arguments and provided a 
reasoned explanation but found it could not reach a finding on the competing economic theories.  As 
evident in the Views of the Commis sion, its consideration of this threat factor was not a reason that 
led to its determinations and thus , it neither supported nor detracted from those determinations that the 
domestic industry was threatened with material  injury by reason of the subject imports. 
4.102  The ITC’s Consideration of the Threat Inventory Factor .  The ITC has given attention to 
and taken the inventory factor into account.  The IT C is not required to make findings on each factor, 
but instead is only directed to consider the  "totality " of the threat factors in making a determination.  
The ITC ’s determination is reasonably based on nu merous factors, including consideration of the 
inventories of the subject product. 
3. ITC’s Determinations are Consistent with US  Obligations Under Articles 3.2 and 3.4 of 
the Antidumping Agreement and Articles 15.2 and 15.4 of the SCM Agreement 
4.103  In a threat analysis, the investigating author ity should consider th e evidence regarding the 
factors listed in Article 3.7 of the Anti-Dumping Agreement and Article 15.7 of the SCM Agreement, 
as well as the present and past evidence regarding th e factors listed in Articles 3.2 and 3.4 of the 
Antidumping Agreement and Articles 15. 2 and 15.4 of the SCM Agreement. 
4.104  ITC Properly Considered Volume and Price Effects of Subject Imports .  The ITC 
considered all of the facts from the present and past, specifically regarding the volume of imports, 
price effects and the consequent impact of con tinued dumped and subsidized  imports on the domestic 
industry, in its threat analysis.  The ITC’s evaluation of the evid ence regarding relevant factors, 
pursuant to Articles 3.2 and 3.4 of the Anti-Dump ing Agreement and Articles 15.2 and 15.4 of the 
SCM Agreement, resulted in subsidiary findings that  the volume of imports was significant, that there 
were some price effects, that the condition of th e domestic industry had deteriorated primarily as a 
result of declining prices and that the industry was in  a vulnerable state.  Moreover, projections based 
on the  facts provide positive evidence justifying th e ITC’s determination that the domestic industry WT/DS277/R 
Page 21 
  
 
was on the verge of material injury by reason of  the continued dumped and subsidized softwood 
lumber imports from Canada. 
4.105  Canada’s arguments are merely variations of the same arguments already raised regarding 
likely substantial increases in imports and likely pri ce effects, and are based on Canada’s premise that 
there could be no threat because there allegedly we re no findings of injurious effects in the present 
material injury analysis.  That premise is demonstrably incorrect. 
4.106  ITC Properly Considered the Impact of Subj ect Imports on the Domestic Industry .  The 
ITC also properly conducted a "meaningful evaluation" of the relevant factors listed in Article 3.4 of 
the Anti-Dumping Agreement and Article 15.4 of th e SCM Agreement, and re asonably concluded that 
the deterioration in the performance of the domestic industry, particularly its financial performance, 
made it vulnerable to injury.  Canada  fails to recognize that a finding of vulnerability by its nature is a 
finding about the future, i.e., a future assessment of the industry’s susceptibility to injury. 
4.107  Canada’s reliance on the panel’s findings in Mexico-HFCS  to challenge whether the ITC 
conducted a "meaningful evaluation" of these factors is misplaced.  The issue in HFCS  was not the 
manner in which these factors were evaluated but that they did not appear to be considered at all.  
Two very important differences distinguish this case from HFCS :  first, it is possible, by reading the 
ITC’s final determination here, where it was not in HFCS , to understand the overall condition of the 
domestic industry with respect to the Article 3. 4 factors; and second, in this case, the domestic 
industry was currently experiencing substantial decl ines in its condition, particularly its financial 
performance, which was not the case in HFCS . 
4. The ITC’s Determinations are Consistent with US Obligations Under Article 3.5 of the 
Antidumping Agreement and Article 15.5 of the SCM Agreement 
4.108  The ITC Demonstrated a Causal Relationship Between the Dumped and Subsidized 
Imports and the Threat of Injury to the Domestic Industry.   Canada’s claims under Article 3.5 
and 15.5, respectively, are merely variations of the same arguments already raised regarding likely substantial increases in imports and likely price eff ects, and are based on its premise that there could 
be no threat because there allegedly were no injury findings in the present material injury analysis.  
The totality of the facts when examined in an  unbiased and objective manner support the ITC’s 
findings. 
4.109  Demand and self-sufficiency
.  The ITC, not surprisingly si nce subject imports from Canada 
have accounted for about one-third of US consumpti on for more than seven years, recognized that the 
United States was not self-sufficient in the produc tion of lumber.  Canada’s argument, however, 
implies that, if demand increases substantially, th e US industry will not be capable of increasing 
supply, because its capacity is fully utilized.  Not only is  this argument incorrect, it also is inconsistent 
with Canada’s own argument regarding attribution to  dumped and subsidized imports of injury caused 
by other known factors.  In that context, Canada  assumes that the US industry has the capability to 
contribute to excess supply in the future and would be the cause of injury.  The facts do not support 
either theory. The ITC appropriately considered the conditions of compe tition regarding demand and 
the US industry’s ability to supply the US market. 
4.110  Substitutability/Attenuated Competition .  Canada ignores the analysis conducted by the ITC 
and its findings based on considera tion of the totality of the facts, including the evid ence provided by 
purchasers and home builders, that there are other products that both countries produce that compete with each other; Canadian softwood lumber and the domestic like product generally are 
interchangeable; subject imports and domestic species are used in the same applications; regional 
preferences exist, but do not reflect a lack of  substitutability, but instead simply reflect a 
predisposition toward locally-milled species; and evid ence demonstrated that prices of different WT/DS277/R 
Page 22  
 
species have an effect on other species’ prices, particul arly those that are used in the same or similar 
applications. 
4.111  North American integration
.  Canada recognizes that the ITC considered the integration of the 
North American lumber industry, but criticizes the ITC for not speculating that integrated companies 
would not harm related companie s.  Yet, Canada provides no evidence whatsoever to support its 
supposition that integrated firms will not harm their related parties.  Moreover, this integration is not 
new.  This raises the question of why would it have a different effect in the future than during the 
period of investigation, when, with integration in place, the evidence demonstrated that import 
volumes were significant, and imports had some adverse price effects. 
4.112  The ITC Examined Any Known Causal Factors to Ensure Injury Was Not Attributed to 
Subject Imports .  Neither Article 3.5 of the Anti-Dumpi ng Agreement nor Article 15.5 of the SCM 
Agreement provides any particular methodology that  authorities must use in examining other known 
causal factors.  The Appellate Body in EC-Pipe  indicated that, provided that an investigating authority 
does not attribute the injurious effects of other causal factors to dumped imports, "it is free to choose the methodology it will use in examining the ‘cau sal relationship’ between dumped imports and 
injury." 
4.113  Canada principally alleges that  domestic supply is a known causal factor which the ITC found 
contributed to injury in its present material injury analysis, but ignored  in its threat analysis.  The ITC 
examined constraints on domestic producers’ ability to meet demand.  The ITC also took into consideration domestic producers’ past contribu tion to oversupply conditio ns.  Canada ignores, 
however, the evidence cited by the ITC indicati ng that the domestic producers had curbed their 
production, but that "overproduction remains a problem in Canada."  Thus, while domestic 
overproduction had contributed to adverse price effe cts in 2000, the evidence demonstrated that it was 
no longer contributing to excess supply while Canadian imports continued to oversupply. Canada also 
omits the fact that domestic production capacity was fa irly level during the period of investigation, a 
time when apparent consumption was increasing.  These facts concerning domestic supply reinforce 
the ITC’s affirmative determinations. 
4.114  The ITC considered parties' arguments regarding three other alleged causal factors – 
nonsubject imports, other substitutes, and cyclical  demand and housing construction cycles – that 
Canada refers to in footnotes to its first subm ission.  However, upon examination of the record 
evidence regarding these issues, it is clear that none of  them rise to the level of "other known factors 
injuring the domestic industry". 
5. The ITC’s Combined Investigations are Cons istent with US Obligations Under Covered 
Agreements 
4.115  The ITC’s decision to cross-cumulate subsid ized and dumped imports of softwood lumber 
from Canada in its consideration of whether th e volume and price effects of subject imports 
threatened the domestic industry with material inju ry is consistent with US obligations under the 
Antidumping Agreement and the SCM Agreement.  Th e fact that neither Agreement speaks to the 
issue of cross-cumulation does not mean that such an analysis is precluded or inconsistent with either 
Agreement.  The purpose of the covered Agreements  is to provide a remedy against unfair trade 
practices causing injury to a domestic industry.  To deny a remedy where the cumulative effect of 
dumped and subsidized imports is injury to the dom estic industry would frustrate the purpose of these 
Agreements. 
4.116  Finally, Canada’s allegations that the ITC conducted combined investigations and 
cross-cumulated Canadian imports of softwood lumber  so as to more likely result in an affirmative 
determination in this case has no merit. Canada provi des no basis to support this allegation and fails to 
acknowledge that the ITC’s consistent practice is to cumulate both subsidized and dumped imports WT/DS277/R 
Page 23 
  
 
from a single country for purposes of the ITC’s injury  analyses.  More significantly, Canada has failed 
to explain to the Panel why it considers such prac tice to be inconsistent w ith obligations under the 
Anti-Dumping and SCM Agreements, when Canada itsel f takes the identical approach in its own trade 
remedy proceedings, cross-cumulating subsidized and dumped imports. 
C. FIRST  ORAL  STATEMENTS   OF CANADA 
4.117  The following summarizes Canada's argu ments in its first oral statements. 
1. Opening Statement of Canada at the First Meeting of the Panel 
4.118  The United States has imposed countervailing a nd antidumping duties on imports of Canadian 
softwood lumber products.  These duties are imposed  in violation of the SCM and Anti--Dumping 
Agreements, as well as GATT 1994.   
4.119  Even with the market share enjoyed by Canadi an imports during the period of investigation, 
the United States International Trade Commission (“Co mmission”) did not find present injury.  What 
change in circumstances would transform what th e Commission determined to be a non-injurious 
status quo into a situation of imminent mate rial injury?  The Commission provided no reasoned 
answer to this question. 
1.  Standard of Review 
 
4.120  Canada is asking this Panel to assess whet her the Commission made an objective and 
reasoned determination based on the facts before it.  Such an asses sment is not de novo review, nor 
does it seek to have the Panel reweigh evidence or substitute its judgement for that of the 
Commission.   
2.  The Overarching Obligations in Articles 3.1 and 15.1 
 
4.121  The United States has not complied with Article 3.1 of the Anti--Dumping Agreement and 
Article 15.1 of the SCM Agreement, overarching provi sions that require an investigating authority to 
ensure that its threat determination is based  on “positive evidence” and involves an “objective 
examination”.  The record reveals that the Comm ission’s examination of the evidence on the likely 
volume of the dumped or subsidized imports, their likely effect on prices in the domestic market for 
like products, and the likely consequent impact of these imports on domestic producers of such products failed to meet these overarching requirements.   
3.  The Obligation to “Consider” 
 4.122  Article 3 of the Anti-Dumping Agreement and Article 15 of the SCM Agreement require an 
investigating authority to “consider” certain factor s.  The Commission did not properly consider the 
required factors in this case - either explicitly or implicitly.  Moreover, the requirement to “consider” 
should not be viewed in isolation from the othe r obligations imposed upon the United States under 
Articles 3.1 and 3.7 of the Anti-Dumping Agre ement and Articles 15.1 and 15.7 of the SCM 
Agreement.  In other words, the requirement  to “consider” went alongside the Commission’s 
obligation to ensure that its determination was based  on facts and not on allegation or conjecture;  its 
obligation that findings be based on positive eviden ce and involve an objective examination; and its 
obligation to examine all relevant facts and provide  a reasoned and adequate explanation of how the 
facts supported its determination under th e applicable standard of review.  WT/DS277/R 
Page 24  
 
4.  The Requirement to Take Special Ca re and the Threshold for Threat of Injury 
 
4.123  The requirement to take “special care” in Ar ticle 3.8 of the Anti-Dumping Agreement and 
Article 15.8 of the SCM Agreement forms an independent obligation with which a Member 
conducting a threat analysis must comply.  A fa ilure to take such “special care” permeates the 
Commission’s entire determination.  The United Stat es now implies that the obligations imposed upon 
investigating authorities are somehow lessened when evaluating threat of injury, as opposed to present 
injury.  This is incorrect. If anything, the standard for determining threat is higher than that for injury.   
5.  Article 3.7 of the Anti-Dumping Agreement  and Article 15.7 of the SCM Agreement 
 
4.124  Central to the proper interpretation of Artic le 3.7 of the Anti-Dumping Agreement and 
Article 15.7 of the SCM Agreement is that some  imminent and foreseeable change from the non-
injurious present must be identified.  Perhaps r ealizing that its affirmative threat of injury 
determination fails to identify the requisite cha nge in circumstances, the United States now seeks to 
introduce ex post facto justifications for its fi nding. US revisionism cannot salvage the obvious 
defects in the Final Determination, including the fa ilure to comply with the explicit obligation in 
Articles 3.7 and 15.7 to identify a clearly foreseen and imminent change in circumstances that would transform conditions so as to cause in jury to the domestic industry.  
6.  Articles 3.7 and 15.7 - The Five Listed Factors 
 
4.125  None of the five factors listed in Artic les 3.7 and 15.7 supported the Commission’s 
affirmative threat determination.  In summary:  
• The Commission did not
 conclude that the nature of the subsidy and its likely 
trade effects supported an affirmative threat determination or were likely 
imminently or foreseeably to change to  cause material injury to occur. 
• The Commission did not  conclude there was any significant rate of increase in 
dumped or subsidized imports. 
• The Commission did not  conclude there was any imminent, substantial increase 
in Canadian capacity indicating the like lihood of substantially increased dumped 
or subsidized exports, and identified no  positive evidence that Canadian 
producers were likely to utilize their exis ting unused capacity to increase exports 
to the United States. 
• The Commission improperly concluded that imports were entering during the 
period of investigation at prices that w ould have a significant price-depressing or 
-suppressing effect. 
• The Commission did not  base its affirmative threat  determination on a conclusion 
that Canadian producers were likely to use their inventories to increase imports to the United States. 
7.  The “Other” Factors Examined by the Commission 
 
4.126  The Commission also considered other factors that, in its view, supported its finding of likely 
substantial increase in imports.  Those factors are:  forecasts of strong and improving demand in the 
US market; the export orientation of Canadian prod ucers to the US market; annual allowable cut; the 
effects of the expiration of the SLA; and subject import trends during periods when there were no 
import restraints.  Like the factors listed in Articl es 3.7 and 15.7,  none of the other factors on which 
the Commission relied was sufficient to support its finding that the volume of imports was likely to WT/DS277/R 
Page 25 
  
 
increase to injurious levels in the imminent future .  The Final Determination, therefore, did not 
identify, based on positive eviden ce in the record, a clearly foreseen and imminent change in 
circumstances that would create a situation in which the subject imports would cause injury.  
8.  Articles 3.2 and 15.2 
4.127  Articles 3.2 and 15.2 set out obligations relating to the examination of the volume of dumped 
and subsidized imports and their effect on prices.  With respect to volume, they provide that an 
investigating authority consider whether there ha s been a significant increase in the volume of 
dumped or subsidized imports, in either absolute or relative terms.  The Commission’s actual findings 
regarding volume, support the view that present volum es would not lead to a substantial increase in 
imports.   
4.128  Articles 3.2 and 15.2 also provide that inves tigating authorities consider whether there has 
been a significant price undercutting by the subject  imports or whether the effects of the subject 
imports were likely to be otherwise to depress pric es to a significant degree or prevent price increases 
to a significant degree.  The Commission’s findings re garding price effects made in its current injury 
analysis supported a negative current injury determ ination and provided no support to an affirmative 
threat of injury determination. 
9.  Articles 3.4 and 15.4 
4.129  The first sentence of Article 3.4 of the Anti- Dumping Agreement and Article 15.4 of the SCM 
Agreement is key: “The examination of the impa ct of the dumped [or subsidized] imports on the 
domestic industry concerned shall include an evalua tion of all relevant economic factors and indices 
having a bearing on the state of the industry.”  In the context of a threat determination, a proper 
application of Articles 3.4 and 15.4 requires an as sessment of how the Articles 3.4 and 15.4 factors 
and indices are likely to change in the future.  The essential problem affecting the Commission’s 3.4/15.4 analysis is that it only refers to the pr esent state of the domestic industry and does not assess 
the impact of the subject imports on the domestic i ndustry in the future.  A finding of vulnerability is 
not enough. The Commission had to analyse the likely im pact of the subject imports in the future.  It 
failed to do so.  
10.  Articles 3.5 and 15.5 
 
4.130  Article 3.5 of the Anti-Dumping Agreement a nd Article 15.5 of the SCM Agreement establish 
two main obligations:  the first element is the requi rement to demonstrate “a causal relationship” and 
the second element is what panels a nd the Appellate Body have characterized as the “non-attribution” 
requirement.  The Commission failed to satisfy e ither requirement. In order to conduct a proper 
causation analysis, the Commission had to take in to account its finding of strong and improving 
demand in the US market and the absence of any evidence that Canadian market share would grow 
beyond the non-injurious levels of the period of inves tigation.  It failed to do so.  In conducting its 
analysis with respect to the causal relationship,  the Commission also should have considered the 
impact of several conditions of competition that it concluded were “pertinent to the softwood lumber 
industry” and “are relevant to our analysis”.  Th ese conditions of competition include the fact that 
subject imports were at least moderately substitu table with domestic products and that there was 
increasing integration in the North American lumber market.    
4.131  Turning to the second element of causation, th e United States failed to identify, much less 
examine, any other known factors that could threaten  injury to the domestic industry in addition to 
Canadian imports.  Notably, there was no basis fo r the United States to ignor e the US industry’s likely 
contribution to future supply conditions when conducti ng its threat analysis.  The failure to evaluate 
the effects of this factor, and indeed of any other factor, in its threat analysis – not to mention its WT/DS277/R 
Page 26  
 
failure to separate and distinguish such effects from those attributed to Canadian imports – constitutes 
a clear violation of Articles 3.5 and 15.5.   
11.  The Commission’s Combined Injury Analysis 
 
4.132  Canada’s argument is not that an investigating authority cannot cross-cumulate, but that when 
an investigating authority chooses to cross-cumulate , it must do so in a manner consistent with both 
the Anti-Dumping Agreement and the SCM Agreement.  In other words, it must ensure that it has 
complied with the specific requirements of each Agreement. The Commission failed to do so.   
12.  Conclusion 
 4.133  In conclusion, Canada returns to the fundament al question that it asked at the beginning:  
where in its Final Determination does the Commissi on identify positive evidence of an imminent and 
foreseeable change in circumstances that would tr ansform the non-injurious status quo into a situation 
of material injury?  The Commission provided no reasoned answer to this question and there is 
therefore no justification for its affirmative threat of injury finding. 
2. Closing Statement of Canada at the First Meeting of the Panel 
4.134  The central finding made by the Commission of a likely substantial increase in imports was 
neither supported by the Article 3.7/15.7 factors nor by the other factors that the Commission listed.  
Canada would not go over these failures again here. 
4.135  The United States tried to defend the Commission ’s final determination as comprehensive.  
But it did not and could not fill critical gaps in the final determination. 
4.136  First , the United States said that the predicted substantial increase in imports would likely 
have a significant price-depressing effect.  What is missing from this assertion, however, is an examination of the causal linkage between increase in subject imports and the adverse impact on prices.  The Commission did not examine whether th ese increased imports would outstrip the increase 
in demand.  In its present injury determination, the Commission found that Canadian imports did not 
have a significant price effect particularly because of  their stable market share.  Yet, the Commission 
omitted consideration of this highly relevant factor in its threat de termination.  Would the market 
share held by Canadian imports increase from its stab le non-injurious level?  The Commission did not 
consider, much less answer, this question.  Indeed , the United States told the Panel that the market 
share issue was simply not part of its threat an alysis – even though it was central to the negative 
current injury determination.   
4.137  Second,  the United States tried to explain away the Commission’s finding of strong and 
improving demand by telling the Panel about the adver se price effects that occurred during periods of 
strong demand in the period of investigation.  What  is missing from this explanation is an examination 
of the factors other than subject imports that caused the poor performance of the domestic industry during the period of investigation, and whether they or other factors might threaten the industry in the 
future.  The most notable and unexplained of these factors was the domestic industry’s own 
contribution to the over-supply and its consequent effect on price.  Nothing in the Commission’s final determination, nor in the US presentations to this Pa nel, deals with other possible causes of injury or 
sources of threat, especially the domestic industry’s own conduct. 
4.138  Third , the United States said that threatened in jury would evolve along a continuum into 
actual injury because of adverse trade trends.  Th e final determination, how ever, found no adverse 
import-related trends during the peri od of investigation that, if continued, would cause an imminent 
and foreseeable change in the non-injurious status quo. WT/DS277/R 
Page 27 
  
 
4.139  The Commission did not perform an objective examin ation that considered all relevant factors 
and that identified positive evidence of a clearly im minent and foreseeable change in circumstances 
that would create a situation in which material injury  would occur.  Instead, its threat determination is 
based on nothing more than conjecture and speculati on about Canadian imports and their impact on 
the US domestic industry. 
D. FIRST  ORAL  STATEMENTS  OF THE  UNITED  STATES 
4.140  The following summarizes the United States' arguments in its first oral statements. 
1. Opening Statement of the United Sates of America at the First Meeting of the Panel 
4.141  Overview .  In raising numerous claims regarding th e ITC’s affirmative threat determinations, 
Canada substantially distorts both the evidence th at was before the ITC and the nature of its 
determinations.  For example, the majority of Ca nada’s claims rely for support on its erroneous 
assertion that the ITC made a negative present injury  finding with no evidence or subsidiary findings 
that could support an affirmative finding.  This simply  is not an accurate portrayal of the facts or the 
findings.  In reviewing the ITC’s determinations , one should be mindful of the following points: 
• First, injury to the industry does not generally occur suddenly, but rather often involves a 
continuum of injurious effects ascending from a thre at of material injury to injury – a concept 
recognized in the Anti-Dumping Agreement (A DA) and the Subsidies Agreement (SCMA). 
• Second, the term “consider” as used in the covered Agreements does not mean “make 
findings”.  The ITC appropriately considered all f actors relevant to a threat analysis consistent 
with US obligations under the covered Agreem ents and its findings reflect the facts as a 
whole. 
• Third, the ITC made subsidiary findings in  its present injury analysis that supported an 
affirmative present injury finding, e.g., the volume of imports was significant, imports had 
some adverse price effects on domestic prices and the condition of the domestic industry had 
deteriorated, primarily as a result of declining prices, and thus was in a vulnerable state.  These findings foreshadow present injury and cl early support the existence of a threat.  
Canada’s claims of no present injurious effects are untrue. 
• Fourth, the ITC’s affirmative threat determina tions are based on:  (1) six subsidiary factors 
showing a likelihood of substantial increases in  subject imports;  (2) likely price pressure 
resulting from these increases in imports, partic ularly with evidence that prices declined 
substantially at the end of the period of investiga tion;  and (3) the consequent threat of injury 
to an industry, already in a vulnerable state,  resulting from the likely increases in imports and 
price effects. 
• Finally, the ITC’s determinations are b ased on positive evidence, and an objective 
examination of all relevant factors and fact s.  The ITC provided a reasoned and adequate 
explanation of its findings and, therefore, its determinations are consistent with US 
obligations. 
4.142  Standard of Review .  While Canada acknowledges the app licable provisions on standard of 
review, its arguments would apply a de novo  standard of review.  Howe ver, the covered Agreements, 
as consistently interpreted by the Appe llate Body and prior panels, preclude de novo  review by a 
Panel in trade remedy cases.  They make clear the distinction between the role of an investigating 
authority, as the finder of fact, and the role of a pa nel, as evaluator of an au thority’s acts rather than 
directly evaluating the underlying facts.  Thus, objective assessment by the Panel is not de novo 
review. 
4.143  Continuum of an Injurious Condition  Ascending from Threat to Injury .  Canada and the 
United States have fundamental differences in inte rpretations of what constitutes a threat and its 
distinction from present injury.  The texts of the ADA and the SCMA show that threat of material WT/DS277/R 
Page 28  
 
injury is material injury that has not yet occurred, but remains a future event whose actual 
materialization cannot, in fact, be assured with absolute certainty.  The covered Agreements, by 
inclusion of the threat provision, recognize that injury to the domestic industry need not suddenly occur, but rather often involves a continuum of an  injurious condition that may ascend from threat to 
present material injury.  While the text of the threat provisions provide a clear example of a sequence 
of events, Canada reads these provisions to require th e identification of “an event”, that will abruptly 
change the status quo from a threat to present materi al injury. Canada argues that the ITC should have 
identified a specific event.  Mischaracterizing the ITC’s present material injury determinations and 
ignoring the underlying findings, Canada argues that th ere could be no threat of injury because there 
allegedly had been no present injurious effects and the ITC did not identify an y imminent and abrupt 
change in the status quo.  Canada’s argu ment fails on both the law and the facts. 
4.144  The existence of threat of injury must be based on projections extrapolating from existing 
data affirming a continuation of adverse trade trends .  Accordingly, an authority should consider the 
past and present evidence regarding the factor s listed in Articles 3.2 & 3.4 of the ADA and 
Articles 15.2 & 15.4 of the SCMA to provide the basi s for projections about the future. While Canada 
speculates about the future, it is evident that the IT C’s threat findings are based on consideration of all 
relevant facts, i.e., the volume of imports, price effects a nd the consequent impact of continued 
dumped/subsidized imports on the domestic industr y.  These projections based on facts provide 
positive evidence justifying the ITC’s determination that the domestic industry was on the verge of 
injury by reason of the continued dumped/subsidized imports. 
4.145  “Consider” does not mean “make findings ”.  The covered Agreements require the ITC to 
“consider” all listed factors in its threat analysis, but do not require the ITC to make findings  on each 
factor; no dispute settlement report has identified such a requirement.  Rather, it is sufficient, if it is 
apparent in the relevant document s in the record, that the ITC has given attention to  and taken each 
factor into account.  Canada also fails to recogni ze that the Agreements state unmistakably that the 
determinations are to be made on the basis of the totality of the factors considered and that 
consideration, or any findings, regarding one specific fact or is not necessarily dispositive. 
4.146  ITC’s Present Injury Findings .  The ITC’s subsidiary findings regarding present material 
injury reflect the facts as a whole; the fact s foreshadow actual injury and support the ITC’s 
determination of the existence of a threat of materi al injury.  A common thread in Canada’s claims is 
its repeated assertions that there could be no thr eat because there allegedly were no present injurious 
effects.  Inherent in Canada’s argument is a c onclusion that a legal determination of no present 
material injury negates any affirmative subsidia ry facts or findings. Canada’s underlying premise 
regarding the facts, findings, and law simply is wr ong.  The ITC found, based on the facts as a whole, 
that the volume of imports was already significant a nd thus supported an affirmative present material 
injury finding.  Moreover, subject imports had been subject to the restraining effect of the Softwood 
Lumber Agreement (SLA) or the pendency of trade remedy action during virtually the entire period of 
the investigation, and that restraint was now lifte d.  The ITC also found that subject imports had 
caused some adverse price effects, despite Canada’s selective quotations of the ITC Report.  However, the ITC recognized that excess supply of both imported and do mestic products had 
contributed to price declines, particularly in 2000.  The condition of the domestic industry, particularly its financial performance, had declined resulting largely from substantial declines in price, 
which the ITC found made it vulnerable to injury.  The ITC’s subsidiary findings regarding present 
injury were not negative and clearly support the ex istence of a threat of material injury.  These 
findings, when coupled with the likely increase in imports, a further decline in price levels, and 
additional deterioration in the domestic industry’s condition, fully  justified the ITC’s threat 
determination. 
4.147  ITC’s Threat of Material Injury Findings .  The ITC considered all relevant threat factors 
provided for in the covered Agreements, includi ng Articles 3.2, 3.4, & 3.7 of the ADA and 
Articles 15.2, 15.4, & 15.7 of the SCMA. WT/DS277/R 
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4.148  The ITC found that there was a likelihood of  substantial increases in subject imports  
based on six subsidiary factors:  (1) Canadian excess capacity and projected increases in capacity, 
capacity utilization, and production;  (2) the expor t orientation of Canadian producers to the US. 
market;  (3) the increase in subject imports over the period of investigation;  (4) the effects of 
expiratin of the SLA;  (5) subject import trends dur ing periods when there were no import restraints; 
and (6) forecasts of strong and improving demand in the US market.  Each of the six subsidiary 
factors related directly to threat factors rega rding a significant rate of increase in imports and 
sufficient freely disposable production capacity. 
4.149  Demand in US Market .  Canada emphasizes a single factor in its challenge to whether there 
would likely be increases in subject imports:  dema nd in the US market. Demand was only one of six 
subsidiary factors considered by the ITC.  Canada  attempts to persuade the Panel that a purported 
significant increase in US demand was imminent and that this anticipated spike in demand would restore the US industry’s financial health and insulate it from any further adverse effects from 
additional subject imports.  The flaw in Canada’s argum ent is that it disregards substantial portions of 
the record.  Despite significant cont rary evidence, Canada offers little more than conjecture to support 
its theory that future increases in demand would improve prices.  The ITC expressly rejected this 
theory because it was not supported by the facts. Demand, which was strong and at record levels, 
during the period of investigation not only failed to  translate into price improvements but did not 
prevent substantial declines in softwood lumber prices.  Moreover, supply rather than demand had 
played the pivotal role in the movement of softw ood lumber prices in the US market, as the excess 
supply had resulted in price declines through 2000.  Canada seeks to have the Panel reweigh the 
record evidence.  But, Canada has not refuted th e ITC’s findings regarding forecasts for US demand, 
i.e., that the US market would continue to be a very attractive, and necessary, one for Canadian 
imports (a market that consumes about 65 per cen t of Canadian production); that subject imports 
would continue to play an important role in the US market; and even that there would likely be 
increases in such imports.  Rather, Canada cont ends that increases in subject import volumes and 
market penetration would not be injurious on the basis of its discredited demand theory. 
4.150  Sufficient Freely Disposable Production Capacity .  The facts clearly support the ITC’s 
findings that excess capacity and further projected  increases in Canadian production would likely 
result in substantial increases of subject imports: 
• First, Canadian producers rely on sales in the US market for about two-thirds of their 
production .  When a market accounts for two-thirds of a country’s production, the exporting 
industry’s success, and probably survival, is tied to the importing market.  The fact is, the US 
market had been very important to Canadian producers and was expected to continue to be. 
• Second, the Canadian producers had excess capac ity and projected increases in capacity and 
production, and improvements in c apacity utilization in 2002 and 2003 .  Thus, despite the 
excess capacity available in 2001 as capacity u tilization declined to 84 per cent from 90 per 
cent in 1999,  Canadian producers expected to further increase their ability to supply the US 
market by increasing capacity utilization to 90 per cent in 2003, as capacity also was 
projected to increase. 
• Third, Canadian producers had incentives such  as mandatory cut requirements to produce 
more softwood lumber and export it to the US market . 
• Finally, Canadian export projections were inconsistent with other data.  Given the evidence 
as a whole, the ITC reasonably discounted Cana dian producers’ projected export data and 
assumed that projected increases in production wo uld likely be distributed between the US 
market, home market, and other non-US export ma rkets in shares similar to those prevailing 
during the previous five years. Canada has offered no positive evidence to refute the ITC’s 
reasonable conclusion. 
4.151  The ITC’s Finding of Likely Substa ntial Increases in Subject Imports  begins with subject 
import volumes already at significant levels.  It shows increases even with the restraining effect of the WT/DS277/R 
Page 30  
 
SLA in place, and substantial increases during pe riods without trade restraints. Canada does not 
dispute that subject imports will continue to ente r the US market at this significant level and are 
projected to increase, but challenges whether the increases would be substan tial. Canada’s argument 
that imports after the SLA increased by only 0.4 pe r cent is predicated on the false notion that trade 
during the April-December 2001 period was free of trade incumberances.  Its comparison of import 
data ignores the imposition of the preliminary coun tervailing duties in August 2001. During the April-
August 2001 period, however, subject imports ra nged from 9.2 to 12.3 per cent higher than the 
comparable April-August period in each of the prec eding three years (1998-2000).  A similar pattern 
was observed during the 1994-1996 period prior to th e adoption of the SLA.  The facts demonstrate 
that without restraints imports have increa sed. Increases stopped when the SLA was imposed; 
substantial increases in imports occurred when th e SLA expired; and increases in imports stopped 
when preliminary CVD duties were imposed.  This evidence provides a clear indicator of how subject 
imports have entered, and would enter, the US market  in the imminent future if not subject to trade 
restraints and supports the ITC’s finding of likely substantial increases in subject imports.  Canada 
offers nothing but speculation about other reasons  why imports were not restrained during those 
periods. 
4.152  Likely Price Effects .  Given its finding of likely significant increases in subject import 
volumes, its finding of at least moderate substitutability , its finding that prices of a particular species 
affect the prices of other species, and its present findi ng that the substantial volume of subject imports 
had some  adverse effects on prices for the domestic product, the ITC concluded that subject imports 
were likely to have a significant price-depressing effect on domestic prices in the immediate future, 
and are likely to increase demand for further import s.  The evidence at the end of the period of 
investigation showed substantial dec lines in prices in the third and fourth quarters of 2001.  Evidence 
indicated that US producers had curbed their produc tion, but that overproduction “remains a problem 
in Canada”.  The ITC reasonably found that the additional subject imports, which it concluded were 
likely, would further increase the excess supply in  the market, putting further downward pressure on 
prices, thereby resulting in a threat of material injury to the US industry. 
4.153  Nature of the subsidies .  The ITC examined information on 11 programmes that Commerce 
found conferred countervailable subs idies to Canadian producers and exporters of softwood lumber, 
and took into account that none of them were export subsidies.  While the ITC clearly considered 
parties’ arguments, it declined to adopt the positions of any of the parties due to the conflicting 
evidence and economic theories specifically regarding the effects of stumpage fees on lumber output.  
Canada has provided the Panel with a one-sided analysis of this issu e. Canada would have the Panel 
believe that the Canadian economic theory was th e only information before the ITC and that this 
theory was an uncontested and proven fact.  Neith er assertion is true. Indeed, evidence presented to 
the ITC squarely placed in question the very app licability of Canada’s economic theories and the 
alleged trade effects of the subsidies.  The IT C made an objective examination of this issue by 
considering all of the evidence and arguments presented. 
4.154  “Other Known Causal Factors ”.  The ITC’s determinations re flect its consideration of other 
factors identified to it as potentially causing material in jury to ensure that it did not attribute injury 
from any known  other factors to the subject imports.  The other factors examined include:  domestic 
supply, nonsubject imports, cyclical demand and housing construction cycles, North American 
integration, and other product substitutes.  The fact is, the alleged “other” factors identified by Canada 
in its first written submission either were not othe r known causal factors or did not constitute a cause 
of injury at the same time as the subject imports. 
4.155  Combined Investigations .  The ITC’s decision to cross-cumulate subsidized and dumped 
imports of softwood lumber from Canada is also co nsistent with the covere d Agreements.  Canada 
provides no basis to support its contention that the combined investigations were conducted to more 
likely result in an affirmative determination and fails to acknowledge the ITC’s consistent cross-
cumulation practice.  More significantly, Canada ha s failed to explain why it considers such practice WT/DS277/R 
Page 31 
  
 
to be inconsistent with obligations under the c overed Agreements, given its identical approach to 
cross-cumulating subject imports in trade remedy proceedings. 
4.156  As demonstrated in the ITC Report, the ITC ar ticulated reasoned and ad equate explanations, 
indicating its objective consideration of releva nt factors on which it relied in making its 
determinations, demonstrating how the facts as a w hole support its determinations, and enabling this 
Panel to determine the rationale and evidentiary b asis for the ITC’s findings.  These determinations 
are based on positive evidence and are consistent with US obligations. 
4.157  The United States notes that Canada’s request that the Panel recommend a particular course 
of action – that the United States revoke the final determination of threat of injury, cease to impose duties, and return the cash deposits imposed – seek s action not called for under the WTO agreements 
and is inconsistent with Article 19.1 of the DSU. 
2. Closing Statement of the United States of America at the First Meeting of the Panel 
4.158  Canada continues to seek to have the Pane l impose requirements on the ITC that have no 
basis in the covered Agreements.  For example, in  numerous instances where Canada finds no specific 
basis to support a given requirement in the Agreem ents, it instead reverts to a general obligation to 
provide a reasoned explanation and argues that the ITC did not provide such an explanation for a 
given action, e.g., cross-cumulation, consideration of the competing economic theories, and 
consideration of market share. The “reasoned explanation” obligation apparently flows from 
Article 12.2 of the ADA and Article 22.5 of the SCMA , which require an inv estigating authority to 
state the facts, law, and reasons supporting its de termination.  The ITC has done so here.  These 
articles are not catch-all provisions encompassing the ob ligations that Canada pos its but for which it is 
unable to find any other basis in the Agreements. 
4.159  Canada made certain concessions at the first panel meeting, including:  (1) “consider” does 
not mean “make a finding”;  (2) "special care" does not  involve a standard for determining threat that 
is higher than that for determining injury;  and (3) the ITC was not required to make a finding regarding the economic theories concerning the nature  of the subsidy if the evidence did not permit 
one.  Canada’s concessions should narrow the issues in dispute and reinforce the conclusion that the 
ITC’s determinations did not violate US obligations under the covered Agreements. 
4.160  Finally, the United States provides a few br ief comments clarifying certain issues Canada 
raised in its oral presentation.  On the issue of cross-cumulation , Canada listed several alleged 
specific requirements distinct to each covered Ag reement.  The United States notes that, with the 
exception of the nature of the subsidies, these alle ged requirements are not distinct but rather common 
to both Agreements.  Thus, none of Canada’s claims seem to re late to cross-cumulation.  On the issue 
of Articles 3.4 of the ADA and 15.4 of the SCMA , Canada’s reliance on the Panel’s findings in 
Mexico-HFCS  to challenge whether the ITC conducted a “m eaningful evaluation” is misplaced.  The 
issue in Mexico-HFCS  was not the manner in which these factors were evaluated but rather the failure 
to consider them at all.  Unlike Mexico-HFCS , it is evident that the ITC conducted a “meaningful 
evaluation” in this case.  On the issue of substitutability/ attenuated competition , Canada has 
misstated that the ITC found that “competition was therefore attenuated” and that “products [had] 
limited substitutability”.  The ITC found, based on the evidence in the record, that subject imports and 
domestic species are used in the  same applications, and that prices of a particular species will affect 
the prices of other species. 
E. SECOND  WRITTEN  SUBMISSION  OF CANADA 
4.161  The following summarizes Canada's arguments in its second written submission. WT/DS277/R 
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1. Introduction 
4.162  Canada demonstrates that the United States h as violated its WTO obligations by imposing 
anti-dumping and countervailing duties on imports of Canadian softwood lumber on the basis of an 
injury investigation and final de termination by the United States International Trade Commission 
(Commission) that were fundamentally flawed a nd that do not comply with the provisions of the Anti-
Dumping and SCM Agreements , as well as the GATT 1994 . 
4.163  Having examined the record evidence, the Co mmission made a finding of no present injury
.  
Despite attempts by the United States to argue othe rwise, nowhere in its present injury analysis did 
the Commission make a finding that the current volum e of subject imports was injurious.  Nor did the 
Commission find that Canadian imports had a significant price effect during the period of 
investigation. 
4.164  Having determined no present injury, the Commissi on proceeded to examine threat of injury.  
In its analysis of threat, the Commission failed to co mply with the provisions of Articles 3.7 and 15.7.  
Nowhere in its Determination does the Commission identify what clearly foreseeable and imminent 
change in circumstances would create a situation in which the dumping/subsidy, found to be non-
injurious in the present, would cause injury to the domestic industry.  
4.165  Without identifying any clearly foreseen and imminent change in circumstances, the 
Commission based its affirmative threat determination on the erroneous finding of “a likely substantial increase in subject imports” and then, without reasoned and careful analysis, reached the 
conclusion that “these imports are likely to exacerba te price pressure on domestic producers and that 
material injury to the domestic industry would o ccur”.  However, and as will be discussed in more 
detail below, unless Canadian market share increased  significantly above the 34 per cent level that the 
Commission found non-injurious in its present injury analysis – a finding that the Commission did not and could not make on the record before it - the fu ture adverse price effects the Commission attributed 
to subject imports would not occur.   
4.166  Moreover, the finding of a likely substantial incr ease in imports – the central basis for the 
Commission’s threat determination - is unsupported by the Commission’s own analysis of the relevant 
threat factors, not to mention the evidence on the r ecord.  None of the factors outlined in Articles 3.7 
and 15.7 provides a non-conjectural basis for the Commission’s conclusion of a likely substantial increase in subject imports.  The Commission’s analyses of the other factors it cites in support of its 
finding are similarly flawed. As a result, the Co mmission’s investigation and determination does not 
satisfy a fundamental requirement of a threat of inju ry determination; namely, to demonstrate that the 
totality of the factors considered leads to the c onclusion that further dumped/subsidized imports are 
imminent and that, unless protective action is taken, injury would occur. 
4.167  Compounding the deficient evidentiary analysis by the Commission is its failure to perform 
an adequate causation analysis.  In particular, the Commission’s finding that subject imports “are 
likely to have a significant price depressing effect in  the future” was made without any examination of 
whether a causal linkage could be drawn between predicted increased imports and predicted adverse 
price effects.  Without any evidence that the pred icted increase in subject imports would outstrip the 
“strong and improving” demand, there was no basis for the Commission to assume that the increase in imports would indeed send prices down.  The Commission also failed to consider the extent to which 
the increase in subject goods would serve market se gments for which the US and Canadian goods are 
not close substitutes, thereby minimi zing the impact of the subject goods on pricing and the state of 
the domestic industry.  Thus, there was no basis for the Commission to find a causal link between the 
anticipated growth in subject imports and injury.  
4.168  Furthermore, in its present injury analysis, the Commission found that other known factors, 
most notably the domestic industry’s own cont ribution to the oversupply in the US market, WT/DS277/R 
Page 33 
  
 
contributed to price declines and poor performance of the domestic industry over the period of investigation.  However, nowhere in its threat  analysis does the Commission examine, let alone 
“separate and distinguish”, the effects of these other known factors from those attributed to the subject 
imports.  
4.169  Faced with defending an affirmative threat de termination whose central finding provides no 
rational support for that determination and is  also unsupported by the evidence before the 
Commission, the United States now tries to argue th at findings made in its present injury analysis 
somehow “foreshadow” injury and support the threat  determination.  The record evidence, however, 
lends no support to this ex post facto  attempt to rehabilitate the Commiss ion’s flawed determination.   
4.170  In sum, the final affirmative threat determ ination by the Commission is an example of 
precisely what the Agreements are desi gned to prevent.  It is a threat determination that is based on a 
central finding that is unsupported by a reasoned a nd adequate explanation and positive evidence; that 
fails to identify a change in circumstances; that fails to establish a causal link between the subject 
imports and threatened injury; and that fails to separate and distinguish the effects of the subject 
imports from the effects of other factors, such  as the domestic industry’s own oversupply, on the 
domestic industry.  As such, the determination is  grounded in speculation and conjecture, and most 
certainly does not demonstrate the “special care” to be  employed in threat of injury determinations.  
4.171  In this submission, Canada first provides a brief overview of the Commission’s present injury 
analysis, followed by an examination of the Commission’s unsupported central finding of a likely 
substantial increase in imports.  Canada next demonstrates the flaws in the Commission’s causation 
and non-attribution analyses and then demonstrates  how the Commission’s determination cannot be 
rehabilitated by ex post facto  rationalizations now offered by the United States.   
2. No Present Injury 
4.172  Given the ex post facto  emphasis now placed by the United States on the Commission’s 
present injury analysis, it is useful to review what findings the Commission actually made in its 
current injury determination.  The Commission found that the US domestic industry did not suffer 
present injury by reason of subject imports.  This  was due, in large part, to the fact that the 
Commission could not conclude that subject imports had a significant price effect during the period of 
investigation “particularly in light of  relatively stable market share”.   
4.173  Contrary to what the United States has argued, Canada does not claim that a negative present 
injury determination necessarily precludes an affirma tive threat finding.  In this case, however, the 
findings made by the Commission in its present inju ry analysis and the reco rd evidence left the 
Commission without a non-conjectural basis for arrivi ng at its affirmative threat determination.   
4.174  Findings made by the Commission in reaching its  negative present injury determination that 
also had an important bearing on whether a threat of injury existed, include: subject imports from Canada maintained a relatively stable market shar e during the period of investigation and at levels 
lower than in prior years; there was no evidence of  price underselling by the subject imports, either 
from the confidential pricing data or from the public  pricing data; there was no evidence of confirmed 
lost sales or revenues due to the subject imports; and there was no other evidence of significant adverse price effects from the subject imports. In te rms of the condition of the domestic industry, the 
Commission also found that declines in performance had levelled off in 2001. 
4.175  The Commission summed up its present injury analys is with the statement:  “In light of our 
finding that subject imports have not had a significant price effect, and the small increase in their 
market share, we conclude that subject imports  did not have a significant impact on the domestic 
industry.” WT/DS277/R 
Page 34  
 
4.176  The above summary of the Commission’s present injury findings and conclusion is drawn 
directly from the Final Determination.  What most certainly cannot be drawn from the Final 
Determination are the current attempts by the United States to insert explanations into the 
Commission’s present analysis in an effort to make up for the absence of analys is and record evidence 
underpinning its affirmative threat determination.  
3. Threat Finding Not Supported 
4.177  The Commission based its threat of injury determination on its central finding of “likely 
substantial increases in subject import volumes” and its conclusion that “subject imports are likely to 
have a significant price depressing effect in the future”.  
4.178  None of the factors listed in Article 3.7 of the Anti-Dumping Agreement  and Article 15.7 of 
the SCM Agreement  supported the Commission’s central finding of a likely substantial increase in 
imports or its affirmative determin ation of threat of injury. Nor did the other factors relied upon by the 
Commission provide a non-conjectural basis for its affirm ative determination of a threat of injury.     
 Listed Factors 
 Significant Rate of Increase of Subject Imports   
4.179  The Commission lists “the increase in subject im ports during the period of investigation” as 
one of the factors supporting its finding of “a likely substantial increase in imports”.  However, in its 
Final Determination, the Commission simply observe d trends in subject import volume and market 
share without further explanation and without indi cating whether the rate of increase of subject 
imports during the period of investigation was significant.  
4.180  Not only did the Commission fail to explain how its analysis of this factor supports its finding 
of a likely substantial increase in imports, but the record evidence relied upon by the Commission also 
provides no support for the proposition that there was, as set out in Articles 3.7(i) and 15.7(ii), “a 
significant rate
 of increase of dumped/subsidized imports in to the domestic market”.  In its current 
injury analysis, the Commission found only a 2. 8 per cent increase in volume over the period of 
investigation, did not find this volume to be injuri ous, and said nothing about the “rate” of increase.  
The Commission also noted the “relatively stable ma rket share maintained by subject imports over the 
period of investigation”.  These findings certainly do not equate to a finding of “a significant rate of 
increase”.  Moreover, there is nothing in either  the Commission’s determination or the record 
evidence to indicate that anything would cha nge in the context of threat of injury. 
 Capacity 
4.181  The Commission lists “Canadian producers’  excess capacity and projected increases in 
capacity, capacity utilisation and production” as suppor ting its finding of a likely substantial increase 
in imports.  With respect to the “imminent, substantial in crease in capacity of the exporter indicating 
the likelihood of substantially increased dumped [subs idized] exports” referred to in Articles 3.7(ii) 
and 15.7(iii), the Commission simply noted that “Canadian producers projected additional capacity 
increases”.  The Commission did not find that those increases were substantial  nor did the record 
permit such a finding given that the only availabl e evidence indicated that the predicted increase in 
capacity would be less than one per cent  annually. 
4.182  With respect to the “sufficient freely dispo sable… capacity of the exporter indicating the 
likelihood of substantially increased dumped [subsidi zed] exports”, the Commission simply stated in 
the course of its threat of injury analysis that  “Canadian producers expect to further increase their 
ability to supply the US softwood lumber markets.”  This ambiguous statement does not support the 
Commission’s finding of a likely substantial in crease in imports, particularly as it offers no WT/DS277/R 
Page 35 
  
 
explanation on how the available Canadian capacity would translate into a likelihood of substantially 
increased imports.  The inadequate analysis perfo rmed by the Commission is all the more striking 
given the record evidence that Canadian producer s had had sufficient freely disposable capacity 
during the period of investigation to export more subject goods to the United States, but did not do so.  
4.183  In addition, the Commission reached its finding th at Canadian producers expected to increase 
their ability to supply the US softwood lumber mark ets without taking into account the projections of 
the Canadian exporters showing that exports to  the United States were expected to increase only 
slightly in absolute terms from the non-injurious leve ls of 2001. In its First Written Submission and in 
its Oral Statement, the United St ates argues that it was reasonable for the Commission to discount the 
Canadian producers’ projected export data.  The Un ited States further argues that Canada has offered 
no positive evidence to refute the ITC’s conclusi on that production increase would be distributed 
according to historic proportions.  
4.184  This argument by the United States constitutes another ex post facto  attempt to justify the 
Commission’s decision.  An analysis of the reliability  of Canadian producers’ projections or the likely 
distribution of the Canadian exports is nowhere to be  found in the Final Determination.  On this basis 
alone, the US argument should be rejected.   
4.185  Even assuming that the Commission made the analysis and came to the conclusion now 
attributed to it by the United States, the Commi ssion would have had to e xplain how it could justify 
relying on these projections of Canadian producers to find that they would increase production, but 
then disregard the very same projections on the lik ely destination of such increased production.  In 
order to satisfy the requirements of the WTO Agre ements, viewed in the light of the standard of 
review, the Commission could not “pick and choo se” data from a set of internally reconciled 
projections without providing an ade quate justification for so doing. 
 Price Depression and Suppression 
4.186  The Commission arrived at its conclusion that “subject imports are entering at prices that are 
likely to have a significant depressing or s uppressing effect” based on its findings of “likely 
significant increases in subject import volumes” a nd “at least moderate substitutability between 
subject imports and domestic product”.  Such an analys is plainly distorts the focus of the factor listed 
in Articles 3.7(iii) and Article 15.7(iv) which directs an  investigating authority to look at the impact of 
current prices on future volume and not  at the impact of volume and/or substitutability on future 
prices.  Not only did the Commission therefore fail to  conduct the proper analysis associated with this 
factor, but in any event, there was no evidence on the record to support its conclusion that imports 
“are entering at prices that are likely to have a significant depressing or suppressing effect on 
domestic prices and are likely to increase demand for further imports”.  As acknowledged by the 
Commission in its present injury analysis, it was un able to draw conclusions regarding the current 
effect of current prices of subject imports during the period of investigation.  As a result, the 
Commission had no basis on which to reach a conclusion re garding the future effect of current prices.   
Finally, the United States’ argument that it relie d on an analysis of “price trends” to support its 
conclusion is nothing more than another ex post facto  rationalization.  Nowhere in the Commission’s 
discussion of this factor in the Determination is there any reference to a “price trends” analysis. 
 Inventories 
4.187  In its report, the Commission indicated that Canadian producers’ inventories as a share of 
production increased and were consistently higher than that reported by US producers during the 
period of investigation.  However, the Commissi on did not explain how this  observation supported its 
finding of a likely substantial increase in imports.  In fact, the Commission did not list inventories as 
one of the factors supporting its finding and during the first substantive meeting of the Panel, the 
United States acknowledged that the Commission did not rely on inventories to support that finding. WT/DS277/R 
Page 36  
 
 Nature of the Subsidies and Likely Trade Effects 
4.188  In its Oral Statement, the United States cl aims that the Commission made an objective 
examination of the evidence and arguments related to the nature of the subsidies and its trade effects. 
As indicated in Canada’s First Written Submission and Oral Statement, as well as in its answer to 
Question #15 posed by the Panel, the United States did not conduct an objective examination.  The 
Commission’s analysis is vitiated by its mischaract erization of the applicable economic principles as 
well as Canada’s argument and record evidence.  Give n that the nature of the subsidy was such that it 
did not, and would not, affect the volume or price of  lumber produced in Canada or exported to the 
United States, the Commission was required to give pr oper consideration to this factor.  It could not 
avoid the issue merely because it thought that th e evidence was conflicting. Canada does not argue 
that the Commission was required to make a finding  had the evidence not permitted one, but Canada 
does contend that the Commission had to consider this factor and provide a reasoned and adequate 
explanation for any finding of inconclusiveness, just as it would have had to explain any other 
finding.  In any event, this factor in no way s upported the Commission’s finding of a likely substantial 
increase in imports.   
 Other Factors Considered by the Commission 
• Export Orientation of Canadian Producers to the US Market 
4.189  The Commission cited “the export orientation of Canadian producers to the US market” as a 
basis for its finding of a likely substantial increase in imports.  The total attention devoted by the 
Commission to this factor in its report is limited to a few short sentences, the crux of it being that: “Canadian producers are predominantly export-oriented  toward the US market, with export to the 
United States accounting for 68 per cent of their production in 2001.”  
4.190  The footnote appended to this sentence refers to Tables VII-2 and VII-7 of the Staff Report 
and includes the following text:  “According to  Canadian producers’ questionnaire responses 
(covering nearly 80 per cent of production in Canada) exports to the United States increased from 13,021 mmbf in 1999 to 13,041 mmbf in 2000, and to 13,456 mmbf in 2001, and are projected to increase to 13,660 mmbf in 2002, and to 13,954 mmbf  in 2003.”  In other words, Canadian producers 
projected that exports to the United States would increase 0.84 per cent from 2001 to 2002 and 
increase 2.1 per cent from 2002 to 2003.  Importantly, the footnote further notes that, as a share of 
total Canadian shipments , Canadian exports to the United St ates were projected to decrease
 from 
60.9 per cent in 2001 to 58.8 pe r cent in 2002, and decrease still further from 58.8 per cent in 2002 to 
58.5 per cent in 2003.   
4.191  In the light of the projected decrease  in the percentage of total Canadian shipments exported 
to the United States, and the longstanding export orie ntation of Canadian producers to the US market, 
the Commission failed to provide a reasoned and adequa te explanation of how th is factor supported its 
finding of a likely substantial increase in impor ts.  Absent evidence that the degree of export 
orientation would substantially increase in the futu re – evidence lacking on the record before the 
Commission - this factor does not support the Commission’s finding. 
• Annual Allowable Cut 
4.192   Annual allowable cut requirements were in place in Canada throughout the period of 
investigation when the Commission found no present injury, and the Commission made no finding that these requirements would change in the immi nent future.  The Commission did not provide any 
explanation as to how a continuation of the same re quirements would result in substantially increased 
imports in the imminent future.  To the contra ry, given the Commission’s statement that these 
requirements provide an incentive to export when demand is low, and its finding that demand was WT/DS277/R 
Page 37 
  
 
projected to be strong and improving, the record  evidence indicated that , if anything, the cut 
requirements would have less of an impact in the imminent future. 
• Expiration of the SLA 
4.193  As for the effects of the expiration of th e SLA, the Commission found only that the SLA 
“appears to have restrained the volume of subject im ports from Canada at least to some extent”.  As 
Canada pointed out in its First Written Submission, the Commission failed to explain how this 
inconclusive finding supported its finding of  a likely substantial increase in imports.  
4.194  Furthermore, the Commission began the discussion that led it to that inconclusive finding by 
stating that:  
Each year during the pendency of the SLA, Canadian producers used all of their fee-
free quota, all of their $50 fee quota, and imported some softwood lumber with $100 
fees, suggesting that in the absence of th e SLA they would have shipped more, given 
the near prohibitive level of the $100 fee. 
4.195  This statement is plainly wrong. As has been acknowledged subsequently by the 
United States, Canadian producers did not use all of  their $50 fee quota during the period 2000-01.  In 
fact, they used only 31.4 per cent of that quota.  Therefore, even the Commi ssion’s weak finding that 
the SLA “appears to have restrained the volume of subject imports from Canada at least to some 
extent” is not supported by the evidence on the record. 
• Subject Import Trends During Periods When There Were No Import 
Restraints 
4.196  The Commission relied on the subject import tr ends during periods when there were no 
import restraints as a basis for its finding of a li kely substantial increase in subject imports.  The 
Commission first looked at the import trends durin g the period 1994-1996 and found that the imports 
had increased from 32.6 per cent in the 3rd quarter of 1994 to 37.4 per cent in the 1st quarter of 1996.  
However, the Commission failed to examine whether the market conditions during that period were 
sufficiently similar to present conditions to warrant the use of eight year-old data.  
4.197  In addition, the Commission failed to take into  account its own statement that the evidence 
showed that subject import market share increased  from 27.5 per cent in 1991 to 35.9 per cent in 
1996.  Those data show that the increase in im ports during the 1994-1996 period constituted a mere 
continuation of the increase that had taken pl ace during the 1991-1994 period, a period during which 
import restraints were in place.  Therefore, those da ta do not support an inference that subject imports 
would grow at a significantly greater rate during a period without import restraints than during a period with import restraints in place.  Conseque ntly, the import trends during the 1994-1996 period 
could not be relied upon by the Commission to support  its finding of a likely substantial increase in 
imports. 
4.198  The Commission also looked at the import trends during the April 2001 to August 2001 
period, the period between the expiration of the SLA and the suspension of liquidation.  However, it 
did not analyse whether the increase in imports it observed compared to the same period during 
preceding years constituted:  (a) a fair measure of th e allegedly higher import level that would arise as 
a result of the lifting of import restriction; or rather reflected (b) a shift in the timing of imports that 
otherwise would have been shipped to the Unite d States because importers knew well in advance 
when the SLA would expire and when suspension of  liquidation would begin, and had every incentive 
to delay or accelerate imports to avoid both SLA export fees and bonding requirements. WT/DS277/R 
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4.199  The Commission’s analysis on that point was all the more essential because evidence on the 
record suggested that the increase in imports during the period reflected the latter scenario – in other 
words, a shift in the timing of imports in reacti on to the opening of a narrow window of opportunity.  
Canada further notes that this explanation for the increases during that short period is supported by the 
fact that overall, for 2001, the level of subject im ports was similar to that of 2000.  Moreover, the 
Commission had to take into account its own finding that the expiration of the SLA had only “some 
restraining effect” on the volume of subject impor ts when analyzing what  caused the increase in 
imports during the April to August 2001 period . For these reasons, the Commission’s reliance on 
import trends does not support its finding of  a likely substantial increase in imports. 
• Strong and Improving Demand  
4.200  Having considered the “strong and improving demand” projected for the US market, the 
Commission came to the conclusion that the “United States will continue to be an important market 
for Canadian producers”.  However, this trite conclusion does not point to any increase in subject 
imports from Canada, even less to a substantial increase.   
4.201  All other things being equal, “improving demand”  would make injury less, not more, likely.  
In a situation of strong and improving demand, the market share of subject imports would not increase 
unless the increase in volume outstripped the incr ease in demand.  However, the Commission made 
no such finding. Without a predicted increase in mark et share, there is no reason to believe that the 
subject imports, which the Commission found did not reach injurious levels during the period of 
investigation, would reach such le vels in the imminent future.  
4.202  As for the United States’ observation that prices declined even with re latively high and stable 
demand during the period of investigation, Canada makes two points.  First,  it is neither Canada’s 
argument nor obligation to establish th at strong and improving demand would improve  the condition 
of the domestic industry; Canada’s point is simply  that this finding cannot support the Commission’s 
threat determination absent a further finding, whic h the Commission did not make, that the predicted 
increase in subject imports would outstrip the growing demand, thus leading to a significant increase in Canadian market share.  Se cond, the US observation underscores Canada’s causation argument.  
Any decline in the performance of the domestic industry during a period of stable  demand would not 
foreshadow (to use the United States’ newly adop ted term) any decline in performance during a 
period of improving  demand.  Had the domestic industry’s c ondition deteriorated during the period of 
investigation when both demand and subject import ma rket share were stable, other factors had to 
have contributed to the decline.  The Commission i gnored these other factors in its threat analysis, as 
will be discussed in more detail below. 
4. Causation 
4.203  Even had the Commission properly found a likely substantial increase in imports, it could not 
have properly found that this increase would cause in jury to the domestic industry.  To properly find 
that the increase in subject imports would have a significant price depressing effect and cause injury 
in the future, the Commission also would have had to find, at minimum, that the increase in imports 
would outstrip the strong and improving demand that it found in the US market.  During the period of 
investigation, the Commission could not conclude that the subject imports had a significant price 
effect, particularly in light of relatively stable market share maintained by subject imports.  With 
“strong and improving demand”, a growth in imports  could not be threatening unless the growth 
promised to exceed the increase in  demand.  As stated above, the Commission did not make such a 
finding of future increased market share and ther e was no evidence on the record to support it.   
4.204  Moreover, the Commission’s analysis of the imp act of the subject imports in the future did 
not take into account the impact of several conditi ons of competition that it concluded were “pertinent 
to the softwood lumber industry” and “relevant to our analysis”.  WT/DS277/R 
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4.205  With respect to substitutability, the Commission failed to consider the extent to which the 
increase in subject goods would serve market segment s for which the US and Canadian goods are not 
close substitutes, thereby minimizing the impact of the subject goods on pricing and the state of the 
domestic industry.  There was evidence on the record demonstrating that many US domestic 
purchasers do not consider Canadian and US lumber to be close substitutes.  
4.206  Similarly, the Commission failed to consider that the domestic producers import or purchase a 
sizeable volume of subject import themselves and that integration in the North American market is increasing.  This record evidence detracted from th e Commission’s conclusions regarding price effect 
and injury to the domestic industry.   
4.207  In concluding as it did that the imports woul d cause injury to the domestic industry, the 
Commission also failed to examine the impact of the subject imports on the domestic industry in the 
future in terms of the relevant economic factor s and indices listed in Articles 3.4 and 15.4.  The 
Commission examined the evolution of listed factor s during the period of investigation, but in the 
context of threat, it needed to assess how these factors were likely to change.  A threat determination 
requires a change from the non-injurious status quo .  In order to support its finding that the subject 
imports would cause injury to the domestic industry in the future, the Commission had to consider the 
relevant economic factors and indices in terms of the future.  
4.208  With respect to the non-attribution requireme nt contained in Articles 3.5 and 15.5, the 
United States claims that the Commission’s Report reflects the Commission’s consideration of other factors identified as potentially causing injury and co nfirms that it did not attribute injury from any 
known other factors to the subject imports.  The other factors allegedly examined by the Commission 
include: domestic supply; non-subject imports; cyc lical demand and housing construction cycles; 
North American integration; and other product substitutes. 
4.209  The Commission Report does not bear out the Un ited States’ claim that the non-attribution 
analysis was done.  There is a complete lack of analys is with respect to the injurious effects of factors 
other than the subject imports in the future.  Moreover, the Commission explicitly rejected the 
requirement, articulated by the Appellate Body, to separate and distinguish the effects of other known 
factors from those attributed to subject imports. 
4.210  With respect to domestic contribution to oversuppl y, Canada has set out in its Oral Statement 
the problems affecting the ex post facto  attempt by the United States to demonstrate that the 
Commission considered that known factor.  The fi nding that the United States now ascribes to the 
Commission is nothing more than an industry analys t’s report that was used  by the Commission only 
in its present injury analysis and only to suppor t the finding that “both subject imports and the 
domestic producers contributed to the excess supply” during the period of investigation.  The use of 
that report for the new US rationale is all the more surprising given that it projected Canadian 
production to decline more than US production in 2001,  a projection that was proven true by the data 
on the record.  
4.211  With respect to the other listed factors th at the United States claims the Commission 
considered, while they are discussed in th e Commission Report section entitled ”Conditions of 
Competition”, they are clearly not considered in the context of their likely impact in the future.  The 
discussion of non-subject imports is a case in point.  In the “Conditions of Competition” section, the 
Commission wrote:  “While nonsubject imports were present in the US market during the period of investigation, they never exceeded 3 per cent of appa rent domestic consumption.”  Given the fact that 
the incremental increases in the volume and mark et share of both subject imports and non-subject 
imports were virtually equivalent during the period of investigation, clearly a proper non-attribution 
analysis would have required an evaluation of the injurious effects of the non-subject imports in the 
future and a separation of those injurious effects from a ny injurious effects of the subject goods.        WT/DS277/R 
Page 40  
 
5. Adverse Trade Trends 
4.212  The United States attempts to rehabilitate th e Commission’s determination and make up for 
the lack of analysis and record evidence supporting th e affirmative threat finding by arguing that the 
Commission’s present injury findings somehow “f oreshadow” and provide support for the threat 
determination.  The argument appears to be th at the Commission demonstr ated “an evolution or 
progression of adverse trends in conditions” and thus satisfied the requirements for establishing threat 
of injury.  
4.213  While Canada agrees that it is appropriate to  extrapolate from past and present facts in a 
threat analysis, the Commission simply did not do th is in its Final Determination.  Nowhere in the 
Final Determination can be found the explana tions and linkages from the Commission’s present 
findings to the future threat determination that the United States would have this Panel believe exist.  
For example, there is no evaluation by the Commissi on of the impact of the supposed “adverse trade 
trends” on the condition of the domestic industry in  the future and no analysis of a causal link 
between the predicted injury to the domestic industry and subject imports. 
4.214  The absence of support in the Final Determination for the US “adverse trends” argument is 
not surprising given that the central  theory in the Commission’s analysis is not that there would be a 
“continuum of adverse trade trends”, but rather th at there would be a likely substantial increase in 
subject imports.  However, as shown above, this cen tral finding is unsupported by analysis and 
evidence.  Perhaps in acknowledgement of the weakness of the Commission’s reliance on its 
erroneous volume finding, the United States now seeks to create other explanations for the affirmative 
threat determination.  In its First Oral Statem ent, Canada highlighted some of the most obvious 
attempts by the United States to insert such ex post facto  reasoning into the Fi nal Determination.  
Such attempts by the United Stat es to alter the Commission’s analysis ex post facto  should be rejected 
by this Panel. 
4.215  Furthermore, the record does not support any fi nding of adverse trade trends.  Are there 
adverse trends in volume?  No, because Canadian  imports increased less than 3 per cent over the 
period of investigation and their market share was, according to the Commission, “relatively stable”.  
Indeed, as noted above, the Commission based its c onclusion that subject imports had no significant 
present price effect “particularly in light of rela tively stable market share”.  In addition, the 
Commission did not
 find the “significant rate of increase” in import volume that Articles 3.7 and 15.7 
contemplate as indicating a substantial increase in imports in the future and importantly, failed to 
analyse whether the relatively stab le market share of subject imports would change in the future. 
4.216  Are there adverse trends in prices?  No, because the Commission did not find any 
underselling by Canadian imports and found that Ca nadian imports did not cause any significant price 
effects “particularly in light of relatively stable market share maintained by subject imports over the 
period of investigation”.  The Commission descr ibed significant price increases as well as price 
declines during the period of investigation, but id entified no overall trend.  Moreover, the record 
showed that the price trend in the first quarter  of 2002 was of rising prices: prices had increased 
steadily for three months, running to levels more than 10 per cent higher than the fourth quarter of 2001.  A review of the Final Determination, therefor e, reveals that the alleged “adverse price trends” 
finding referred to by the United States in its Firs t Written Submission is yet another example of an ex 
post facto  rationalization that appears nowhere in  the Commission’s Final Determination. 
4.217  Are there adverse trends in the condition of the domestic industry?  Again, no, because 
although the Commission characterized the domestic  industry as vulnerable, it acknowledged that 
most of the decline in industry performance occurred in the first half of the period of investigation and 
its performance “levelled off” in 2001.   WT/DS277/R 
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4.218   Moreover, the Commission failed to establish a causal link between the future state of the 
industry and subject imports.  As  described above, the Commission failed to analyse whether the 
predicted increase in imports would result in an incr ease in market share.  Without such an increase, 
what would change from the status quo  where subject imports were non-injurious?  Furthermore, the 
Commission failed to assess whether the alleged adverse trends that it now claims would lead to 
injury, could reasonably be attributed to subj ect imports and not to other known causes  – other 
known causes that were taken into account by the Co mmission in its present injury analysis, but 
ignored in its analysis of threat.  The failure to perform the requisite causal analysis highlights the lack of any analysis in the Final Determination of the likely state of the domestic industry in the future. 
4.219  In sum, the positive evidence in the record di d not demonstrate, and the Commission did not 
find, any adverse trends that, if continued, would cause a clearly foreseeable and imminent change in 
the non-injurious conditions prevalent over the peri od of investigation.  The US “adverse trends” 
argument, therefore, does not remedy the Commission ’s failure to identify what clearly foreseen and 
imminent change in circumstances would create a situation where the dumping/subsidy would cause 
injury.  
4.220  The finding of the Commission that the domestic industry was “vulnerable” does not excuse 
the Commission from the obligation to identif y what would transform the non-injurious status quo in 
accordance with Articles 3.7 and 15.7.  Something must change to explain why the dumping/subsidy 
that did not produce injury during the period of investigation would cause injury in the clearly foreseeable and imminent future.  
4.221  In this context, it is useful to recall that th e Commission found no current injury even though 
the US domestic industry was as “vulnerable” during most of the period of investigation as it was at 
the end of that period.  Indeed, as described ab ove, the Commission’s findings indicated that if 
anything, the US domestic industry’s “vulnerability” was decreasing.   
4.222  Moreover, vulnerability is less problematic  when demand is improving and gives the 
domestic industry an opportunity to avoid further dete rioration in its performance.  Yet, in the Final 
Determination, the Commission did not consider th e relationship between its vulnerability finding and 
its finding of improving demand.  A vulnerable domestic industry may be at a greater risk of injury when demand is flat or decreasing, but the Commission did not find injury during the period of investigation even though US demand was flat  and the domestic industry was, under the 
Commission’s analysis, “vulnerable”.  The decline in US prices between 1999 and 2000 during a 
period of stable demand does not mean that pr ices would decline during a period of improving 
demand like the Commission project ed for the imminent future. 
4.223  In sum, the Commission did not provide a reas oned and adequate expl anation, supported by 
positive evidence and addressing contrary evidence, that any significant increase in the volume of 
subject imports would cause even a “vulnerable” US industry to suffer injury.  
4.224  Finally, while recognizing that the decision on how to bring a measure into conformity 
remains the sovereign right of the Member concer ned, a Panel nevertheless may offer suggestions on 
how best to perform this task.  In this regard, a nd as demonstrated in Canada’s submissions to this 
Panel, the nature and extent of the violations by the United States in this dispute are so pervasive and 
the Commission’s affirmative threat determination so clearly fails to meet the standard required by the 
Agreements, that the appropriate  action would be for the United States to revoke the Final 
Determination, cease to impose the du ties and return the cash deposits. 
F. SECOND
 WRITTEN  SUBMISSION  OF THE  UNITED  STATES 
4.225  The following summarizes the United States' arguments in its second written submission. WT/DS277/R 
Page 42  
 
1. Overview 
4.226  Canada has failed to demonstrate that the determ inations of the ITC are inconsistent with US 
obligations under the covered ag reements.  The ITC’s determin ations are supported by positive 
evidence and are based on an objective examination of all relevant factors and facts.  Moreover, as evidenced in the ITC Report, the ITC articulated reasoned and adequate expl anations demonstrating 
how the facts as a whole support its determinations  and permitting the Panel to adequately discern the 
rationale for its findings. 
4.227  Canada identifies supposed requirements that have no basis in the covered agreements.  
Instead, Canada refers to general provisions in the agreements; those provisions do not support the 
particular requirements asserted. Canada’s misguide d approach should fail because its allegations are 
not based on the text of the agreements and becau se the Panel, under DSU Article 19.2, “cannot add 
to or diminish the rights and obligations provided in the covered agreements”.   
4.228  Canada’s asserted “requirement s” involve a number of differe nt issues and take on a variety 
of diverse forms. For instance, Canada original ly sought to have the Pa nel construe the term 
“consider” to mean “make findings,” at least regard ing certain issues/factors that Canada alleges are 
relevant to the ITC’s determination.  The covere d agreements do not require  such findings.  Canada 
conceded at the first panel meeting that “consider” as used in the covered agreements does not require 
an investigating authority to “make findings”.  However, invoking “overarchi ng obligations,” Canada 
contends that, although the ITC may have “considered ” factors, it failed in its obligation to provide 
“reasoned explanations”.  
4.229  Canada invokes the alleged failure to provide r easoned explanations for many other claims as 
if it were a catch-all provision encompassing the oblig ations that Canada posits but for which it is 
unable to find any other basis in the covered ag reements.  The “reasoned explanation” obligation 
Canada asserts apparently flows from Article 12. 2.2 of the Antidumping Agreement and Article 22.5 
of the SCM Agreement.  Those articles, in relevant part, require an investigating authority to state the 
facts, law, and reasons supporting its determination.   The ITC has done so here.  The articles do not 
provide for the very specific obligations th at Canada attempts to read into them.
8 
4.230  Nevertheless, Canada repeatedly asserts that the United States failed to meet an alleged 
“requirement” or “obligation” because it did not prov ide a reasoned explanation. Examples include its 
claims that the ITC was required to:  (1) “identify”  a changed circumstance;  (2) explain its decision 
to cross-cumulate;  (3) explain its finding that the competing evidence on economic rent theories was inconclusive; and (4) provide certainty regarding futu re events, such as projections of future market 
shares or whether future imports would outstrip demand. 
4.231  "Reasoned explanation” is not the only basis Cana da cites for asserted obligations not based 
in the covered agreements.  Another basis is  Article 3.1 of the Antidumping Agreement and 
Article 15.1 of the SCM Agreement. These overarc hing provisions “require [] an investigating 
authority to ensure that its threat determina tion is based on ‘positive evidence’ and involves an 
‘objective examination’”.  Canada relies on these pr ovisions to argue that the ITC was required to 
consider Articles 3.2 and 3.4 of the Anti-Dumping Agreement, and Articles 15.2 and 15.4 of the SCM 
Agreement, for a second time, i.e., in the context of the ITC’s threat  analysis.  However, nothing in 
the covered agreements requires an investigating aut hority to treat its present injury and threat of 
injury analyses as two separate undertakings with one having no bearing on the other.  Canada’s 
asserted requirement that certain of these factors be considered a second time in the context of a threat 
                                                     
 
8  The requirement to provide a reasoned explanation does not prescribe a specific method for assessing 
injury or for explaining the basis for such a determination; nor does it require an explicit, separate evaluation.  
See EC-Pipe , Appellate Body Report, paras. 160-161.  Simply, an investigating authority “must be in a position 
to demonstrate that it did address the relevant issues”.  See Korea-Dairy , Panel Report, para. 7.31. WT/DS277/R 
Page 43 
  
 
analysis in order for a determination to be based  on positive evidence has no basis in the covered 
agreements and is not supported by any Appellate Bo dy or panel report.  In fact, even Canada’s own 
practice does not involve the additional analysis it claims is required. 
4.232  Finally, Canada urges this Panel to find that  the “special care” language in Article 3.8 of the 
Anti-Dumping Agreement and Article 15.8 of the SCM Agreement requires a  higher standard of 
review for threat cases than for present injury cases.  Canada bases this alle ged higher standard on its 
view that “in addition to considering all of the f actors that are required in an injury analysis, an 
investigating authority must meet at least thre e additional requirements for threat: first, the 
requirement to identify a foreseen and imminent change in circumstances; second, the requirement to consider the factors set out in Articles 3.7 and 15.7;  and third, the requirement to take ‘special care’ 
as outlined in Articles 3.8 and 15.8”. 
4.233  While Canada conceded at the first panel meeti ng that the standard for determining threat was 
not higher than that for injury, it still improperl y asserts a requirement to “identify a change in 
circumstances,” and a vague concept of what constitu tes special care. Canada contends that the ITC’s 
“failure to take such ‘special care’ permeates th e Commission’s entire determination”.  Yet, Canada’s 
only explanation as to what this elusive obligat ion involves is that it “requires [investigating 
authorities] to undertake an especially careful examin ation of the required elements of Article 3 of the 
Anti-Dumping Agreement  and Article 15 of the SCM Agreement  as a crucial safeguard against the 
dangers inherent in the predictive na ture of threat determinations”. 
4.234  Contrary to Canada’s attempt to establish a special  review standard for either the Panel or the 
investigating authority, the United States understands  the “special care” language to be a recognition 
that projections about the future must be based  on present and past facts. Projections involve 
extrapolations from existing data, which reinforces the requirement to base determinations on positive 
evidence.  For example, a threat determination must be based on positive evidence tending to show 
that future imports are likely to be at injurious le vels.  Special care is the recognition that projections 
are about future events, and that such projections mu st be based on past and present facts.  Moreover, 
basing the future-oriented determination on fact s is in accord with the requirements that the 
investigating authority conduct an “objective examination”.  
2. Continuum of an injurious condition ascending from threat to injury.  
4.235  The covered agreements recognize that injury  need not, and frequently does not, occur 
suddenly, but rather often involves a progression of  injurious effects ascending from a threat of 
material injury, and if not prevente d, to present material injury.  Th erefore, a determination that an 
industry is threatened with material injury would be warranted when conditions of trade clearly 
indicate that material injury likely will occur imminent ly if demonstrable trends in trade adverse to the 
domestic industry continue, or if clearly foreseeable adverse events occur.  
4.236  Canada fails to recognize that threat of inju ry generally involves an accretion of adverse 
conditions and thus that the threat and present ma terial injury analyses necessarily are intertwined 
rather than entirely separate.  Canada reads the th reat provision as requiring the investigating authority 
to “identify a change in circumstance,” i.e., “an event” that will abruptly change the status quo from a 
threat of material injury to present material inju ry.  Canada ignores that injury may be the clearly 
foreseeable result of a sequence of events.  
4.237  Moreover, Canada’s alleged “e xplicit obligation in Articles 3. 7 and 15.7 to identify” the 
change in circumstance does not exist.  The An ti-Dumping Agreement provides as an example of the 
change in circumstances “that there is convincing reason to believe that there will be, in the near 
future, substantially increased importation of th e product at dumped [or subsidized] prices”.  
However, it contains no requirement to explicitly “i dentify” a change in circumstances, as Canada 
alleges. Consistent with all of its actual obliga tions, the ITC provided a detailed explanation of how WT/DS277/R 
Page 44  
 
the totality of the evidence supported its conclusion that  there will be in the near future substantially 
increased importation of softwood lumber from Canada  at dumped and subsidized prices.  In doing so, 
the ITC addressed the likely events and facts that were clearly foreseen for dumped and subsidized 
imports in the imminent future which would affect the US market and would cause injury to the US 
industry to occur. 
3. The facts and likely events demonstrating the progression or change in circumstances 
which would create a situation in which the dumping and subsidies would cause injury included:   
4.238  (1) subject import volumes already at significant levels in both absolute terms and relative to 
consumption, which supported an affirmative presen t material injury finding; (2) increases of 2.8 per 
cent in the significant volume of subject imports fro m 1999 to 2001, even with the restraining effect 
of the Softwood Lumber Agreement (“SLA”) in pl ace; (3) conversely, declines of 16 per cent in 
subject imports by value from 1999 to 2001; (4 ) expiration of the trade restraining SLA; 
(5) substantial increases in import volumes ranging from 9.2 per cent to 12.3 per cent during the 
April-August 2001 period without trade restraints compar ed to the same period in the previous three 
years with trade restraints in place;  (6) increas es in imports stopped when preliminary countervailing 
duties were imposed in August 2001;  (7) a similar pattern of increases in subject imports during the 
1994-1996 period prior to the adoption of the SLA, which stopped when the SLA was imposed;  (8) no dispute that subject imports will continue to en ter the US market at this significant level and are 
projected to increase
9, (9) Canadian producers had excess production capacity already available in 
2001 as capacity utilization declined to 84 per cen t from 90 per cent in 1999; (10) excess Canadian 
capacity in 2001 had increased to 5,343 mmbf, which wa s equivalent to 10 per cent of US apparent 
consumption; (11) Canadian producers expected to further increase their ability to supply the US 
softwood lumber market, projecting to increase th eir capacity utilization to 90 per cent in 2003 (from 
84 per cent in 1999), as they also projected to increase their production capacity; (12) Canadian producers, which rely on sales in the US market  for about two-thirds of their production, had 
incentives such as mandatory cut requirements to pr oduce more softwood lumber and export it to the 
US market; (13) since the US market had been very important to Canadian producers and was 
expected to continue to be so, it was reasonable for the ITC to conclude, with no positive evidence 
offered to the contrary, that Canadian productio n increases would be distributed among markets, 
including the United States, according to historic proportions;  (14) forecasts for US demand, i.e., that 
it would remain relatively unchanged or increase sli ghtly in 2002, followed by increases in 2003 as 
the US economy rebounds from recession, ensured that the US market (a market that consumes about 
65 per cent of Canadian production) would continue to be a very attractive, and necessary, one for 
Canadian exports and thus that s ubject imports would continue to play an important role in the US 
market; (15) many domestic industry performance  indicators declined significantly from 1999 to 
2000, and then declined slightly or stabilized fro m 2000 to 2001; (16) with respect to the domestic 
industry’s financial performance in particular, the evidence also generally shows declines during the 
period of investigation, with a dramatic drop from 1999 to 2000, as prices declined; (17) the domestic 
industry “is vulnerable to injury in light of declines in its performance over the period of 
investigation, particularly its fi nancial performance”;  (18) excess supply played a pivotal role in the 
decline of softwood lumber prices in the US market  through 2000, which led to the deterioration in 
the condition of the domestic industry;  (19) both subject imports and domestic producers contributed 
to the excess supply in the US market, which resulted in substantial price declines in 2000 and led to 
the deterioration in the condition of the domestic industry;  (20) US producers had curbed their 
production after excesses in supply in 2000, but overproduction remained a problem in Canada; 
(21) Canada acknowledges that it is a “much smalle r market with abundant timber resources” and, as 
noted above, its producers projected to incr ease capacity and production in 2002 and 2003; 
(22) during the period of investigation, th e substantial volume of subject imports had some  adverse 
                                                     
 
9 Canada acknowledges that imports at this level wo uld continue and even increase, and that Canada is 
“a much smaller market with abundant timber resources”.  WT/DS277/R 
Page 45 
  
 
effects on prices for the domestic product;  (23) su bject imported and domestic softwood lumber were 
at least moderately substitutable and are used in the same applications; (24) prices of a particular 
species affect the prices of other species; and ( 25) prices for softwood lumber in the US market 
declined substantially at the end of the period of investigation (third and fourth quarters of 2001). 
4.239  In light of the foregoing factors, the ITC reas onably found that the additional subject imports, 
which it concluded were likely, w ould further increase the excess s upply in the market, putting further 
downward pressure on declining prices, thereby resulti ng in a threat of materi al injury to the US 
industry. 
4.240  Canada dismisses any evidence from the present inju ry analysis showing that the US industry 
was on the verge of injury by reason of subject impo rts.  Canada contends that it has not argued that 
the “Commission’s negative current injury finding ‘precluded’ a finding of threat”.  According to 
Canada, its argument is that “the evidence before  the Commission did not provide any non-conjectural  
basis for finding a clearly foreseeable and imminent change in circumstances that would upset the non-injurious status quo ”. 
4.241   Inherent in Canada’s repeated assertions, that there could be no threat of material injury 
because there allegedly were no present injurious effect s, is a conclusion that a legal determination of 
no present material injury negates any affirmative subs idiary facts or findings of adverse or injurious 
circumstances already existing or evolving.  Cana da’s view is that if the amalgamated current 
circumstances do not support a legal conclusion of curre nt injury, they must be wholly disregarded in 
addressing threat.  Canada’s underlying premise is wrong. 
4.242  Moreover, Canada’s clai ms of a “non-injurious status quo ” rest on its dismissal or avoidance 
of affirmative subsidiary facts or findings.  The ITC found, based on the facts as a whole, that the 
volume of imports was already significant and thus  supported an affirmative present material injury 
finding.  While a finding that the volume of imports is  significant may not “by itself” be sufficient to 
support an affirmative present injury finding, this affi rmative subsidiary finding is  an integral factor in 
making an affirmative present material injury dete rmination and cannot be dismissed as an isolated 
finding lacking broader implications.  Moreover, Canada urges the Panel to disregard the ITC’s 
present price effects findings by denying that certain  findings exist and simply ignoring them when it 
selectively quotes from the ITC’s Report.
10  In particular, Canada’s quot ation from the Report at page 
35 ignores the two sentences immediately preceding the quotation, which state: 
The evidence indicates that both subject imports and the domestic producers 
contributed to the excess supply, and thus th e declining prices.  We conclude that 
subject imports had some  effect on prices for the domestic like product during the 
period of investigation, in particular due to their large share of the market. 
 
4. Specific issues regarding the threat of material injury analysis.   
4.243  Canada urges the Panel to  consider the threat factors listed in Article 3.7 of the Anti-Dumping 
Agreement and Article 15.7 of the SCM Agreement in  isolation.  It suggests that other factors and 
facts that the ITC found were related to the liste d factors are distinct and should be considered 
separately.  But the factors considered, the record evidence, and, most importantly, the likely effects 
being assessed are interrelated and should not be c onsidered and analyzed as isolated fragments.  
Implicit in Canada’s approach is that the non-listed factors or facts should be given less weight than 
those listed in the covered agreements.  However,  the covered agreements provide that relevant 
factors other than those listed should be considered.  Such consideration of other factors demonstrates 
a reasoned analysis. 
                                                      
10  Canada’s Opening Statement at First Panel Meeting, para. 44. WT/DS277/R 
Page 46  
 
5. The ITC’s finding of likely substantial increases in subject imports.   
4.244  The ITC found that there was a likelihood of su bstantial increases in subject imports based on 
evidence regarding, inter alia , Canadian producers’ excess production capacity and projected 
increases in capacity, capacity utilization and pr oduction, the export orientation of Canadian 
producers to the US market and subject import tr ends during periods when  there were no import 
restraints, such as the SLA.  Furthermore, each of the six subsidiary factors considered by the ITC 
relates directly to threat factors set forth in Article 3.7 of the Antidumping Agreement and 
Article 15.7 of the SCM Agreement.  Specifically, they  relate to whether there is a significant rate of 
increase in imports and sufficient freely disposab le production capacity.  The ITC determined that 
these increases in imports were likely to put pressure  on already declining prices, and that material 
injury to the domestic industry would occur.  More over, the ITC found that the domestic industry was 
vulnerable to injury in light of declines in its  performance over the period of investigation, 
particularly its financial performance. 
4.245  The ITC found that the evidence demonstrated th at the volume of subject imports was already 
significant and had increased even with the restraini ng effect of the SLA in place, and that subject 
imports had increased substantially du ring periods without export restrain ts as well.  Canada is simply 
incorrect in contending that the ITC found such leve ls of import penetration were not significant, 
much less “non-injurious,” in its present material injury finding.  Moreover, contrary to Canada’s 
assertion, the ITC did not find that the 2.8 per cent increase in the volume of imports during the period 
of investigation was “only a small increase”.
11 It expressly found that the volume of imports was 
significant and would be injurious if combined with  evidence of significant price effects and impact 
effects.  Moreover, it recognized that the subject imports had increased despite being subject to the 
SLA for most of the period of investigation. 
4.246  Canada’s claims that the ITC ignored the projec tions made by Canadian producers simply are 
inaccurate.  The ITC considered that data but conc luded that Canadian producers’ export projections 
were inconsistent with other data .  The ITC found that more weight  should be given to actual data 
showing excess Canadian capacity, declines in home market shipments, and declines in exports to 
other markets, as well as projected increases in pr oduction.  While Canadian producers projected that 
exports to the US market would increase slight ly in 2002 and 2003, these projected increases 
accounted for only about 20 per cent of the planne d increases in production.  The US market 
accounted for 68 per cent of the Canadian softwood lumber production in 2001.  It was reasonable to conclude that projected increases in production woul d likely be distributed in shares similar to those 
prevailing during the prior five years.  Canada has offered no positive eviden ce to refute the ITC’s 
reasonable conclusion. 
6. Likely price effects.  
4.247  Given its findings of likely significant increases in subject import volumes, its finding of at 
least moderate substitutability, its finding that prices of a particular species affect the prices of other 
species, and its finding that the substantia l volume of subject imports presently had some  adverse 
effects on prices for the domestic product, the ITC conc luded that subject imports were likely to have 
a significant price-depressing effect on domestic prices in the immediate future, and likely to increase demand for further imports.  Canada ignores the evid ence at the end of the period of investigation 
showing substantial declines in prices in the third and fourth quarters of 2001.  Evidence regarding 
likely excess supply, which generally caused the subs tantial price declines in 2000 that led to the 
                                                     
 
11 Canada’s Opening Statement at the First Panel Meeting, para. 58.  Canada acknowledged during the 
first panel meeting that there were situations where a significant volume of imports, and not necessarily a 
significant rate of increase, particul arly if volumes were large, would cause injury and support an affirmative 
determination.  The United States contends that such a situation exists here, despite Canada’s claims to the contrary. WT/DS277/R 
Page 47 
  
 
deterioration in the condition of the domestic industr y, indicated that US producers had curbed their 
production, but that overproduction “remains a problem  in Canada”.  Therefore, the ITC reasonably 
found that the additional subject imports, which it c oncluded were likely, would further increase the 
excess supply in the market, putting further downwar d pressure on declining prices, resulting in a 
threat of material injury to the US industry by reason of subject imports.  
7. Inventories.  
4.248  Canada acknowledges that the ITC considered the evidence regarding inventories.  That is all 
the ITC is required to do.  Moreover, Canada recognizes that “there is no indication in the 
Commission’s analysis that it relied on the level of inventories to reach its conclusion of threat of 
injury”.  Nevertheless, resorting to the general “r easoned explanation” obligation, Canada makes an 
argument that would be relevant only if the ITC had made a finding on this factor.  Specifically, 
Canada states: “Canada has shown that the Comm ission did not explain how  its observation supported 
the Commission’s determination and that the Commission ignored the Canadian producers’ 
projections that their inventories would remain virtually unchanged over the 2002-2003 period, and 
therefore not lead to a substantial increase in exports  to the United States.”  It is evident that the ITC 
appropriately considered this listed thre at factor but did not make a finding. 
8. Nature of the subsidies.  
4.249  The ITC also considered the nature of the subs idies granted by Canada, consistent with the 
requirement of Article 15.7(i) of the SCM Agre ement, and took into account that none of the 
subsidies were of the kind described in Articles 3 or 6.1 of the SCM Agreement.  The ITC clearly 
considered parties’ arguments, but declined to adopt the positions of any of the parties due to 
conflicting evidence and economic theories, specifica lly regarding the effects of stumpage fees on 
lumber output.  The relevant provisions of the covered agreements state that the ITC “should consider” the nature of the subsidies, but do not requi re it to make a finding.  In spite of its concession 
that “consider” does not mean “make a finding”, Cana da’s argument essentially is that unless the ITC 
made a finding, its determination w ould be in violation of the SCM Agreement.  However, the ITC is 
not required to make a finding, particularly when the conflicting record evidence did not provide “a 
sufficient factual basis to allow [it] to  draw reasoned and adequate conclusions”.
12 
4.250  Further, Canada has provided the Panel with a one -sided analysis of this issue and ignored the 
conflicting evidence.  Canada would have the Pane l believe that the Canadian producers’ economic 
theory was the only information before the ITC and th at this theory was uncontested and equivalent to 
proven fact.  Neither assertion is true.  Indeed, ev idence presented to the ITC during its investigation 
squarely placed in question the very applicability of  Canada’s economic theori es and the alleged trade 
effects of the subsidies.  The ITC made an objectiv e examination, considering all of the evidence and 
arguments presented. 
9. Articles 3.2 and 3.4 of the Anti-Dumping Agreement and Articles 15.2 and 15.4 of the 
SCM Agreement.  
4.251  The ITC considered all of the facts from th e present and past, specifically regarding the 
volume of imports, price effects a nd the consequent impact of c ontinued dumped and subsidized 
imports on the domestic industry, in its threat analys is.  The ITC’s evaluation resulted in findings that 
the volume of imports was significant, that there we re some price effects, that the condition of the 
domestic industry had deteriorated primarily as a r esult of declining prices and that the industry was 
in a vulnerable state.  Projections based on these f acts constitute positive evidence justifying the ITC’s 
threat determination. 
                                                      
12 US-Lamb Meat , Appellate Body Report, paras. 130-131. WT/DS277/R 
Page 48  
 
4.252  Canada’s arguments on Ar ticles 3.2 and 3.4 of the Anti-Dumping Agreement and 
Articles 15.2 and 15.4 of the SCM Agreement are mere ly variations on its arguments regarding likely 
substantial increases in imports and likely price effects, and are based on Canada’s premise that there could be no threat, because there allegedly were no fi ndings of injurious effects in the present material 
injury analysis.  That premise is demonstrably incorrect. Canada’s claims that, having considered 
these factors once, the ITC was required to consider them a second time in the context of the threat 
analysis has no basis in the two Agreements. 
4.253  Canada’s reliance on the panel’s findings in Mexico-HFCS  to challenge whether the ITC 
conducted a “meaningful evaluation” of the Article 3.2 and 3.4 and Article 15.2 and 15.4 factors is 
misplaced.  The issue in Mexico-HFCS  was not the manner in which these factors were evaluated but 
that they did not appear to have been considered at  all.  It is possible, by reading the ITC’s final 
determination here, where it was not in Mexico-HFCS , to understand the ov erall condition of the 
domestic industry with respect to the Article 3.4 fact ors.  Also, in this case, the domestic industry was 
currently experiencing substantial declines in its condition, particularly its financial performance, 
which was not the case in Mexico-HFCS . 
10. The ITC demonstrated a causal relation ship between the dumped and subsidized 
imports and the threat of injury to the domestic industry.   
4.254  Canada’s claims under Articles 3.5 and 15.5, r espectively, are merely variations on its 
arguments regarding likely substantial increases in imports and likely price effects, and are based on 
its premise that there could be no threat of inju ry, because there allegedly were no findings of any 
injurious effects in the present mate rial injury analysis.  Moreover,  the ITC considered each of these 
issues, but the evidence did not support the findings urged by Canada. 
4.255  The evidence demonstrates that the volume of subject imports, already at significant levels, 
will continue to enter the US market at significant levels and are projected to increase substantially.  
The ITC found that the additional subject imports  would increase the excess supply in the market, 
putting further downward pressure on declining prices.  Prices at the end of the period of investigation 
had substantially declined to levels as low as they had been in 2000.  The ITC reasonably found that 
subject imports were likely to increase substantially a nd were entering at prices that are likely to have 
a significant depressing or suppressing effect on domest ic prices, and are likely to increase demand 
for further imports.  The ITC’s findings support the ex istence of a threat of material injury caused by 
subject imports. 
4.256  Canada argues with respect to the likelihood of substantially increased imports, particularly in 
claiming that future Canadian market share must “ outstrip” demand, that the investigating authority 
must identify an absolute amount or percentage change in import volumes that would necessarily be 
“substantial” in all or most cases. However, determ ination of a threat of injury is, by its nature, 
industry specific and dependent on the particular indus try’s circumstances.  As  part of the threat 
analysis, the covered agreements direct the inves tigating authority to consider whether the evidence 
indicates the likelihood of substantially increased imports  but, recognizing that this is a future event 
whose actual materialization cannot be assured with  certainty, does not require the investigating 
authority to find that imports will increase by a certain amount.  In Mexico-HFCS , the Appellate Body 
recognized that a threat analysis involves projecti ons extrapolating from existing data and as such can 
never be definitely proven by facts. 
4.257  
Canada ignores the ITC’s consideration of Cana da’s theory about the effects of demand, 
which the ITC rejected because it was not supported by the facts.  The evid ence showed that while 
demand remained relatively stable in 2000 and 2001 at the record levels it reac hed in 1999, substantial 
declines in price occurred, particularly in 2000, wh ich resulted in a deterior ation in the condition of 
the domestic industry.  Thus, contrary to the Ca nadian exporters’ and now Canada’s theory, strong 
demand did not translate into price improvements. In  fact, the evidence demonstrated that it had been WT/DS277/R 
Page 49 
  
 
excess supply rather than demand that had played a pivotal role in the price declines of softwood 
lumber in the US market.  
4.258  Moreover, the ITC appropriately considered the conditions of competition regarding demand 
as well as the substitutability between domestic a nd imported species of softwood lumber, and North 
American integration.  On the issue of substitu tability/attenuated competition, Canada has stated 
incorrectly that the ITC found that “competition was therefore attenuated” and that “products [had] 
limited substitutability”.  Canada ignores the evid ence in the record and the ITC’s analysis and 
findings.  Subject imports and domestic species of soft wood lumber are used in the same applications 
and compete with each other. Moreover, prices of a particular species will affect the prices of other 
species.  Canada ignores the ITC’s findings based on consideration of facts, including the evidence 
provided by purchasers and home builders, that Ca nadian softwood lumber and the domestic like 
product generally are interchangeable; subject import s and domestic species are used in the same 
applications; regional preferences exist, but do not re flect a lack of substitutability, and instead simply 
reflect a predisposition toward locally-milled species;  there are other products that both countries 
produce that compete with each other; and evidence de monstrated that prices of different species have 
an effect on other species’ prices, particularly those that are used in the same or similar applications. 
4.259  Canada recognizes that the ITC considered the integration of the North American lumber 
industry, but criticizes the ITC for not speculating th at integrated companies would not harm related 
companies.  Yet, Canada provides no evidence to s upport its supposition that in tegrated firms will not 
harm their related parties.  This integration is not new, and there was no evidence that it would have a 
different effect in the future than during the pe riod of investigation, when import volumes were 
significant, and imports had some adverse price effects. 
11. The ITC examined any known causal factors to ensure injury was not attributed to 
subject imports.   
4.260  Consistent with Article 3.5 of the Anti-Du mping Agreement and Article 15.5 of the SCM 
Agreement, the ITC’s methodology involves examining other factors to determine if any of them are 
other “known” causal factors and to ensure that injury  from any such causal factors is not attributed to 
subject imports.  When the ITC has found a factor  not to have injurious effects on the domestic 
industry, such factor is not an “other known fact or”, and no further consideration or examination of 
the factor is called for.  In EC-Pipe, the Appellate Body stated (paras. 175, 178-179) that when injury 
has “effectively been found not to exist”, there is no factor to examine further,  pursuant to the covered 
agreements. 
4.261  Neither Article 3.5 of the Anti-Dumping Agreement nor Article 15.5 of the SCM Agreement 
prescribes any particular methodology that authorit ies must use in examining other known causal 
factors.  The Appellate Body in EC-Pipe  indicated that, “provided that an investigating authority does 
not attribute the injurious effects of other causal factors to dumped imports, it is free to choose the 
methodology it will use in examining the ‘causal re lationship’ between dumpe d imports and injury”. 
4.262  Canada urges the Panel to find the ITC’s methodol ogy in violation of th e covered agreements, 
based on Canada’s selective reading of the ITC’s st atements regarding US case law. Canada ignores 
the ITC’s reference to the appropr iate methodology:  “[T]he Commission need not isolate the injury 
caused by other factors from injury caused by unfair imports. . . . Rather, the Commission must 
examine other factors to ensure that it is not attributing injury from other sources to the subject 
imports .”13  The  ITC’s methodology is consistent with US obligations. 
                                                      
13 ITC Report at 31, n. 195 quoting  Taiwan Semiconductor Industry Ass’n v. USITC , 266 F.3d 1339, 
1345 (Fed. Cir. 2001) (emphasis in original). WT/DS277/R 
Page 50  
 
4.263  Canada principally alleges that  domestic supply is a known causal factor which the ITC found 
contributed to injury in its present material injury  analysis, but ignored in its threat analysis.  
However, the ITC examined constraints on domestic  producers’ ability to meet demand. The ITC also 
took into consideration domestic producers’ past  contribution to oversupply conditions.  Canada 
charges that the evidence cited by the ITC could no t support the ITC’s threat of injury finding merely 
because of its location in the ITC Report. 
4.264  Canada attempts to challenge the facts regarding domestic production by comparing 
percentage decreases in production and ignores the absolute levels as well as the evidence regarding 
domestic and Canadian production capacity utilizati on. Domestic capacity utilization was 87.4 per 
cent in 2001 and, with the exception of a peak in 1999 at 92 per cent, had consis tently held this level 
from 1995 to 2001.  In contrast, Canadian capacity utilization had declined in 2001 to 83.7 per cent, a 
rate substantially lower than that reported for an y other year in the 1995-2001 period.  Moreover, in 
spite of this decline in capacity utilization rates,  Canadian producers projected slight increases in 
capacity, increases in production, and a return of  capacity utilization to 90.4 per cent in 2003. 
12. Conclusion.   
4.265  As demonstrated in the Views of the Commission, the ITC articulated reasoned and adequate 
explanations, indicating its objective considerati on of relevant factors on which it relied in its 
determinations, demonstrating how the facts as a w hole support its determinations, and enabling this 
Panel to determine the rationale and evidentiary basi s for its findings in order to perform its review 
function.  The ITC’s determinations are based on positive evidence and are consistent with US 
obligations under Article 3 of the Anti-Dumping Ag reement and Article 15 of the SCM Agreement.  
As such, there is also no basis for Canada’s claim th at the ITC’s determinations are inconsistent with 
Articles 1 and 18.1 of the Anti-Dumping Agreement,  Articles 10 and 32.1 of the SCM Agreement, or 
Article VI:6(a) of the GATT 1994.  The Panel s hould reject Canada’s claim in its entirety. 
G. SECOND
 ORAL  STATEMENTS  OF CANADA   
4.266  The following summarizes Canada's arguments in its second oral statements. 
1. Opening Statement of Canada at the Second Meeting of the Panel 
1. INTRODUCTION 
 
4.267  The Final Determination of the International Trade Commission (“Commission”) represents 
exactly what the WTO Agreements were negotiated to prevent. Among its fundamental shortcomings: 
the Determination is based on a central finding that is unsupported by a reasoned and adequate 
explanation and positive evidence; it fails to identif y what clearly foreseen and imminent change in 
circumstances would create a situation in which th e dumping or subsidies would cause injury; it fails 
to establish a causal link between the subject imports a nd the alleged threat of injury; and it fails to 
separate and distinguish the injurious effects of other known factors from any injurious effects of the subject imports on the domestic industry.  As a result, the United States has imposed countervailing 
and anti-dumping duties on imports of softwood lu mber from Canada in violation of the Anti-
Dumping Agreement, the SCM Agreement and the GATT 1994. 
4.268  Several key elements must be present for an affirmative threat determination to be WTO-
consistent.  For example, the requirement to pr ovide reasoned and adequate explanations is a 
substantive obligation that is enco mpassed in Articles 3 and 15, viewed  in the light of the applicable 
standard of review, as conf irmed by the panel report in Mexico – HFCS .  Articles 3 and 15, viewed in 
the light of the applicable standard of review, require an investigating authority to: explain why 
particular factors were deemed relevant and supported th e determination; explain why factors that WT/DS277/R 
Page 51 
  
 
detract from a finding of threat of injury did not weigh significantly in the decision or were dismissed as not being relevant; and explain fully th e nature and complexities of the data. 
4.269  The Commission’s failure to provide reasoned a nd adequate explanations forms an integral 
part of the United States’ violations of Articles 3.1, 3.2, 3.4, 3.5 and 3.7 of the Anti-Dumping 
Agreement  and of the equivalent provisions of the SCM Agreement . Canada’s Articles 12 and 22 
claim is separate. 
2. THE COMMISSION’S FLAWED THREAT DETERMINATION 
 
4.270  With that introduction, Canada responds to the United States’ attempt to salvage the 
Commission’s Final Determination on five key issues. 
A.  THE SIX FACTORS DO NOT
 SHOW A LIKELIHOOD OF SUBSTANTIAL 
INCREASES IN SUBJECT IMPORTS 
 
4.271  The Commission did not provide a reasoned a nd adequate explanation as to how the six 
factors it lists as supporting its volume finding, co nsidered individually or cumulatively, supported 
this finding.  The Commission simply stated:  “The refore, based on the factors discussed above, we 
find a likely substantial increase in subject im ports.”  There is no discussion in the Final 
Determination of the interrelati onship between the factors.  
1.  Canadian Producers’ Excess Capacity  and Projected Increases in Capacity, 
Capacity Utilization and Production 
 
4.272  The first factor listed by the Commission is th at Canadian producers had excess capacity and 
projected increases in capacity, capaci ty utilisation and production.  Ca nada has already demonstrated 
the inadequacies of the Co mmission’s treatment of that factor.  Rather than respond to Canada’s 
demonstration of inadequacies, the United States proffers an ex post facto  justification.  The 
United States argues that, since the US market had been very important to Canadian producers and 
was expected to continue to be so, it was reasona ble for the Commission to conclude that Canadian 
production increases would be distributed among mark ets, including the US market, according to 
historic proportions.  This ex post facto  argument should be rejected notably because footnote 258 of 
the Final Determination – the only source that the United States cites for this assertion – contains no 
such analysis.   
4.273  With respect to this factor, the Commission concluded that: “Canadian producers expect to 
further increase their ability to supply the US so ftwood lumber markets.”  This statement is 
ambiguous and inconclusive and does not support the Commission’s finding of a likely substantial 
increase in imports.  There is no indication in the Commission Report as to ho w this so-called “ability 
to supply the US softwood lumber market” was likely to translate into substantially increased imports. 
2. Export Orientation of Canadian Producers to the US Market 
 
4.274  As a second factor, the Commission relied on th e export orientation of Canadian producers to 
the US market, but it did not find, and no positive evidence would have supported a finding, that this 
export orientation would increase in the imminent future.  On the cont rary, the projections referred to 
by the Commission indicate a decrease  in export orientation. 
3.  Increase in Subject Imports Over the Period of Investigation 
 
4.275  The Commission’s treatment of the third factor it cites in support of its central volume 
finding, the increase in subject imports over the period of investigation, also is minimal.  The 
Commission did not indicate that the rate of increase in subject imports during the period of WT/DS277/R 
Page 52  
 
investigation was significant. Indeed, such a conclu sion would have been difficult to justify given the 
Commission’s finding in its current injury analysis  that the market share maintained by subject 
imports during the period of investig ation had been “relatively stable”. 
4.276  The United States refers constantly to the volume of subject imports being at injurious levels 
during the period of investigation.  The US statement is merely another ex post facto  justification 
presented by the United States.  That no such statem ent can be found in the Final Determination is not 
surprising given that the Commission found no curre nt injury.  The Commission found only that the 
volume was significant, and because it also found th at Canadian imports did not have a significant 
impact on the US industry, the United States must  recognize that import volumes that are significant 
are not necessarily injurious. 
4.  Effects of Expiration of the SLA 
 
4.277  In its list of six factors on which it based its finding of a likely substantial increase in imports, 
the Commission refers to the effects of expiration of the SLA.  However, the discussion found in the 
Final Determination does not concern the effects of  expiration of the SLA.  Rather, the Commission 
refers to some data and makes some statements with respect to what happened during the period of 
investigation.  It does not make any projections as to what the effects of the expiration of the SLA 
would be in the future. Moreover, the Commission’s  conclusion that the SLA “appears” to have 
restrained subject imports “at least to some extent ” does not support its finding of a likely substantial
 
increase in imports.  
5.  Subject Import Trends During Periods When There Were No Import Restraints 
 
4.278  Subject import trends during periods when there were no import restraints constitutes the fifth 
factor that the Commission listed as a basis for its finding of a likely substantial increase in imports.  The US has provided no direct response to Canada ’s demonstration that the Commission could not 
properly rely on these trends to project the likely vo lume of subject imports in the imminent future. 
6.  Forecasts of Strong and Improving Demand in the US Market 
 
4.279  The sixth factor on which the Commission based its finding of a likely substantial increase in 
imports is its forecast of strong and improving de mand in the US market.  Having referred to the 
forecasts for softwood lumber demand and US hou sing starts, the Commission concluded that the 
United States “will continue to be an impor tant market for Canadian producers”.   
4.280  This uncontroversial statement about the con tinued importance of the US market does not 
support a finding of a likely substantial increase in im ports in the imminent future.  After all, during 
the period of investigation, the United States was an important market for the Canadian producers, yet 
Canadian imports did not increase substantially.  Ca nada also notes that without a predicted increase 
in their market share, there is no reason to belie ve that the subject imports, which the Commission 
found did not reach injurious levels during the period of investigation, would reach such levels in the 
imminent future. 
4.281  By failing to base its volume finding on positive evidence and reasoned consideration of the 
six identified factors, or the factors set out in Articles 3.2, 3.7, 15.2 and 15.7, the Commission failed to satisfy the requirements of these Articles, and the US acte d inconsistently with its WTO 
obligations. 
4.282  A listed factor that is relevant to likely proj ected import volumes is the nature of the subsidy 
and its likely trade effects.  The United States c ontends that the Commission was entitled to end its 
consideration of this critical issue mere ly because the parties submitted allegedly
 conflicting evidence.  
But the existence of conflicting evidence necessitat es an adequate explanation of the nature and WT/DS277/R 
Page 53 
  
 
complexities of that evidence.  As for the US assertion that the Commission found the evidence 
“inconclusive”, the short answer is the Commission made no such finding.  The United States also does not provide any answer to Canada’s demonstr ation that the Final Determination fundamentally 
mischaracterized the economic and empirical arguments of the Canadian parties.   
B.  THE COMMISSION COULD NOT
 DEMONSTRATE THAT SUBJECT IMPORTS 
WOULD LIKELY HAVE A SIGNIFICANT PRICE EFFECT 
 
4.283  The second basis cited by the United States for the Commission’s affirmative threat 
determination is a finding of significant price effects.  The Commission’s price analysis is fundamentally flawed, as Canada has demonstrated.  What is the US response?   It repeats essentially 
verbatim the points that Canada has already addressed.    
4.284  The United States continues to defend the Co mmission’s price effects conclusion as being 
based on a purported analysis of “price trends”.  This is not in the Commission’s determination.  It is 
pure fiction.  The only basis for the Commission’s price finding is its volume finding, which is in itself fundamentally flawed.  Another fiction is the US invocation of a purported finding that 
producers in the US, but not in Canada, had curbed their production.  The Commission did not find 
that US overproduction had been curbed, much less th at it would be relative to Canadian production. 
4.285  The United States also continues to ignore the f act that the Commission failed to reconcile its 
conclusion on price effects with its finding rega rding demand.  The finding of strong and improving 
demand should have prevented the Commission fro m simply concluding, without analysis or 
explanation, that additional subject imports would increase the excess supply in the market, put 
further downward pressure on prices and have a significant price depressing effect.  For the increase 
in the volume of subject imports to have a significant impact on pricing, the Commission would have had to find, at a minimum, that the increase in subject imports would translate into a significantly 
higher market share.     
C.  THE COMMISSION DID NOT
 ESTABLISH A CAUSAL LINK BETWEEN 
SUBJECT IMPORTS AND THREAT OF INJURY 
 
4.286  The Commission did not establish a causal link between subject imports and the threat of 
injury.  The Commission failed to comply with either  of the obligations set out in Articles 3.5 of the 
Anti-Dumping Agreement  and 15.5 of the SCM Agreement . 
4.287  In order to conduct a proper causation analysis, the Commission had to take into account its 
finding of strong and improving demand in the US market and the absence of any evidence that 
Canadian market share would grow beyond the non-injurious  levels of the period of investigation.  It 
failed to do so.  The mere fact that Canadian producers might respond to improving demand in the US cannot justify a finding that imports would increase to injurious levels unless
 the increase was likely 
to outstrip the growth in demand and materially increase Canadian market share above the present 
level that the Commission had found to be non-injurious. 
4.288  With regard to causation, the Commission also fa iled to address other factors that it explicitly 
found earlier in the final determination to be “pertinent” and “relevant to our analysis”.  The Commission therefore did not comply with the ob ligation under Articles 3.5 and 15.5 to base a 
finding of a causal relationship “on an examination of all relevant evidence
 before the authorities”.   
4.289  For example, despite evidence of moderate s ubstitutability and increasi ng integration in the 
North American lumber market, the Commission failed to address these factors in its threat analysis.  
Similarly, the Commission failed to consider the evidence that domestic US producers import or purchase a sizeable volume of subject imports them selves when reaching its conclusions of price 
effect and injury to the domestic industry.   WT/DS277/R 
Page 54  
 
4.290  In concluding that the imports would cause injury to the domestic industry, the Commission 
also failed to examine the impact of the subject imports on the domestic industry in the future, in 
terms of the relevant economic factors and indices listed in Articles 3.4 of the Anti-Dumping 
Agreement  and 15.4 of the SCM Agreement .  It was not sufficient for the Commission to examine the 
state of the domestic industry in the past, a peri od during which it found that the subject imports had 
not caused injury.  In order to arrive at its threat determination, as indicated by Articles 3.1, 3.4, 15.1 
and 15.4, the Commission had to conduct a related but distinct analysis of the impact of the predicted 
increased volume of subject imports on the domestic industry.  However, it failed to do so. 
D.  THE COMMISSION DID NOT CONDUCT A NON-ATTRIBUTION ANALYSIS 
 
4.291  The Commission did not conduct a non-attribution analysis.  The US claim that the other 
factors it identified as significant to understanding the condition of the US industry are not “other 
known factors injuring the domestic industry” is inco mprehensible.  The US points to no passage in 
the Commission's determination where such a conc lusion can be found.  In addition to the likely 
contribution of the domestic industry to future supp ly conditions, other factors also were clearly 
known and relevant.  For example, the Commission ignored the likely future role of non-subject 
imports and their potential contribution to any threatened injury to the US industry.   
4.292  The US argues that the Commissi on’s failure to examine non-subject imports was justified 
because their market share was sma ll in absolute terms during the PO I and they were not subject to 
import restraints.  Not only is this explanati on not found in the threat section of the Final 
Determination, but the Commission did not address the fact that non-subject imports increased in 
absolute terms nearly as much as subject imports a nd that their annual rate of increase during the POI 
was over 20 per cent – compared to only 1.4 per cent for subject imports.  These facts were undeniably relevant because the Co mmission’s threat of injury anal ysis focused exclusively on the 
effect of the projected incremental
 increase in subject imports.  
E.  NO CHANGE IN CIRCUMSTANCES 
 4.293  The Commission failed to identify, based on pos itive evidence in the record, what clearly 
foreseen and imminent change in circumstances woul d create a situation in which the subject imports 
would cause injury.  
4.294  In response, the US mischaracterizes Canada ’s argument as requiring an event “that will 
abruptly change the status quo”.  This is an argu ment that Canada has never made.  Throughout this 
dispute, Canada has relied on the wording of Articles 3.7 of the Anti-Dumping Agreement and 15.7 of 
the SCM Agreement  that “the change in circumstances . . . must be clearly foreseen and imminent”.   
4.295  Then, the United States introduces a theory that appears nowhere in the Commission’s Final 
Determination – namely, that the Commission foun d a change in circumstances because it found a 
“progression of circumstances”.  However, a theory cannot replace facts, and the facts in this case do 
not support the US ex post facto  explanation.   
4.296  With respect to the twenty-five factors listed by the United States in paragraph 18 of its 
Second Written Submission, Canada notes that the US  has taken statements scattered throughout the 
Commission’s Final Determination – plus some asser tions nowhere to be found in that Determination 
– and combined them into a single paragraph w ith 25 numbered subparagra phs, as if their bulk will 
somehow make them credible and coherent.  Bu t this repackaging does not make the whole any 
greater than the sum of the parts.  The problems with the Final Determination are substantive, not 
presentational, and they are not remedi ed by a superficial reshuffling.  
4.297  The US argument that the analysis of threat should not be divorced from the analysis of 
current injury mischaracterizes Canada’s argument and misses Canada’s point.  Canada agrees that WT/DS277/R 
Page 55 
  
 
the threat analysis should be relate d to, and consistent with, the current  injury analysis.  Indeed, that 
proposition forms the basis of Canada’s argument that the Commission’s determination completely 
failed to consider how several critic al findings in the current injury analysis relate to its threat 
analysis.  Most notably, the Commission considered th e role of relatively stable market share and the 
response of the US industry in its current injury analysis, but it ignored these factors in its threat 
analysis.  It is not Canada, but the United States, th at “would start the threat of injury analysis with a 
clean slate”. 
4.298  In sum, the positive evidence in the record di d not demonstrate, and the Commission did not 
find, any adverse trends that, if continued, would cause a clearly foreseeable and imminent change in 
the non-injurious conditions prevalent over the period of investigation.  The United States has 
therefore failed to comply with its obligations under Articles 3.7 and 15.7. 
CONCLUSION 
 
4.299  The United States has not satisfied the essential requirements set out in the SCM and Anti-
Dumping Agreements for the determination of a threat of material injury.  As such, its Final 
Determination has no basis and must be revoked. 
2. Closing Statement of Canada at the Second Meeting of the Panel 
4.300  In this Closing Statement, Canada only r esponds to a few contentions made by the 
United States in its Oral Statement. 
4.301  The United States asserts (in para. 5) that Cana da argued “that the circumstances of this case 
give rise to obligations that might not exist in ot her cases”.  This is not true.  The obligations under 
the Agreements do not vary from case  to case.  Canada has argued that the application  of these 
principles may be different in different cases depe nding on the facts. For example, the United States 
questions (para. 43) the basis for Canada’s clai m that the Commission was required to assess the 
likely future market share of subject imports.  But Article 3.5 and 15.5 require  that the demonstration 
of a causal relationship between subsidized/dumped im ports and injury to the domestic industry “shall 
be based on an examination of all relevant evidence before the authorities”.  Canada contends that the 
Commission’s treatment of causation in its threat analysis in the circumstances of this case should 
have included consideration of likely future mark et share because market share was not merely 
relevant but a decisive factor in its negative current injury determination. 
4.302  The United States asserts (in paras. 3 and 16) that neither the Anti-Dumping  nor the SCM 
Agreement  imposes any obligation to “identify” the cha nge in circumstances required by Articles 3.7 
and 15.7.  Canada would draw the Panel’s attenti on to the United States’ First Written Submission to 
the Appellate Body in the High Fructose Corn Syrup  case.  There, the United States faulted the 
investigating authority for failing to “ demonstrate  why there was a clearly foreseen and imminent 
change in circumstances that threat ened injury to an industry not cu rrently injured, as the Panel ruled 
was required in Article 3.7”.14 If there is any difference between “identify” and “demonstrate”, it is 
not apparent to Canada.  If this  Panel cannot determine from the Commission’s final determination 
what was the change in circumstances required by Articles 3.7 and 15.7, how can the Panel conclude 
that the United States satisfied this obligation? 
4.303  In addition, the United States contends (in para. 26) that “[i]mplicit in Canada’s approach, of 
course, is that the non-listed factors, or facts relate d to those factors, should be given less weight than 
those factors listed in the covered agreements”.  Canada recognizes that the investigating authority 
                                                      
14 First Written Submission of the United States of America, 17 November 2000 before the Panel - 
Recourse to Article 21.5 of the DSU by the United States in Mexico – Anti-Dumping In vestigation of High 
Fructose Corn Syrup (HFCS) From the United States.  [emphasis added] (Exhibit CDA-33) WT/DS277/R 
Page 56  
 
may appropriately consider factors that are not listed. Canada's point is that the Commission’s 
analysis of both listed and non-listed factors, individually and collectively, does not support its affirmative threat finding. 
4.304  Next, Canada responds to the US Oral Stat ement concerning several instances where the 
United States continues to try to re-wr ite the Commission’s final determination. 
4.305  The United States continues to assert (for exampl e, in paras. 13, 15) that the Commission 
found in its current injury analysis that subject imports had injurious effects.  However, if the 
Commission had found such effects, it would have reached an affirmative, not a negative, current 
injury determination.  It is true that the Commis sion found that subject imports had some price effects, 
but it also found that they were not significant.
15   
4.306  A related point involves the United States’ clai m (in para. 39) that the Commission conducted 
a price trends analysis, can be found on page 43 of  the Commission’s Final Determination.  However, 
that page merely recited information about pr ices and changes in prices during the period of 
investigation.  The Panel would not  find on page 43, or anywhere el se in the Final Determination, a 
conclusion that these changes in price were cau sed by subject imports during the period of 
investigation; in fact, the Commission explicitly fo und that subject imports had no significant price 
effect.  Nor did the Commission rely anywhere on pr ice trends to support a finding of material injury 
in the imminent future. 
4.307  On another price-related issue, the United Stat es faults (in para. 40) Canada for failing to 
point out that the composite price for the first qua rter of 2002 was lower than the composite price for 
the third quarter of 2001 and substantially lower than  that for the second quarter of 2001”.  However, 
the United States correctly recognizes (and falsely accuses Canada of failing to recognize) that 
“seasonality generally affects comparisons between f ourth an first quarter prices.”  Para. 40.  A 
comparison of prices in the first quarter of 2002 with  prices in the first quarter of 2001, which avoids 
the seasonality problem, shows that prices were roughly 10 per cent higher in the corresponding quarters of 2002 and 2001.
16   
4.308  The United States now suggests (in paras. 22 and 36) that the SLA had a substantial 
restraining effect, as shown by the slight decrea se in Canadian market share between 1996 and 2001.  
In fact, in the Final Determination, the Commis sion stated only that the SLA “appears” to have 
restrained subject imports “at least to some extent ”, and then continued to note that “market share 
remained relatively constant” from 1995 to 2001.17  Moreover, the final determination contains no 
analysis demonstrating that the slight decline in Canadian market share was in fact due to the SLA 
and not to other factors that the Commission did not analyze. 
4.309  The United States continues to assert (para. 33) that the Commission had reasonable grounds 
to question the projections of Canadian producers concerning exports to the United States in 2002 and 2003.  But the Commission’s Final Determination cont ains no such finding.  Canada asks the Panel to 
look at the data reported in the Final Determinat ion, which show that the percentage of their 
production projected to be exported to the Unite d States in 2002 and 2003 (58.8 and 58.5 per cent) 
was entirely consistent with the three pr ior years (57.4, 57.4 and 60.9 per cent).
18   
4.310  Finally, in discussing non-attribution, the United States implies that the Commission found 
certain factors “not to have injurious effects on the domestic industry” and that these factors were 
                                                      
15 Commission Report, p. 35. 
16 CLTA pre-hearing brief, Ex. 56; CLTA post-hearing brief, Ex.1 – showing lumber prices trending up 
in the first quarter of 2002.  (Exhibit CDA-29) 
17 Commission Report, p. 41. 
18 Commission Report, p. 41, n.258, citing Table VII-2. WT/DS277/R 
Page 57 
  
 
therefore not “other known factors” for purposes of Ar ticle 3.5 and 15.5.  However, the United States 
explicitly acknowledges in its answers to questions that “[t]he Commission had found in its present 
material injury analysis that excess domestic suppl y was an other known factor” that contributed to 
injury during the period of investigation.19  The Commission utterly failed to analyze the likely role of 
the domestic industry, and all factors other than subject imports, in the imminent future. 
4.311  Although the Panel has received voluminous subm issions from the parties, the fundamental 
question is whether the cursory threat analysis contained in the Commission’s final determination 
complies with the relevant US obligations under th e WTO Agreements.  Canada respectfully submits 
it does not. 
H. SECOND  ORAL  STATEMENTS  OF THE  UNITED  STATES 
4.312  The following summarizes the United States' arguments in its second oral statements. 
1. Opening Statement of the United States at the Second Meeting of the Panel 
4.313  Canada consistently fails to locate in the covere d agreements certain obligations that it claims 
the United States has breached.  Two examples illustrate the point.  First , Canada asserts an obligation 
to explicitly identify a change in circumstances that would cause a threat  of injury to ripen into actual 
injury.  It claims that "[i]n the circumstances of this dispute" an "objective examination," as required 
by Article 3.1 of the Anti-Dumping Agreement and Article 15.1 of the SCM Agreement "could not be 
achieved without identifying the change in circumstances from the non-injurious status quo ".  
However, it does not explain what about this disput e supports an obligation that might not exist in 
other disputes.  Second , Canada claims that the ITC was required to explain why it conducted a 
combined injury analysis.  Once again, Canada reverts to "the circumstances of this case" as the 
supposed basis for the obligation, but fails to explai n how the circumstances of this dispute give rise 
to an obligation that does not apply to all disputes. 
4.314  The most striking example of Canada reading into the WTO agreements an obligation that 
applies to the particular circumstances of this dis pute only, but not necessarily to other disputes, is its 
assertion of breaches of a general obligation to provi de a "reasoned and adequate explanation" of 
certain conclusions.  Canada appears to rely on "reasoned and adequate explanation" as a sort of 
placeholder obligation.  Given the importance of "rea soned and adequate explan ation" in its argument, 
one would expect Canada to have clearly defined its basis, but it has not done so. 
4.315  An additional general observati on concerns Canada’s argument that certain statements by 
Canadian lumber producers and exporters were not  appropriately considered by the ITC.  For 
example, Canada claims that the ITC did not take into account exporters’ projec tions of exports to the 
United States.  Elsewhere, Canada  reasons, somewhat circularly, that its economic theory regarding 
the effects of the subsidy should have given decisive  guidance to the ITC.  It cannot possibly be the 
case that an investigating authority violates WTO obligations simply by discounting self-interested statements by parties to an investigation. 
4.316  In considering this dispute, it s hould be borne in mind that:  First
, the legal determination of 
no present material injury by reason of dumped and s ubsidized imports does not negate the subsidiary 
affirmative findings made in the present injury analysis.  Second , the ITC conducted an objective 
examination, as evident in the ITC Report, in which its evaluation of the relevant factors and facts was 
unbiased and even-handed; Canada, on the other ha nd, focuses on only those facts and findings that 
favour its arguments.  Third , all of the factors considered by the ITC, whether or not listed in 
Articles 3.7 and 15.7 of the covered agreements, th e record evidence, and the likely effects being 
assessed are interrelated, and should not be cons idered and analyzed in isolation.  Fourth , Canada 
                                                      
19 US Answers, para. 31 n.50. WT/DS277/R 
Page 58  
 
frequently asserts that the United States failed to me et an alleged obligation, when no such obligation 
exists.  Fifth
, the theories presented by Canada, including the demand theory and the economic rent 
theory, are not proven facts and are not uncontested, as it asserts.  Finally , the ITC’s determinations 
are based on positive evidence, and an objective ex amination of all relevant factors and facts. 
4.317  Legal Determination of No Present Materi al Injury Does Not Negate Subsidiary 
Affirmative Findings .  The ITC made subsidiary findings in its  present material injury analysis that 
supported an affirmative present injury finding.  Specifically, the volume and market share of imports were significant, imports had some adverse effe cts on domestic prices, and the condition of the 
domestic industry had deteriorated, primarily as a result of declining prices, and thus was in a 
vulnerable state.  These findings foreshadow injury  and clearly support the existence of a threat of 
material injury.  Canada erroneously argues that if  the current circumstances taken together do not 
support a legal conclusion of present injury, they mu st be wholly disregarded in addressing threat. 
4.318  Canada simply ignores the existence of any evid ence from the present injury analysis showing 
that the US industry was on the verge of injury by  reason of subject imports.  For example, the ITC 
found that the volume and market share of subject imports, accounting for 34 per cent of the US 
market, were already significant and thus supported an affirmative present material injury finding.  
Canada, however, erroneously describes this as a findi ng that such imports were not injurious and thus 
dismisses its importance in the context of the threat of  injury analysis.  Its claims rest largely on this 
error.  For example, while Canada observes that the ITC recognized that the 34 per cent market share 
held by Canadian imports was relatively stable, it  omits that the ITC recognized that it had been 
higher prior to the imposition of the restraining e ffect of the Softwood Lumber Agreement (SLA).  
The relatively stable market share during the SLA pe riod does not negate the finding that the market 
share was significant.  Rather, it is an indicator of the SLA’s restraining effect and supports an 
affirmative threat of injury finding. 
4.319  Regarding present price effects, Canada selectively quotes from the ITC Report, omitting the 
ITC’s finding that subject imports had some  price effects and its reasoning for why such effects were 
not significant.  The ITC found that "the deteriora tion in the condition of the domestic industry during 
the period of investigation is largely the result of substantial declines in price".  Canada states that 
"the [ITC] also found that declines in performance had levelled off in 2001".  But, it disregards the 
ITC ’s prior statement that "[t]he record indicat es that prices did increase in the second quarter of 
2001, coincident with the filing of the petition, and this price increase abated some of the domestic 
industry’s declining performance indicators". 
4.320  Threat of Material Injury Analysis – General Issues .  Canada urges the Panel to consider 
the threat factors listed in Articles 3.7 and 15.7 in isolation from other factors. But all of the factors considered by the ITC, whether listed or not, are interrelated, as are the different pieces of record evidence, and the likely effects being assessed.  The text of the covered agreements provides a clear 
example of the change in circumstances as a seque nce or accretion of events and does not include an 
"obligation to identify" the change in  circumstances, as Canada alleges.  Consistent with all of the US 
obligations under the covered agreem ents, the ITC provided a detailed explanation of how the totality 
of the evidence supported its conclusion, incl uding addressing the facts and likely events 
demonstrating the progression or change in circum stances, as set forth in paragraph 18 of the US 
second written submission. 
4.321  Specific Issues Regarding Threat of Material Injury Analysis .  The ITC found that there 
was a likelihood of substantial increases in s ubject imports based on evidence regarding, inter alia , 
Canadian producers’ excess production capacity a nd projected increases in capacity, capacity 
utilization and production, the export orientation of Canadian producers to the US market and subject 
import trends during periods when there were no im port restraints.  The ITC determined that these 
increases in imports were likely to put pressure on alr eady declining prices, and th at material injury to 
the domestic industry would occur.  It also found th at the domestic industry was vulnerable to injury WT/DS277/R 
Page 59 
  
 
from likely increases in imports and price pressure in  light of declines in performance, particularly 
financial performance. 
4.322  Likely Substantial Increases in Subject Imports.   Contrary to Canada’s characterization, 
the ITC found that the volume and market share of subject imports were already significant and had 
increased even with the restraining effect of th e SLA in place.  Moreover, subject imports had 
increased substantially during the periods without import restraints. 
4.323  Capacity .  Canada selectively quotes from the ITC’s Report to claim that the ITC performed 
an "inadequate analysis" and offe red "no explanation" for its findi ng that Canadian producers expect 
to further increase their ability to s upply the US market.  Yet the ITC provided an explicit explanation 
(ITC Report, page 40) that Canada simply has ig nored.  Moreover, the ITC also recognized that 
"Canadian producers projected . . . capacity utiliza tion increases to 90.4 per cent" in 2003 from the 
low of about 84 per cent in 2001.  Further, rega rding capacity, Canada would require a showing of 
both sufficient freely disposable capacity and  an imminent substantial increase in capacity, even 
though these factors in the relevant provisions are separated by "or" rather than "and". 
4.324  Export Orientation and Export Projections .  The US market has generally accounted for about 
65 per cent of Canadian softwood lumber production.  Yet, Canadian producers ’ projected increases 
in exports to the United States accounted for only  about 20 per cent of their planned increases in 
production.  This aspect of producers’ projections, coupled with projected home market shipments 
that did not correlate to Canadian demand forecas ts, reasonably caused the ITC to conclude that 
projected production increases would likely be distributed among the US, Canadian, and other 
markets in shares similar to those prev ailing during the prior five years. 
4.325  Restraining Effect of the SLA .  Canada’s claims regarding the ITC’s use of "all" rather than 
"some" for $50 fee imports in 2000-2001 ignore the significant quantities of exports subject to $100 
fees for the period.  The fact is, since $100 f ee imports entered in the 2000-2001 period, some 
Canadian producers had used all of their $50 fee quota in that period.  Moreover, this does not affect 
the ITC’s conclusion that the significant quantities of imports subject to $100 fees indicated that "in 
the absence of the SLA they [Canadian producers]  would have shipped more, given the near 
prohibitive level of the $100 fee". 
4.326  Substantial Increases in Imports in Periods with No Import Restraints .  Canada’s arguments 
regarding the ITC’s finding that subject imports increased substantially during periods with no import 
restraints rely on the omission of significant evid ence and findings. In fact, at one point, Canada 
claims that the 1994-1996 period does not support an "inference" regarding the subject imports.  But 
the ITC did not need to make an inference to de termine what occurred when  the trade restraint, i.e., 
the SLA, was imposed, because it relied on and discu ssed actual data showing a decline in subject 
imports to 34.3 per cent with the SLA in effect fro m 35.9 per cent prior to its imposition.  Moreover, 
Canada’s challenge to the ITC’s consideration of import data fo r the 1994-1996 period on the basis 
that market conditions were not taken into account is not consistent with its own reliance on data 
outside the period of investigation.  In addition,  Canada’s claim that the substantial increase in 
imports during the April-August 2001 period only reflect s "a shift in the timing of imports" fails to 
respond to the simple fact that imports did increase.  For example, subject imports increased by 11.3 per cent for the April-August 2001 period compar ed with the same period in 2000, and by 4.9 per 
cent for the April-December 2001 period compared with  2000.  The fact that imports increased after 
expiration of the SLA and have continued to increase  does not support Canada’s argument that a shift 
in timing accounted for the higher level of imports after the SLA expired. 
4.327  Likely Price Effects .  Canada’s arguments regarding lik ely price effects largely ignore the 
ITC’s analysis and findings.  For example, Cana da has claimed that "[n]owhere in the [ITC’s] 
discussion of this factor in the Determination is ther e any reference to a ‘price trends’ analysis."  The 
facts refute this claim.  The ITC did analyze price trends in its threat analysis (ITC Report, page 43) WT/DS277/R 
Page 60  
 
and found that prices declined substantially at th e end of the period of investigation, supporting a 
conclusion that imports "are entering at prices th at are likely to have a significant depressing or 
suppressing effect on domestic prices".  Canada’s a ttempt to show that prices increased after the 
period of investigation fails to point out that th e composite price for the first quarter of 2002 was 
lower than the composite price for the third quarter of 2001 and substantially lower than that for the 
second quarter of 2001. 
4.328  Causation .  Canada’s claims on causation are vari ations on its arguments regarding likely 
substantial increases in imports and likely price effects.  When the ITC finds a factor not to have injurious effects on the domestic industry, such fact or is not an "other known factor," in which case 
there is no obligation to further examine it. Canada  states that the ITC was required to "assess[] the 
future market share of subject imports".  However,  such a requirement does not exist in the covered 
agreements. 
4.329  Substitutability
.  Regarding substitutability, subject im ports and domestic species of softwood 
lumber are used in the same applications and compete with each other.  Moreover, prices of a 
particular species will affect the prices of othe r species.  Canada quotes selectively from the ITC’s 
preliminary investigation and ignores the totality of the facts, including the evidence provided by 
purchasers and home builders that Canadian softwood  lumber and the domestic like product generally 
are interchangeable and are used in the same applications. 
4.330  Canada’s claims regarding attenuated competition centre on whether Canadian SPF, which 
accounts for about 85 per cent of its production, an d US Southern Yellow Pine (SYP), which accounts 
for about 45 per cent of US production, are intercha ngeable and compete. Canada provides the Panel a 
single quote from an employee of Home Depot, a large US retailer. However, other evidence, 
including testimony from another employee of Home Depot from Texas, show both SPF and SYP are used for the same applications, with regional pr eferences reflecting availability and a predisposition 
for locally-milled species, but not a lack of substit utability (USA-23).  In addition, there are other 
species, such as Douglas fir and hem-fir, that both  countries produce that compete with each other, 
and with SPF and SYP.  There was significantly more evidence in the record demonstrating the 
interchangeability of the species. 
4.331  Domestic Supply
.  Canada has made two charges rega rding the evidence cited by the ITC 
indicating that domestic producers have curbed th eir production, but that overproduction remains a 
problem in Canada.  First, Canada argues that, base d on the location of this finding in the ITC Report, 
it could not support the ITC’s threat of injury findi ng.  Second, Canada alleges that this "excerpt 
therefore referred only to ‘ overproduction in order to secure wood chips for pulp and paper 
manufacturing ’ and not to overproduction in the lumber i ndustry generally."  But, the motivation for 
lumber overproduction does not eliminate or lessen the central problem – lumber is being overproduced.  Moreover, it actually is more problem atic, because it indicates that the production of 
lumber is not tied exclusively to the demand for lumber. 
4.332  Finally, Canada’s renewed requ est for a suggestion by the Panel as to how the United States 
should come into compliance with its WTO obligations goes beyond anything contemplated by the WTO agreements and should be rejected. 
2. Closing Statement of the United States at the Second Meeting of the Panel 
4.333  As we indicated this morning, the Commission conducted an objective examination, as 
evident in the ITC Report, in which its evaluation of the relevant factors and facts was unbiased and 
even-handed.  Canada, on the other hand, continues to  draw to the Panel’s attention only those facts 
and findings that favour Canada’s  arguments.  Canada overlooks s ubstantial parts of the ITC’s 
discussion of various issues and arguments, and substa ntial parts of the record evidence, in presenting 
its arguments to the Panel. WT/DS277/R 
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4.334  Canada frequently asserts that the United States in relying on ex post facto  rationalizations 
and justifications in its defe nce of the ITC determinations.20  Yet in making these assertions Canada 
dismisses and omits explicit statements made by th e Commission in its opinion.  We have cited to a 
number of these omissions in our written submissions.  This morning, in our opening statement, we quoted statements explicitly made by the Commission,  or referred the Panel to pages, in the ITC’s 
Report, that Canada has ignored and instead often characterizes as ex post facto  rationalizations.
21  
One example, discussed this morning involves Cana da’s claims that the ITC did not discuss price 
trends in its threat of injury analysis.22  It is clear on pages 43 of the ITC Report (attached to the US 
opening statement) that the ITC explic itly did conduct a price trends analysis. 
4.335  An examination of the ITC Report demonstrates that the Commission’s determinations reflect 
the facts as a whole and are consistent with a ll US obligations under th e covered agreements.  
Contrary to Canada’s claims, it is important to understand that consideration and explanation of a 
factor in any section of the ITC Report does not limit its application to that section of the report.  The 
report must be viewed as a whole, with analysis c onducted in any particular section potentially having 
a bearing on analysis in other sections. 
4.336  The United States has addressed the issues in deta il in written submissions to this Panel and 
will not repeat those arguments here.  We will, however, provide a few brief comments clarifying or 
placing in perspective certain issues raised by Canada. 
• The Commission properly examined any known factors other than the dumped and 
subsidized imports that might be injuring the domestic industry to ensure that it did 
not improperly attribute injury from other causal factors to the subject imports.  
Canada implies that further consideration or examination is required even if an 
alleged factor is found not to be an “other known factor.”23  When the Commission 
finds a factor not to have injurious effects on the domestic industry, such factor is not 
an “other known factor” for purposes of Ar ticle 3.5 of the Anti-Dumping Agreement 
or Article 15.5 of the SCM Agreement.  If a factor is not an “other known factor,” 
there is no obligation to further examine it.  Canada is wrong. 
 
• One example where evidence demonstrates that an alleged other factor is not a 
“known” other factor is nonsubject imports.  Canada continues to attempt to portray 
nonsubject imports as other known factors in face of the facts to the contrary.  Non-subject imports never accounted for more than  2.6 per cent of apparent consumption; 
subject imports accounted for at least 34 per cent of the US market.  Moreover, 
individual country non-subject imports woul d have been deemed negligible, with no 
individual country accounting for more than 1.3 per cent of imports while Canadian 
imports accounted for about 93 per cent of all imports.
24  
 
• On the issue of substitutability/attenuated comp etition, it is Canada that has failed to 
address the evidence before the Commission.  As discussed in the US first written 
submission and the ITC Report, and this morn ing, the simple fact is, subject imports 
and domestic species of softwood lumber ar e used in the same applications, and 
                                                      
20See Canada Oral Statement at Second Panel Meeting, para. 3 
21See, e.g.,  US Opening Statement at Second Panel Meeting, paras. 23, 25-27, 31, 36, and 43. 
22Canada Second Written Submission, para. 26. 
23See Canada’s Oral Statement at Second Panel Meeting,  paras. 43-47. 
24See US Response to Panel Question 26, para. 33, n. 60; ITC Report at II-7, n. 23 (“Official statistics 
from the Department of Commerce rev eal that nonsubject imports accounte d for 6.9 per cent of the overall 
quantity of softwood lumber imports into the US market in 2001, with Brazil, Chile, and New Zealand accounting for 1.3, 1.1, and 1.0 per cen t, respectively.  Germany, Sweden, and Austria accounte d for 1.0, 0.8, 
and 0.5 per cent, respectively, while Lithuania, the Czech Republic, Mexico, and all other countries accounted 
for the remaining 1.2 per cent of 2001 softwood lumber imports.”). WT/DS277/R 
Page 62  
 
prices of a particular species will affect the prices of other species.
25  Canada states 
that “some Canadian imports in high dema nd in the United States were employed for 
end uses for which domestic products competed only on a limited basis.”26  But, the 
facts do not support its claim.  Canadian imports are primarily SPF; SPF accounts for 
about 87.7 per cent of Canadian imports a nd about 85 per cent of Canadian softwood 
lumber production.  As demonstrated by Exhibit USA-23, discussed this morning, 
Canadian SPF and US Southern Yellow Pine  are used for the same applications.  
Thus, these products compete.  Canada also imports Douglas fir, hem-fir, western red cedar, and a few other products; all of these species also are produced in the United States.  Canada now attempts to rely on a US court case with a very different 
fact pattern to support its attenuated compe tition arguments.  But, this attempt should 
fail because in that court case about 20 per cent of the imports were for a niche product which had no comparable domestic product, i.e., the products were not used 
in the same applications nor were they interchangeable.   
 
4.337  Mr. Chairman, members of the Panel, we have just one final point to make.  In its opening 
statement, Canada took issue with the US discussion of Canada’s request for a suggestion pursuant to 
DSU Article 19.1.  The United States does not deny—as implied by Canada’s statement—that Article 19.1 allows a panel to make  a suggestion in appropriate cases.  What we have argued is that no 
suggestion, and certainly not the s uggestion Canada proposes, is appropria te in this case.  Canada asks 
the Panel to make a suggestion that goes well beyond steps to bring about conformity with WTO 
obligations.  For that reason, this Panel, like the panel in United States-Hot Rolled Steel , should 
decline the request for a suggestion.  Of course, as we discussed in our earlier submissions, there is no 
need for any suggestion in this case because the IT C’s determination was entirely consistent with 
WTO obligations. 
4.338  Mr. Chairman and members of the Panel, our arguments today and in our prior submissions 
demonstrate that the ITC’s determination in this  case was entirely consistent with US obligations 
under the covered agreements.  For the reasons we have laid out, the Panel should reject Canada’s 
claim in its entirety.  
V. ARGUMENTS OF THE THIRD PARTIES 
5.1 The arguments of the third parties, the Europ ean Communities, Japan, and Korea are set out 
in their written submissions and oral statements, and are summarized in this section. Third parties' 
answers to questions are annexed in full to this report (see List of Annexes, page iv). 
A. THIRD
 PARTY  WRITTEN  SUBMISSION  OF THE  EUROPEAN  COMMUNITIES 
5.2 The following summarizes the European Comm unities arguments in its third party written 
submission. 
1. The Applicable Standard of Review  
5.3 This dispute concerns a determination that is mixed (involving subsidised and dumped 
imports) and consists, in the strict sense of two legally separate determinations on which the final 
countervailing and anti-dumping duties are based wh ich are to be reviewed separately under the SCM 
Agreement  and the  Anti-Dumping Agreement .  The European Communities agrees with Canada that 
the applicable standard of review under the SCM Agreement  is Article 11 of the DSU.  The European 
Communities also agrees with both parties that Article 17.6 of the Anti-Dumping Agreement  
                                                      
25 US First Written Submission, paras. 269-278 and ITC Report at 25-27 (USA-1). 
26Canada’s Oral Statement at Second Panel Meeting, para. 40. WT/DS277/R 
Page 63 
  
 
complements Article 11 of the DSU and that the duties of the Panels under both provisions do not 
differ significantly. 
5.4 However, the European Communities strongly  disagrees with Canada that the standard of 
review developed for the purpose of reviewing safe guard measures should automatically be applied in 
this dispute. 
5.5 Article 11 of the DSU defines generally a panel’ s mandate in reviewing the consistency with 
the covered agreements of measures taken by Member s.  However, the specific standard of review a 
Panel is called upon to apply paralle ls the substantive and procedur al obligations of the domestic 
authorities.  Thus, the Appellate Body explained th e standard of review concerning a violation of 
Article 4.2 of the Agreement on Safeguards , in the following way: 
5.6 Because the standard of review reflects the underlying substantive obligation, an automatic 
transfer of the standard of review from one  Agreement to the other could result in a de facto  
modification of the substantive obligations. 
5.7 The European Communities would give one exam ple where the standard of review proposed 
by Canada on the basis of the standard of review  applied in the context of safeguard cases would not  
have a legal basis in the Anti-Dumping Agreement  and the SCM Agreement  and would, indeed, 
amount to a de facto  modification of the substantive obligations.   
5.8 Thus, the European Communities fails to see, on which legal basis Canada would ask this 
Panel to determine whether the USITC has cons idered all the facts, including those that should have 
been  before the ITC but were not raised by the inter ested parties.  The latter standard was developed 
in the particular context of the Agreement on Safeguards , where the competitive authorities may not 
satisfy themselves with the facts and arguments provi ded by interested parties but must actively seek 
to obtain all relevant facts.  As already explaine d above, this particular role of the investigating 
authorities is justified by the fact that safeguard me asures apply to fairly traded imports irrespective of 
their source, while anti-dumping and countervailing du ties, apply to dumped or subsidised products 
from specific sources.    
5.9 Article 17.5 of the Anti-Dumping Agreement  confirms that domestic authorities have no 
investigative duties to obtain facts in addition to the facts submitted by the interested parties.   
5.10 The European Communities considers that the same principle applies under the SCM 
Agreement  although that Agreement does not contain an e xplicit confirmation to that end.  This is 
supported by the fact that both, the Anti-Dumping Agreement  and the SCM Agreement , contain the 
same very detailed and elaborate provisions regulating the conduct of the investigation, including the 
“best facts available” rule as provided under 6.8 ADA and 12.7 SCM. 
5.11 The European Communities considers that the re view this Panel is called upon to exercise in 
reviewing an injury determination involving both subsidised and dumped products can be deduced, in 
particular, from the overarching obligations of domestic  authorities in an injury  (or threat thereof) 
determination under Articles 3.1 ADA/15.1 SCM.  
5.12 Given that the wording of Articles 3.1 ADA/ 15.1 SCM is identical, the European 
Communities considers that the jurisprudence on th e standard of review for Article 3.1 of the Anti-
Dumping Agreement  may also apply to the review of an inju ry determination under Article 15.1 of the 
SCM Agreement .  Moreover, both provisions relate to a “determination of injury for purposes of 
Article VI of GATT 1994”, thus suggesting that in jury determinations from subsidised and dumped 
products do, in principle, not differ. WT/DS277/R 
Page 64  
 
5.13 In short, the European Communities submits that the applicable standard of review cannot be 
“imported” from the Agreement on Safeguards , but that the Panel should determine the appropriate 
standard of review for the injury determinati on involving both dumped and subsidised imports in 
accordance with Articles 11 of the DSU and 17.6 of the Anti-Dumping Agreement  by carefully 
considering the substantive obligations  of the domestic authorities under the Anti-Dumping Agreement  
and SCM Agreement , in particular the requirements under the general obligation in Articles 3.1 
ADA/15.1 SCM. 
2. Threat of Injury Determination 
5.14 Notwithstanding these minor deviations in the text, the European Communities agrees with 
the main parties that both, Article 3.7 ADA and Article 15.7 SCM should be read harmoniously to 
require a prospective analysis of the situ ation of the domestic industry in addition to
 the analysis of 
the current state of the domestic industry to be carried out under Articles 3.1- 3.6 ADA and Article 15.1-15.6 SCM.    
5.15 A proper threat analysis must fulfil three different requirements.  First, the threat analysis 
“shall be based on facts and not merely on allega tion, conjecture or remote possibility”.  This 
elements relates to the factual basis of the determin ation, requiring that the prospective analysis must 
be based on existing facts from which reasonable pr edictions can be made about the state of the 
industry in the future.  Second, the purpose of the th reat analysis is to demonstrate that a “change in 
circumstances” is “clearly foreseen and imminent ”.  Third, as regards the methodology, domestic 
authorities should consider “the totality of factors” and that consideration “must lead to the conclusion 
that further dumped imports are imminent and that, unless protective action is taken, material injury 
would occur”.  The factors enumerated in Articles 3.7 ADA/ 15.7 SCM essentially relate to the 
likelihood of increased imports (rate of increase of imports, capacity of exporters to increase exports, 
availability of other export markets and inventori es) and the effects of import prices on future prices 
and demand.  The list of factors is not exhaustiv e and none of them can by itself give decisive 
guidance. 
• Change in Circumstances under Articles 3.7/15.7  
5.16 The European Communities disagrees with the Un ited States that there is no requirement to 
identify a “change in circumstances”.  The United St ates would want to make the Panel believe that it 
is not feasible or meaningful to analyse possible ch anges in circumstances, because it is impossible, as 
clarified by the Appellate Body in the context of sa feguard disputes, to make out a point in time at 
which a threat of injury becomes material injury”. 
5.17 However, the case law relating to the Agreement on Safeguards  is of no relevance to the 
interpretation of the phrase “change of circumstances”, because only the Anti-Dumping Agreement  
and the SCM Agreement  contain the specific requirement of a “change of circumstances” analysis.  
The ordinary meaning of the second sentence of Artic le 3.7 ADA/ 15.7 SCM is straightforward:  The 
domestic authorities are required to determine that a “change in circumstances” that would “create a 
situation” in which the dumping/subsidisation wo uld cause injury must be “clearly foreseen and 
imminent”.   
5.18 The European Communities agre es with the commonplace that the economic development 
from the current (non-injured) state of the domestic  industry to a situation where material injury 
realises is a continuous one and th at it is not possible to predict the
 precise moment in time when the 
change occurs.  However, that is not the point .  The second sentence of Articles 3.7 ADA/ 15.7 SCM 
does not require a determination of when  circumstances change, but rather analysis of factors that 
would create  a change in circumstances. WT/DS277/R 
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5.19 Read contextually with the example contained in footnote 10 of the Anti-Dumping 
Agreement ) and the specific factors listed in the thir d sentence of Article 3.7 ADA/ 15.7 SCM, the 
requirement of a change of circumstances analysis essentially breaks down in two basic questions: (i) Is there a high likelihood of conti nued dumped/subsidised im ports and (ii) would the effects of these 
imports compel the conclusion that “unless protective action is taken” material injury as defined under 
Articles 3.1-3.6 ADA and 15;1-15.6 SCM  would occur. 
5.20 This analysis does not require identification of  an “abrupt change in circumstances” within 
the meaning of, e.g., “unforeseen developments”, but rath er an analysis of particular factors relating to 
the occurrence of facts of future dumped/subsidi sed imports resulting in the conclusion that the 
domestic industry is on the brink of being injured. 
• Individual Threat of Injury Factors 
5.21 The European Communities supports Canada’s interpretation of Articles 3.7(ii) ADA/ 
15.7(iii) SCM that the authorities must analyse the likelihood of increased dum ped/subsidised exports 
in relation to
 establishing the existence of sufficient di sposable capacity or imminent, substantial 
increase in capacity.  This is consistent with the requirement to consider the availability of other 
export markets and the general purpose of the individu al threat factors to establish a high likelihood of 
continued dumped/subsidised imports. 
5.22 The European Communities also agrees with Canada’s position that Article 3.7(iii) ADA/ 
15.7(iv) SCM requires the authorities to consider the impact of the current  import prices. This can be 
deduced from the use of the present continuous in the phrase “imports are entering at prices”.  
5.23 The European Communities would, however, ta ke issue with Canada’s interpretation of 
Articles 3.7(iv) ADA/ 15.7(v) SCM.  According to  Canada, the authorities are required to establish 
that inventories are likely to be liquidated in the imminent future.  Such requirement is not supported 
by the text of Article 3.7(iv) ADA/ 15.7(v) SCM whic h only refers to an assessment of “inventories”.  
Contextually, this is further corroborated by the di fference in language with Article 3.7(i) and (ii) 
ADA/15.7(ii) and (iii) SCM. The factors relating to in creased imports and the capacity of exporters to 
increase imports contain an explicit requirement to establish the likelihood of substantial increases of 
importation’s or dumped/subsidised imports.  
5.24 It is true that the chapeau  of Article 3.7 ADA/15.7 SCM woul d require consideration of all 
specific enumerated factors with a view of whethe r they point to the likelihood of further increased 
imports. However, in that respect it would be suffi cient, as implicitly admitted by the United States in 
its defence on that point, that inventories provide ex porters “with the added ability to likely increase 
substantial imports to the US market”.  
• Meaning of “Consider” in Article 3.7 ADA/ 15.7 SCM 
5.25 The European Communities supports the US argument relating to the meaning of the term 
“consider” that the investigating authority is not ob liged to make an explicit finding or determination 
on each of the factors for the following reasons: 
5.26 The term “consider” is defined, inter alia , as “look at attentively”, “pay heed to”, “think 
over”, “weigh the merits of”, “take note of”, “think carefully, reflect”. Thus, the ordinary meaning 
does not suggest that a separate dete rmination must be made  on each of the factors, but rather, that the 
determination is based on an  evaluation that takes note of the differe nt factors. This is corroborated by 
the interpretation of the phrase “shall consider” in Article 3.2 of the Anti-Dumping Agreement  in 
Thailand – H- Beams : WT/DS277/R 
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5.27 The same approach was taken by the Appellate Body in EC – Tube and Pipe .  With respect to 
the examination of injury factors under Article 3.4 of the Anti-Dumping Agreement  the Appellate 
Body explicitly confirmed the finding of the Panel: 
5.28 It is noteworthy that the first sentence of Article 3.7 ADA/ 15.7 SCM does not even require 
that the domestic authorities “shall” consider all those factors as Articles 3.2 ADA/ 15.2 SCM do, but 
only that they “should” consider, “inter alia” such  factors as enumerated.  Neither does it require an 
“examination” of factors as Article 3.4 ADA/15.4 SCM does.  Thus, it appears that Article 3.7 ADA/ 15.7 SCM leaves an even broader measure of discr etion to investigating authorities regarding the 
manner  in which they make a threat of injury determination.   
5.29 What is more, a conclusion that a threat of injury  exists may be justified by at least one threat 
factor pointing towards a threat of material injury.  Thus, the phrase “none of these factors can 
necessarily give decisive guidance” in the third senten ce of 3.7/15/7 clarifies that, indeed, one of these 
factors may give decisive guidance and it may be suffi cient to justify a threat of injury determination 
on the basis of one sole factor poin ting towards a threat of injury.  
B. THIRD
 PARTY  ORAL  STATEMENT  OF THE  EUROPEAN  COMMUNITIES 
5.30 The following summarizes the European Communities arguments in its third party oral 
statement. 
1. Introduction 
5.31 As noted in the European Communities written th ird party submission, many of the issues 
before the Panel in this dispute re late to detailed questions of fact  which the European Communities is 
not in a position to comment upon.  Therefore, the European Communities concentrates on some of 
the systemic issues raised by the European Communities regarding the interpretation of the 
Agreement on Implementation of Ar ticle VI of the General Agreem ent on Tariffs and Trade 1994 (the 
“Anti-Dumping Agreement” or “ADA”) and th e Agreement on Subsidi es and Countervailing 
Measures (the “SCM Agreement” or “SCMA”).  The European Communities comments would not 
repeat the detailed comments already provided in its  third party submission, but would briefly add 
some comments on the legal issues relating to the cau sation analysis carried out by the USITC and the 
applicable standard of review in relation to “known factors”. 
2. Interpretation of Articles 3.5 ADA/15.5 SCM Agreement   
5.32 The parties to the dispute disagree over whethe r the USITC carried out an analysis of the 
existence of a causal link which conformed with Article 3.5 of the Anti-Dumping Agreement  and 
Article 15.5 of the SCM Agreement .  In particular, Canada claims that the USITC failed to identify, 
much less examine any known factors that could have  threatened injury to the domestic industry in 
addition to the relevant imports.  Having neglected  even to identify other causal factors, the US 
authorities, according to Canada, also did not separ ate out and distinguish the injurious effects of 
those other factors from the alleged injurious effects of the dumped and subsidised imports. 
5.33 Canada appears concerned that the US even de nies its very obligation under WTO because, in 
its report, the US authority explicitly stated that it is not required, under US case law, to separate and 
distinguish the injurious effects of the other known factors from the injurious effects of the dumped and subsidised imports.
 27  Therefore, according to Canada, the determination does not comply with 
                                                      
27 USITC Report “Softwood Lumber From Canada”, Investigations Nos. 701-TA-414 and 731-TA-
928(Final), Publication 3509, Ma 2002 (hereinafter the “ITC Report”) (Exh.CDA-1), p. 31. Footnote 195. WT/DS277/R 
Page 67 
  
 
the requirements in the third and four th sentences of Article 3.5 of the Anti-Dumping Agreement  and 
Article 15.5 of the SCM Agreement  relating to non-attribution.28 
5.34 Article 3.5 ADA provides in relevant part: 
It must be demonstrated that the dumped imports are, through the effects of dumping, 
as set forth in paragraphs 2 and 4, causing injury within the meaning of this 
Agreement.  The demonstration of a causal  relationship between the dumped imports 
and the injury to the domestic industry shall be based on an examination of all relevant evidence before the authorities.  The authorities shall also examine any 
known factors other than the dumped imports which at the same time are injuring the domestic industry, and the injuries caused by these other factors must not be 
attributed to the dumped imports.  Factors which may be relevant in this respect 
include,  inter alia , the volume and prices of imports not sold at dumping prices, 
contraction in demand or changes in the pa tterns of consumption, trade restrictive 
practices of and competition between the foreign and domestic producers, 
developments in technology and the export performance and productivity of the 
domestic industry. 
5.35 Article 15.5 SCMA states: 
It must be demonstrated that the subsid ized imports are, through the effects of 
subsidies, causing injury within the meani ng of this Agreement.  The demonstration 
of a causal relationship between the subsidized  imports and the injury to the domestic 
industry shall be based on an examination of all relevant evidence before the 
authorities.  The authorities shall also ex amine any known factors other than the 
subsidized imports which at the same time  are injuring the domestic industry, and the 
injuries caused by these other factors must not be attributed to the subsidized imports. 
5.36 The European Communities considers that Article 3.5 ADA/15.5 SCM requires a detailed 
examination of other factors causing injury to the domestic industry and a rigorous segregation of 
those factors from the effects of dumping.  The European Communities would agree that a detailed 
examination must take place.  The European  Communities notes with satisfaction that the 
United States does not, as alleged by Canada, deny its obligations to comply with Articles 3.5 
ADA/15.5 SCMA.  The United States accepts, as the EC understands from the first US written 
submission, that Articles 3.5 and 15.5 require  investigating authorities in their causation 
determinations not to attribute to dumped [subsidized] imports the injurious effects of other causal 
factors, so as to ensure that dumped [subsidized] im ports are, in fact, “causing injury” to the domestic 
industry. 
5.37 The European Communities argued before the Appe llate Body and the Appellate Body agreed 
that “provided that an investigating authority does not attribute the injuries of other causal factors to 
dumped imports, it is free to choose the methodology it will use in examining the “causal 
relationship” between dumped imports and injury”.
29 The EC also agrees with the US that factors that 
are found not to have injurious effects are not an ”other known factor” for purposes of Article 3.5 ADA or Article 15.5 SCM and no furthe r consideration or examination of the factor is called for. 
Moreover, if a factor has been found not to cause injury, it does not need to be separated. 
                                                     
 
28 Canada’s First Written Submission, para. 163. 
29 EC-Pipe, AB Report, para. 189, citing  US-Hot-Rolled Steel, AB  Report, para. 224. WT/DS277/R 
Page 68  
 
5.38 As stated at the outset, the European Communities is not in a position to appreciate the factual 
aspects and whether the USITC has properly analy sed other factors, e.g., the industry’s own 
contribution to the oversupply that led to price declines.
30 
3. Standard of Review 
5.39 Turning now to the standard of review, the EC would like to add one more argument why 
Panels should not review whether a competen t authority has considered any facts that should  have 
been before them.31  According to Articles 3.5 ADA/15.5 SCM domestic authorities in antidumping 
and countervailing duty investigation only ha ve a duty “to examine any known factors”. 
5.40 In Thailand – H Beams  the Panel stated:  
We consider that other "known" factors would include those causal 
factors that are clearly raised befo re the investigating authorities by 
interested parties in the course of an AD investigation. We are of the view that there is no express requi rement in Article 3.5 ADA that 
investigating authorities seek out and examine in each case on their own initiative the effects of all possible factors other than imports 
that may be causing injury to the domestic industry under 
investigation
32. 
5.41 This statement suggests that the onus lies on the interested parties to raise factors which may 
be relevant to the causal link before  the investigating authorities.  It would seem logical that in raising 
other relevant issues, the interested parties must provide some prima facie  evidence or argument that a 
particular factor may be relevant  and merits detailed examination by the investigating authority. 
Otherwise, an interested party would simply list the factors set out in Article 3.5 and an investigating 
authority would be obliged to fully investigate such  factors, hence circumventing the deliberate choice 
of language of Article 3.5 illustrated in the use of the term “any known factors”, by transforming the 
list of factors into mandatory factors to be examined. 
5.42 This further confirms  that the domestic author ities do not have an independent obligation to 
investigate each and every factor listed in the relevant provision of the ADA/SCMA ex officio, as is 
the case under the Safeguards Agreement.  Consequent ly, Panels are not mandated to review whether 
the domestic authorities have considered any facts that should  have been before them, but are limited 
to review if the authorities have considered t hose facts which were effectively before them. 
C. THIRD  PARTY  WRITTEN  SUBMISSION  OF JAPAN 
5.43 The following summarizes Japan's arguments in its third party written submission. 
1. Introduction 
5.44 The Government of Japan (“Japan”) wishes to address crucial systemic issues raised by the 
Government of Canada (“Canada”) relating to the au thorities’ obligations in making threat of material 
injury determinations. As explaine d in detail below, Article 3 of the Agreement on Implementation of 
Article VI of the General Agreement on Tariffs and Trade 1994 (the “AD Agreement”) requires the 
authorities, in determining a threat of material inju ry, to comply with all the provisions of Article 3, 
                                                      
30 Canada’s First Written Submission, para. 166. 
31 See EC Third Party Submission. 
32 Panel Report, Thailand – Anti-Dumping Duties on Angles, Shapes and Sections of Iron or Non-Alloy 
Steel and H-Beams from Poland  (“Thailand – H-Beams ”), WT/DS122/R, adopted 5 April 2001, as modified by 
the Appellate Body Report, WT/DS122/AB/R, para. 7.273.  WT/DS277/R 
Page 69 
  
 
not limited to Article 3.7.  The Agreement on Subsidies and Countervailing Measures (the “SCM 
Agreement”) also impose the same obligations on the authorities.  The United States International 
Trade Commission (the “ITC”) failed to make its threat determination in accordance with these 
Agreements, particularly Articles 3.1, 3.4 and 3. 5 of the AD Agreement and Articles 15.1, 15.4 and 
15.5 of the SCM Agreement, and thus acted inconsistently therewith.   
5.45 The following arguments discuss WTO-inconsiste ncy of the ITC’s final determination of 
threat of material injury in Softwood Lumber from Canada33 with the AD Agreement.  These 
arguments are, however, not limited to the AD Agreement, but are equally applicable to WTO-
inconsistency of the determinati on with the SCM Agreement.  Footnote 45 and Articles 15.1, 15.4, 
15.5, and 15.7 of the SCM Agreement relevant to the following arguments are corollary to footnote 9, 
and Articles 3.1, 3.4, 3.5, and 3.7 of the AD Agreement.  Further, the ITC made the final 
determination, simply referring to both dumped a nd subsidized imports as th e subject imports without 
making any distinctions between them.  Thus, th ere are no differences in underlying facts and 
rationales in connection with the inconsistency of  the final determination with the SCM Agreement 
and the AD Agreement.  By presenting the following ar gument, therefore, Japan also argues that the 
ITC acted inconsistently with the SCM Agreement. 
2. Argument 
(a)  The AD Agreement Requires the Authorities to Determine Threat of Material Injury in 
Accordance with All the Provisions of Article 3 
 
5.46 Japan agrees with Canada that the AD Agreemen t requires the authorities to make threat of 
material injury determination in accordance with all the provisions of Article 3, not limited to 
Article 3.7.  Perhaps, most relevant provisions for the Panel’s review of ITC’s threat determination in 
this case would be Articles 3.1, 3.4 and 3.5.  The text of the AD Agreement explicitly provides that 
provisions in Articles 3.1, 3.4 and 3.5, i.e., analysis on state of injury of the domestic industry and 
impact of dumped imports thereon, causation, and no n-attribution of other f actors to dumped imports, 
apply to Article 3.7. 
5.47 Article 3.7 provides: 
. . .  The change in circumstances which would create a situation in which the 
dumping would cause injury  must be clearly foreseen and imminent. 
. . . the totality of the factors considered  must lead to the conclusion that further 
dumped imports are imminent and that, unl ess protective action is taken, material 
injury  would occur.  (emphasis added.) 
5.48 The term “injury” must be interpreted to include  the “threat of material injury” stipulated in 
Article 3.7.  Footnote 9 defines the term “injury” that:  
Under this Agreement the term “injury” shall, unless otherwise specified, be taken to 
mean material injury to a domestic industry,  threat of material injury to a domestic 
industry or material retardation of the estab lishment of such an industry and shall be 
interpreted in accordance with the provisions of this Article.   
                                                      
33 Softwood Lumber from Canada, Investigations Nos. 701-TA-414 and 731-TA-928 (Final) , 
Publication 3509, May 2002 (Exhibit CDA-1). WT/DS277/R 
Page 70  
 
Footnote 9 clarifies that, when the AD Agreement uses the term “injury,” it means to include 
threat of material injury.   
 
5.49 The context of Article 3 also provides that all the provisions of Article 3 apply to a 
determination of threat of material injury  under Article 3.7.  A previous panel in Mexico – HFCS  
explained: 
Moreover, the entirety of Article 3, which serves as context for the interpretation of 
Article 3.7, supports this conclusion.  Article 3 as a whole deals with the 
determination of injury in anti-dumping inv estigations, which is defined as material 
injury, threat of material injury, or material retardation of the establishment of a domestic industry.
34   
To find “threat of material injury,” theref ore, provisions in Article 3 setting forth 
requirements for finding “injury”, such as thos e in Articles 3.1, 3.4 and 3.5, must be satisfied. 
 
5.50 The texts of the individual provisions of Articl es 3.1 and 3.4 further clarify that requirements 
in Articles 3.1 and 3.4 apply to a determination of threat of materi al injury under Article 3.7.  
Article 3.1 sets forth general requirements for a de termination of “injury.” There is no language that 
limits the meaning of “injury” in Article 3.1.  Th e requirements for a determination of “injury” in 
Article 3.1 thus apply to a determin ation of threat of material injury.  The Appellate Body has also 
confirmed that “Article 3.1 is an overarching pr ovision that set forth a Member’s fundamental, 
substantive obligation in this respect, Article 3.1 informs the more detailed obligations in succeeding 
paragraphs.35”  Among others, Article 3.1 requires the authorities to base their determination of threat 
of material injury on positive evidence and objective examination of “the consequent impact of these 
imports on domestic producers of such products.”  The term “these imports” means dumped imports 
in this context, and the term “domestic producer s of such products” means the domestic industry 
under the definition of Article 4.1.  Article 3.1 thus  requires the authorities to examine the impact of 
dumped imports on the domestic industr y for determining threat of material injury. Article 3.4 then set 
forth how “the impact of dumped imports on the dom estic industry” must be examined. It requires the 
authorities to evaluate all individual factors as lis ted in Article 3.4 for that purpose.  As such, 
Article 3.4 provides the detailed requirements for th e examination of the impact of dumped imports 
under Article 3.1, and therefore, for a determinati on of threat of material injury.  As such, the 
authorities must satisfy the requirements in Articles 3. 1 and 3.4 to determine thre at of material injury. 
5.51 Article 3.5 also has no language modifying the meaning of the term “injury”.  The term 
“injury” in Article 3.5, thus also includes “threat of material injury” in accordance with Footnote 9.  
The causation and non-attribution requirements under Artic le 3.5, therefore, must be satisfied to make 
a determination of threat of material injury.   
5.52 Japan notes that Article 3.7 provides that “the  change in circumstances which would create a 
situation in which the dumping would cause injury must  be clearly foreseen and imminent”.  It also 
provides that the authorities must find “further dum ped imports are imminent” and “material injury 
would occur”.  These phrases clarify that the authoriti es must demonstrate that a situation, in which 
“injury” in terms of Article 3.4 is caused by e ffects of dumping of further dumped imports without 
attributing effects of other known factors thereto in terms of Article 3.5, is foreseen and imminent.  
The authorities must further demonstrate that th e change in circumstances would bring such a 
situation.  
                                                      
34 Mexico – Anti-Dumping Investigation of High Fructo se Corn Syrup (HFCS) from the United States 
(“Mexico – HFCS”) , WT/DS132/R (28 January 2000) para. 7.132. 
35  Thailand – Anti-Dumping Duties on Angles, Shapes and Sections of Iron or Non-Alloy Steel and H-
Beams from Poland , Appellate Body Report, WT/DS122/AB/R (12 March 2001), para. 106.  WT/DS277/R 
Page 71 
  
 
5.53 In this respect, the United States misp laced the Appellate Body’s statement in US-Pipe Line .36  
It appears that the United States argues that “an abrupt change”37 needs not be identified because 
injuries are imminent if status quo that is adverse to the domestic industry continues.  The Appellate 
Body did not go that far.  Rather, the Appellate Body  simply indicated that “[p]resent serious injury is 
often preceded in time by an injury that threaten s clearly and imminently to become serious injury.”38  
In this case, however, the ITC concluded “we do not find present  material injury by reason of subject 
imports”. (emphasis added.)39  Thus, mere continuation of “no in jury” situation could not develop a 
“threat of material injury,” unless any “change in  circumstances” will take place. Moreover, for the 
treaty interpretation, Canada first looks at explicit la nguage of Article 3.7.  It explicitly provides that 
the authorities must show that “change in circumstan ces” is “foreseeable and imminent”.  Canada may 
not ignore the explicit text.  This text obliges the authorities to make a reasoned conclusion that the 
change in circumstance is imminent base d on positive evidence and objective examination.40   
(b) The ITC Failed to Satisfy Requirements in Articles 3.4 and 3.5, and Thus, Acted 
Inconsistently with the AD Agreement 
 
5.54 Canada claims that the ITC made its final dete rmination of threat of material injury in 
Softwood Lumber from Canada41 without satisfying requireme nts under Articles 3.4 and 3.5.42  I t  
appears that the ITC’s final determ ination supports Canada’s claims. 
5.55 In the final determination, the ITC found that th e domestic industry was “vulnerable to injury 
in light of declines in its performance over the period of investigation”, based on the evidence 
showing past and current economic s ituations of the domestic industry.43  In the same final 
determination, the ITC also found, based on the sa me evidence, that the dumped imports “did not 
have a significant impact on the domestic industry”.44  These findings demonstrate that the dumped 
imports were not a cause of the current “vulnerable to  injury” situations of the domestic industry.  The 
ITC’s analysis on the vulnerability of the domestic industry alone does not constitute a valid basis to 
find a threat of material industry.  The ITC must evaluate the impact of likely further dumped imports 
on the domestic industry in accordance with Articles 3.1 and 3.4. Canada, howev er, were not able to 
find any such evaluation by the ITC in its final dete rmination.  The ITC thus has acted inconsistently 
with Articles 3.1 and 3.4.  
5.56 The ITC also failed to show that dumped imports  would cause material injury to the domestic 
industry in accordance with Articles 3.1 and 3.5.  The ITC found that dumped imports from Canada 
were “likely to have a significant depr essing or suppressing effect on domestic prices”45 and were 
“likely to exacerbate price pressure on domestic industry”.46  The ITC, however, made no 
demonstration that such price effects would be for eseen and imminent to cause material injury to the 
domestic industry.  Instead, the ITC leaped to the conclusion “material injury to the domestic industry 
would occur” without any explanation.47  Such unsubstantiated determ ination cannot be a reasoned 
conclusion based on the positive evidence and objec tive examination in accordance with Article 3.1 
                                                      
36See US First Written submission  (15 August 2003), paras 99-101. 
37 Id., para.101 
38 See United States – Definitive Safeguard Measures on Imports of Circular Welded Carbon Quality 
Line Pipe from Korea, Appellate Body Report, WT/DS202/AB/R (15 February 2002), para. 168. 
39  The Final Determination, supra,  n.1., p37. 
40 Japan notes that the text does not require the authorities to show “an abrupt change.” 
41 The Final Determination, supra , n. 1.   
42 See Canada’s First Written Submission  (18 July 2003), paras 141-167. 
43 The Final Determination, supra , n. 1., at pp. 37-39. 
44 Id., at p. 36 
45 Id., at pp. 43-44. 
46 Id., at p. 44 
47 See id .  WT/DS277/R 
Page 72  
 
and 3.5.  The ITC thus has acted inconsistently with the causation requirement under Articles 3.1 and 
3.5. 
5.57 More significantly, the ITC made no attempt to separate and distinguish effects of other 
known factors on the domestic industry from effects of  dumping of further dumpe d imports thereon in 
accordance with Article 3.5.  The ITC found that “both subject imports and the domestic producers 
contributed to the excess supply, and thus the declining prices”.48 The ITC, however, could not 
separate or distinguish effects of domestic produ cers themselves from effects of subject imports.49  
The ITC also recognized the existence of imports from countries other than Canada.50  The ITC thus 
knew, at minimum, the existence of these two other factors actually or potentially contributing to the 
threat of material injury.  In making a determination of a threat of material injury, however, the ITC did not even consider c ontributory effects of these known factors to the future state of the domestic 
industry.  The ITC thus acted inconsistently with  the non-attribution requirement under Article 3.5. 
5.58 Japan would like to note that United States De partment of Commerce’s erroneous “dumping” 
determination, which is pending  in the other panel of WTO,51 may render the “dumped imports” and 
“injury” determination by the ITC inconsis tent with Article 3 of the AD Agreement. 
3. Conclusion 
5.59 For the reasons set forth above, Japan respectfully  requests this Panel to clarify that the ITC 
acted inconsistently with Articles 3.1, 3.4, 3.5 a nd 3.7 of the AD Agreement, and Articles 15.1, 15.4, 
15.5, and 15.7 of the SCM Agreement.   
D. THIRD  PARTY  ORAL  STATEMENT  OF JAPAN 
5.60 The following summarizes Japan's arguments  in its third party oral statement. 
1. Introduction 
5.61 The Government of Japan welcomes the opportunity to present its views as a third party in the 
present dispute.  Japan joined this dispute to address a critical systemic issue in the AD and SCM 
Agreements of methodologies for determining thr eat of material injury.  This case will have 
significant impact on operation of the vital pr ovisions of the AD and SCM Agreements, and 
accordingly on practice of the AD and CVD regime of WTO Members.  Japan would not repeat its arguments in its written submission. Rather, Japan would like to focus on certain arguments presented by other parties that Japan did not address in details in its written submission.    
2. Insufficient Threat Analysis By ITC  
5.62 In this case, the United States International Trade Commission (“ITC”) found that the other 
“known” factor had also contributed in causing th e current state of the domestic industry, and 
concluded that no material injury had been caused by the effects of the dumping or subsidies.  The 
question presented in this dispute is thus how the au thorities shall make a threat of material injury 
                                                     
 
48 Id., at p. 35. 
49 Id., at p. 35 (“However, particularly in light of relatively stable market share maintained by subject 
imports over the period of investigation, we cannot conclude from this record that the subject imports had a significant  price effect during the period of investigation.”) 
50 Id., at p. 25, n. 152. 
51 See United States – Final Dumping Determination on Softwood Lumber from Canada , Constitution 
of the Panel Established at the Request of Canada - Note by the Secretariat , WT/DS264/3 (5 March 2003);  See 
also United States - Final Dumping Determination on Softwood Lumber from Canada - Request for the 
Establishment of a Panel by Canada , WT/DS264/2 (9 December 2002). WT/DS277/R 
Page 73 
  
 
determination, where the other “known” factor at l east partly caused the current state of the domestic 
industry.   
5.63 It appears that all parties, including the United States, agree that provisions of Articles 3.1, 
3.4, and 3.5 of the AD Agreement and Articles 15.1, 15.4, and 15.5 of the SCM Agreement apply to a threat of material injury determination.  It ap pears, however, that the United States attempts to 
undermine applicability of these provisions to a threat of material injury.  The United States explained 
in its first written submission that the ITC’s thr eat determination was consistent with the AD and 
SCM Agreements because it found that “the condi tion of the domestic industry had deteriorated 
primarily as a result of declining prices, and that the industry was in a vulnerable state”
52, and 
therefore the domestic industry was  “on the verge of material injury by reason of the continued 
dumped and subsidized imports”.53   
5.64 In this case, the ITC also found that such curre nt “vulnerable” state of the domestic industry 
was partly caused by other known factors, such as oversupply by the domestic industry of the product under consideration. For the purpose of the threat of material injury determin ation, however, the ITC 
paid no attention to its own causal analysis on the current state of the domestic industry.   
5.65 Instead, the ITC narrowed the scope of a threat of  material injury determination into whether 
the potential volume increase of the subject imports would give the last push to make the domestic industry fall from the “verge” into the state of materi al injury.  Such determination made Articles 3.1, 
3.4 and 3.5 of the AD Agreement and Articles 15.1,  15.4 and 15.7 of the SCM Agreement effectively 
inapplicable to a threat of material injury determ ination, and therefore was inconsistent with these 
Articles.   
5.66 As Japan discussed in its written submission, th ese provisions are applicable to determination 
of material injury and a threat of material injury with an equal force.  The only difference is set forth 
in Articles 3.7 and 15.7 of the AD and SCM Agreemen ts that the authorities must determine whether 
further dumped or subsidized imports are “imminent ” and material injury would occur in a threat 
case.
54  This difference affect only the time of the occu rrence of material injury.  In case of a material 
injury determination, the authorities must examine the occurrence of material injury at the time of 
investigation. In case of a threat of material inju ry determination, the authorities must examine the 
occurrence of material injury at the time of the imminent future.  This difference of the time of 
occurrence of material injury, however, have no effects on the applicability of requirements in Articles 3.1, 3.4 and 3.5 of the AD Agreemen t and Articles 15.1, 15.4 and 15.5 of the SCM 
Agreement to the authorities’ examin ation of “material injury.”   
5.67 In a threat case, the authorities must analyze the impact of the subject imports to the state of 
the domestic industry at the time of an imminent future in accordance with Articles 3.4 and 15.4 of 
the AD and SCM Agreements.  The authorities also must demonstrate that dumping or subsidization of the subject imports would cause material inju ry in an imminent future, in accordance with 
Articles 3.5 and 15.5 of the AD and SCM Agreements.  Furthermore, the authorities must separate 
and distinguish effects of the other known factors to  material injury in an imminent future from the 
effects of dumping or subsidization thereto to make  an affirmative determination in accordance with 
these provisions.  There are no provisions, in either Article 3.7 of the AD Agreement or Article 15.7 
of SCM Agreement, or in any other parts of th ese Agreements, that allow the authorities not to 
examine the impact of the subject imports or effects of the other known factors for the purpose of a threat of material injury determination.  The ex amination of these factors must be included in the 
authorities’ considerations and demonstration of foreseen and imminent material injury through the 
effects of dumping or subsidies.   
                                                     
 
52 The First Written Submission by the United States, para. 228. 
53 Ibid. 
54 See Third Party Submission of Japan  (22 August 2003), para. 9 for further discussion on this issue. WT/DS277/R 
Page 74  
 
5.68 By ignoring the impact of the subject imports and effects of other “known” factors for 
determining a threat of material injury, the United States acted inconsistently with Articles 3.1, 3.4, 
3.5 and 3.7 of the AD Agreement and Articles 15. 1, 15.4, 15.5 and 15.7 of the SCM Agreement. 
3. Consideration to Factors Enumerated in Articles 3.7 And 15.7 
5.69 Japan discusses here the EC’s view that th e authorities are not mandated to consider 
individual factors in Article 3.7 of the AD Ag reement and Article 15.7 of the SCM Agreement.
55  
According to the EC, Articles 3.7 and 15.7 require only that the authorities “should” consider, inter 
alia, these factors, and therefore, “a conclusion that a th reat of injury exists may be justified by at 
least one threat factor pointing towards a threat of material injury”.56  Japan disagrees.   
5.70 The EC assumes that the word “should” is hor tatory, not mandatory, and failed to consider 
this term in the context of Articles 3 and 15 of the AD and SCM Agreements in accordance with 
Article 31 of the Vienna Convention  on the Law of Treaties (“Vienna Convention”) .  The EC’s view 
also ignores a Member’s general obligation to perfo rm a treaty in good faith under Article 26 of the 
Vienna Convention , which states “every treaty in force is bi nding upon the parties to it and must be 
performed by them in good faith”.  The importance of  the basic principle of the treaty interpretation 
and the general obligation of the good faith perform ance was recognized by previous panels and the 
Appellate Body. 
5.71 The WTO jurisprudence shows that, contrary to  the EC’s assumption, the word “should” is 
used in a mandatory sense in the c ontext of certain provisions of the WTO Agreements.  For example, 
the Appellate Body found “the word ‘should’ in the third sentence of Article 13.1 of the Dispute 
Settlement Understanding is, in the context of the w hole of Article 13, used in a normative, rather 
than a merely exhortative, sense” such that it creates “a duty and an obligation” on Members.57  The 
panel in US – Steel Plate  also found that paragraph 3 of Annex II of the AD Agreement, which uses 
the term “should”, is mandatory in the context of Article 6.8 and Annex II of the AD Agreement.58    
5.72 The term “should” in the third sentence of Articles 3.7 and 15.7 of the AD and SCM 
Agreements must also be interpreted in the contex t of Articles 3.7 and 15.7, and other provisions of 
Articles 3 and 15.  The first sentence in Articles 3.7 and 15.7 explicitly mandates that the authorities 
shall base its threat determination on facts.  Th e last sentence of these Articles also explicitly 
mandates the authorities to base their threat determination on “the totality of the factors considered” and provides “no one of these factors by itself can  necessarily give decisive guidance”.  These 
provisions mandate the authorities to consider relevant factors.  In this context, four (five) factors as 
enumerated in Articles 3.7 and 15.7 represent Me mbers’ agreement that these factors would be 
relevant to the authorities’ consideration on a threat of material injury.   
5.73 Further, Articles 3.1 and 15.1 of the AD and SC M Agreements set forth that the authorities 
must examine “the volume of the dumped {subsidized} imports” and “the effect of the dumped {subsidized} imports on prices”. Articles 3.2 and 15.2 then mandate the authorities to consider 
whether there has been “a significant increase in dumped {subsidized} imports” and whether there has 
been “a significant price undercutting by the dumped {subsidized} imports” or whether the effect of 
dumped imports is “otherwise to depress prices to a significant degree or prevent price increases”.  In 
                                                     
 
55 EC Third Party Submission (22 August 2003), at para 52. 
56 Ibid, at para 53. 
57 Canada – Measures Affecting the Export of Civilian Aircraft , Report of the Appellate Body, 
WT/DS70/AB/R (2 August 1999), para. 187; accord United States – Tax Treatment for Foreign Sales 
Corporations , Report of the Appellate Body, WT/DS108/AB/R, AB-1999-9, para. 111 n. 124 (“In our view, 
many binding legal texts employ the word ‘should’ and, depending on the context, the word may imply either an exhortation or express an obligation.”). 
58 United States – Anti-Dumping and Countervailing Measures on Steel Plate from India  (“US – Steel 
Plate ”), the Panel Report, WT/DS206/R (28 June 2002) at para. 7.56. WT/DS277/R 
Page 75 
  
 
a threat determination, therefore, the authorities mu st consider these factors.  Factors of “a significant 
rate of increase of dumped {subsidized} import”  and “a significant depressing or suppressing effect 
on domestic prices” in Articles 3.7 and 15.7 are quite relevant to the authorities’ factual examination in accordance with Articles 3.1 and 3.2 of the AD Agreement and Articles 15.1 and 15.2 of the SCM 
Agreement.  
5.74 The capacity and inventory factors in Articl es 3.7 and 15.7 of the AD and SCM Agreements 
also represent the Members’ understanding on the rele vancy of these factors to the threat analysis.   
For example, the text of the item of the capacity ex plicitly states that the capacity factor is closely 
related to the future export volume of the dumpe d or subsidized products.  Indeed, if foreign 
producers’ capacity has been full y utilized to produce the product unde r consideration, without any 
inventory, it would be less than probable for these pr oducers to increase their export volumes.  On the 
other hand, foreign producers would be ready to export additional volume to an importing Member, if 
they have substantial production capacity availabl e for immediate increase of production or have 
excessive volume of inventory, but had no other market s to sell additional produc tion.  As such, these 
factors also represent the Members’ understanding that  they are relevant to the authorities’ threat 
analysis. 
5.75 Japan would also like to recall the normative requirement of the good faith performance of a 
treaty under the Vienna Convention .  Ignoring these factors, which Me mbers agreed to put into the 
AD  and CVD Agreements as relevant and essential to  a threat analysis, would not be a good faith 
performance required by the Vienna Convention .  
5.76 In sum, the authorities have a normative duty and obligation to consider all four (five) factors 
in Article 3.7 of the AD Agreement and Article 15.7 of the SCM Agreement. Japan thus submits that 
the Panel should find that the authorities must consider all these factors in making a threat of material injury determination.   
4. Conclusion 
5.77 As such, Japan asks this Panel to find that (i ) the United States acted inconsistently with 
Articles 3.1, 3.4, 3.5 and 3.7 of the AD Agreement,  and Articles 15.1, 15.4, 15.5 and 15.7 of the SCM 
Agreement;  and, (ii) the authorities have a normati ve duty and obligation to consider all factors as 
shown in Articles 3.7 and 15.7 of the AD and SCM Agre ements to make a threat of material injury 
determination.  
E. THIRD
 PARTY  WRITTEN  SUBMISSION  OF KOREA 
5.78 The following summarizes Korea's arguments in its third party written submission. 
1. Introduction 
5.79 In Korea’s view, the United States Internationa l Trade Commission’s (USITC) investigations, 
findings and reviews and the manner in which that inte rpretation is applied in this particular case, are 
inconsistent with the Agreement on Implementation of Article VI  of the General Agreement on Tariffs 
and Trade 1994 (“Anti-Dumping Agreement ”) and the Agreement on Subsidies and Countervailing 
Measures (“SCM Agreement ”).  WT/DS277/R 
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2. Article 3.1 of the Anti-Dumping Agreement and Article 15.1 of the SCM Agreement 
Require the Injury Determination to be Based  on “Positive Evidence” and an “Objective 
Examination.” 
5.80 The Anti-Dumping Agreement  and the SCM Agreement  require that an injury investigation 
and its subsequent determination comp ly with all of the relevant requirements set forth in Article 3 of 
the Anti-Dumping Agreement  and Article 15 of the SCM Agreement .   
5.81 The text of Article 3.1 of the Anti-Dumping Agreement and Article 15.1 of the SCM 
Agreement contain general standards that require a Member to base its determination of injury or 
threat of material injury
59  “on positive evidence and involve an objective examination of both: (a) the 
volume of the dumped [or subsidized] imports and th e effect of the dumped [or subsidized] imports 
on prices in the domestic market for like products; a nd (b) the consequent impact of these imports on 
domestic producers of such products”. 
5.82 Korea is of the view that the US investiga ting authority failed to develop “positive evidence” 
that dumped or subsidized imports had an effect on domestic prices, or any impact on the domestic 
industry.  The failure by the United States to base its determination of injury in this case on “positive 
evidence” that dumped or subsidized imports had an  effect on domestic prices, or any impact on the 
domestic industry, constitutes a violation of the “p ositive evidence” requirement of Article 3.1 of the 
Anti-Dumping Agreement  and Article 15.1 of the SCM Agreement .   
 
3. The United States Violated the Requirement of Article 3.5 of the Anti-Dumping 
Agreement  and Article 15.5 of the SCM Agreement  to Demonstrate that the Dumped or 
Subsidized Imports were Causing Injury. 
5.83 Article 3.5 of the Anti-Dumping Agreement  and Article 15.5 of the SCM Agreement  provide 
that, in demonstrating the causal relationship between  dumped or subsidized imports and injury, “[t]he 
authorities shall also examine any known factors othe r than the dumped [or subsidized] imports which 
at the same time are injuring the domestic industry,  and the injuries caused by these other factors must 
not be attributed to the dumped [or subsidized] imports.” 
5.84 In particular, the United States violated Article 3.5 of the Anti-Dumping Agreement  and 
Article 15.5 of the SCM Agreement  when it failed to take account of the effects of several other 
“known factors” that were injuring the domestic indus try, and instead attributed the effects of those 
other known factors to the dumped or subsidized imports of lumber.  
5.85 Evidence on record shows that the United States did not meet its obligation under Articles 3.5 
and 15.5 to demonstrate the existence of a causal link between the allegedly dumped or subsidized 
imports and the injury to the domestic industry.  
 
4. There are at Least Two Facts that Would Lead  the Panel to the Inevitable Conclusion 
that the US Investigating Authority Did No t Demonstrate the Existence of a “Causal 
Relationship” Between the Imports a nd the Injury to the US Market.  
• First, the USITC Failed to Evaluate Properly Its Own Findings During the Causal 
Analysis in Order to Determine Whether or  Not a Threat of Injury in Fact Existed .   
5.86 The USITC acknowledged, but ultimately and inexplicably ignored, the fact that the 
competition between Canadian imports and domestic lu mber products are virtually non-existent since 
                                                      
59 See footnote 9 of the Anti-Dumping Agreement and footnote 45 of the SCM Agreement. WT/DS277/R 
Page 77 
  
 
the two are at most moderately substitutable – the majority of Canadian lumber imports come from 
different species that have different characteristi cs and uses than the predominant US species of 
lumber.   
5.87 The USITC also acknowledged that the United States domestic industry cannot supply the 
entire US market for lumber, thus making substan tial softwood lumber imports necessary to satisfy 
US consumer and industrial demands.   
5.88 In addition, cross border investment is pr evalent among the lumber industry since US 
producers import or purchase a “sizable volume of subject imports” (emphasis added).  Thus, there 
has been “substantial and increasing integration of the North American lumber market”.  
5.89 In connection with the evidence shown, the US  investigating authority did not demonstrate 
the existence of a causal relationship, that there was a foreseen increase in the absolute volume of 
subject imports in response to “strong and im proving demand” in the US domestic market.60   
5.90 Only if the US industry failed to take advant age and thus respond to this favourable market 
condition of strong and improving demand by also increasing its own output could the predicted 
increase in Canadian import volumes substantially outpace the increase in US production and result in 
increased Canadian market share materially above the 34 per cent the USITC found to be non-
injurious.   
5.91 However, the US industry did not increase its own production, and ther efore failed to take 
advantage and thus respond to this favourable market condition of strong and improving demand. 
That is why the increase in import volumes of Canadi an lumber substantially outpaced the increase in 
US production and led to an increase in Canada’s market share beyond the 34 per cent that the USITC 
found to be non-injurious.   
5.92 Therefore, the injury that the domestic industry allegedly suffered must be attributed not to 
dumped imports but rather to United States’ own failure to keep up with the increase in domestic 
demand.  
• The Second Fact that Should Lead the Panel to Conclude that the US Investigating 
Authority Did Not Demonstrate the Existence of a “Causal Relationship” is that the 
USITC Attributed to the Subject Imports the Injury to the Domestic Industry 
Caused by Other Facts, in Violation of Article 3.5 of the Anti-Dumping Agreement .   
5.93 The other factors that injured the domestic i ndustry and which the USITC failed to separate 
and distinguish from subject imports include th e domestic industry’s own contribution to the 
oversupply that led to the price declines over the period of investigation.   
5.94 In USITC’s current injury analysis, it e xplicitly identified the domestic industry’s 
contribution to oversupply as a known source of injury  that it could not attribute to the Canadian 
imports and that therefore broke the causal li nk between the Canadian imports and injury.61   
5.95 However, in its injury threat determinati on, the USITC failed to consider the domestic 
industry’s most likely action in response to the futu re “strong and improving” demand that it cited as a 
basis for concluding that Canadian imports would increase substantially to injurious levels in the 
imminent future.  
                                                      
60 Commission Report, pp. 40,42-43 
61 Commission Report, p. 35 WT/DS277/R 
Page 78  
 
5.96 In concluding that subject imports threatened injury, the USITC ignored the likelihood of US 
production contributing to any future price decline.  
5. USITC’s Presumption of Likelihood of Threat of Dumping is Inconsistent with 
Article 17.6 of the Anti-Dumping Agreement . 
5.97 It is Korea’s view that the investigating au thority’s determination of the facts was not 
“proper”, and its evaluation of the facts was not “objective” and “unbiased,” as required by 
Article 17.6 of the Anti-Dumping Agreement.
62  Article 17.6(i) of the Anti-Dumping Agreement  
governs the standard of review applicable to the review  of a dumping order.  It is similar to Article 4.2 
of the Safeguards Agreement in that it contains both formal and substantive requirements   
5.98 The Appellate Body in Thailand – H-Beam  stated that the ordina ry meaning of the word 
“proper” in Article 17.6(i) is “accurate” or “correct”.63  The Appellate Body further stated that: “the 
ordinary meaning of ‘establishment’ suggests an action to ‘place beyond dispute: ascertain, 
demonstrate, prove’.”64  With respect to the term “objective” in Article 17.6(i), the Appellate Body in 
US-Safeguards on Lamb Meat , stated that an “objective” ass essment under Article 4.2 of the 
Safeguard Agreement has two elements. First, a panel must review whether (a) the competent 
authorities have evaluated all relevant factors; a nd, (b) second, a panel must review whether those 
authorities have, as a substantive matter, provided a reasoned and ad equate explanation of how the 
facts support their determination.65 
5.99 The US determination failed to observe these sta ndards.  The USITC replaced the process of 
making unbiased and objective assessment of facts with the consideration of these limited facts that must satisfy arbitrarily pre-determined scenarios in  order to support an affirmative determination.   
5.100  The USITC’s affirmative threat determination r ests solely on its prediction that the Canadian 
imports would “increase substantially” absent an ti-dumping and countervailing duty orders, and 
thereby “increase the excess suppl y in the market, putting further downward pressure on prices”.  In 
its injury analysis, the USITC failed to evaluate a nd consider how all the ot her economic factors had a 
bearing or affected the state of the domestic industry.   
5.101  The USITC also failed to properly take into account its own finding of only a small increase 
in the market share of the Canadian imports and of  a lack of evidence either that there had been 
significant underselling by the subject imports or that they had a significant price effect during the period of investigation. Thus, the United States di d not meet the standard under Article 17.6(i).  
6. Conclusion 
5.102  In conclusion, Korea is of the view that the USITC did not base its threat of injury 
determination on positive evidence or conduct an objec tive examination of all of the factors it was 
required to consider.
66   
                                                      
62 Article 17.6(i) provides, in relevant part, that “in its assessment of the facts of the matter, the panel 
shall determine whether the authorities’ establishment of the facts was proper and whether their evaluation of 
those facts was unbiased and objective.” 
63 Thailand – Anti-Dumping Duties on Angles, Shapes and Sections of Iron or Non-Alloy Steel H-
Beams from Poland , Report of the Appellate Body, WT/DS122/A B/R, adopted April 5, 2001, para. 116 
(“Thailand – H-Beams, AB Report”). 
64 Ibid. 
65 US-Safeguards on Lamb Meat, WT/DS177,178/AB/R,para.141 
66 Article 3.7 of the Anti-Dumping Agreement  and Article 15.7 of the SCM Agreement  state the 
requirement to base injury determinations on positive evidence by mandating that threat of injury determinations 
“shall be based on facts and not merely on allegation, conjecture or remote possibility”.  WT/DS277/R 
Page 79 
  
 
5.103  Furthermore, although the USITC identified othe r factors that caused injury to the domestic 
industry, such as the domestic industry’s own cont ribution to oversupply, it nevertheless attributed 
such injuries to Canadian imports.   
5.104  Moreover, the USITC’s affirmative threat dete rmination rests solely on its unscientific 
prediction that subject imports would “increase s ubstantially” absent anti-dumping and countervailing 
duty orders. 
5.105  For the reasons stated above, the investigati on and final determination of the USITC, along 
with the final anti-dumping and countervailing duti es imposed as a result of this determination, 
constitute a violation by the United States of its obligation under the Anti-Dumping Agreement , the 
SCM Agreement  and GATT 1994. 
5.106  Korea requests that the Panel recommend that  the United States bring its measures into 
conformity with its WTO obligations.  
F. THIRD  PARTY  ORAL  STATEMENT  OF KOREA 
5.107  The following summarizes Korea's argument s in its third party oral statement. 
5.108  Korea agrees generally with the points made by  Canada in its first submission, and wishes to 
focus on certain issues which deserve clarification.    
5.109  The Anti-Dumping Agreement  and the SCM Agreement  require that an injury investigation 
and its subsequent determination comp ly with all of the relevant requirements set forth in Article 3 of 
the Anti-Dumping Agreement  and Article 15 of the SCM Agreement .  The text of Article 3.1 of the 
Anti-Dumping Agreement and Article 15.1 of the SCM Agreement contain general standards that 
require a Member to base its determination of injury or threat of material injury “on positive evidence 
and objective examination of both: (a) the volume of the dumped or subsidized imports and the effect 
of the dumped or subsidized imports on prices in  the domestic market for like products; and (b) the 
consequent impact of these imports on domestic producers of such products”. 
5.110   Korea is of the view that the US investigati ng authority failed to develop “positive evidence” 
that dumped or subsidized imports had an effect on domestic prices, or any impact on the domestic 
industry.  Consequently, the United States also violated the requirement of Article 3.5 of the Anti-
Dumping Agreement  and Article 15.5 of the SCM Agreement  to demonstrate that the dumped or 
subsidized imports were causing injury. 
5.111  In particular, the United States acted inconsistently with Article 3.5 of the Anti-Dumping 
Agreement  and Article 15.5 of the SCM Agreement  when it failed to take account of the effects of 
several other “known factors” that were injuring the domestic industry, and instead attributed the 
effects of those other known factors to the dumped or subsidized imports of lumber.   
5.112  Evidence on record shows that the United St ates did not meet its obligation under these 
Articles to demonstrate the existence of a causal link between the allegedly dumped or subsidized 
imports and the injury to the domestic industry.  There are at least two facts that would show that the US investigating authority did not  demonstrate the existence of a “causal relationship” between the 
imports that were specifically foun d to be dumped or subsidized and the injury to the US market.   
5.113  First, the USITC failed to evaluate properly its  own findings during the causation analysis in 
order to determine whether or not a threat of inju ry in fact existed.  The USITC acknowledged, but 
ultimately and inexplicably ignored, the fact th at the competition between Canadian imports and 
domestic lumber products are virtua lly non-existent since the two are at most moderately substitutable 
since the majority of Canadian lumber imports come from different species that have different WT/DS277/R 
Page 80  
 
characteristics and uses than the predominant US  species of lumber. In addition, cross border 
investment is prevalent among the lumber industry since US producers import or purchase a “sizable 
volume of subject imports”. 
5.114  It is also important to note, in connecti on with the evidence that shows that the US 
investigating authority did not demonstrate the exis tence of a causal relationship, that there was a 
foreseen increase in the absolute volume of subject  imports in response to “strong and improving 
demand” in the US domestic market.  The US in dustry did not increase its own production, and 
therefore failed to take advantage of and thus res pond to this favourable ma rket condition of strong 
and improving demand.  That is why the increase in  import volumes of Canadian lumber substantially 
outpaced the increase in US production and led to an increase in Canada’s market share beyond the 
34 per cent that the USITC found to be non-injurious.  Therefore, the injury that the domestic industry 
allegedly suffered must be attributed not to dumped imports but rather to its own failure to keep up 
with the increase in domestic demand.  
5.115  The second fact indicating that the US investigating authority did not demonstrate the 
existence of a “causal relationship” is that the USITC attributed to the subject imports the injury to the 
domestic industry caused by other factors,  in violation of Article 3.5 of the Anti-Dumping Agreement .  
Specifically, the other factors that injured the domestic industry and which the USITC failed to 
separate and distinguish from subject imports includ e the domestic industry’s own contribution to the 
oversupply that led to the price declines over the peri od of investigation.  In USITC’s current injury 
analysis, it explicitly identified the domestic i ndustry’s contribution to oversupply as a known source 
of injury that it could not attribute to the Canadian imports.  However, in its threat determination, the 
USITC failed to consider the domestic industry’s mo st likely action in response to the future “strong 
and improving” demand that it cited as a basis for c oncluding that Canadian imports would increase 
substantially to injurious levels in the imminent fu ture.  In concluding that subject imports threatened 
injury, the USITC ignored the likelihood of US production contributing to any future price decline.  
5.116  It is Korea’s view that the investigating au thority’s determination of the facts was not 
“proper”, and its evaluation of the facts was not “objective” and “unbiased,” as required by 
Article 17.6 of the Anti-Dumping Agreement which governs the standard of review applicable to the 
review of a dumping order.   
5.117  The Appellate Body in Thailand – H-Beam  stated that the ordina ry meaning of the word 
“proper” in Article 17.6(i) is “accurate” or “correct ”.  The Appellate Body further stated that: “the 
ordinary meaning of ‘establishment’ suggests an action to ‘place beyond dispute: ascertain, 
demonstrate, prove’.”   
5.118  With respect to the term “objective” in Article 17.6(i), the Appellate Body in US-Safeguards 
on Lamb Meat , stated that an “objective” assessment under Article 4.2 of the Safeguard Agreement 
has two elements.  A panel must review whether (a) the competent authorities have evaluated all 
relevant factors; and, (b) a panel must review whether those authorities have, as a substantive matter, 
provided a reasoned and adequate  explanation of how the facts support their determination. 
5.119  Korea is of the view that the US determination failed to observe these standards.  The USITC 
replaced the process of making unbiased and objective assessment of facts with the consideration of 
these limited facts that would satisfy arbitrarily pre-determined scenarios in order to support an 
affirmative determination.  The USITC’s affirmative threat determination rests solely on its prediction 
that the Canadian imports would “increase substa ntially” absent anti-dumping and countervailing duty 
orders, and thereby “increase the excess supply in  the market, putting further downward pressure on 
prices”.  In its injury analysis, the USITC failed to  evaluate and consider how all the other economic 
factors had a bearing or affected the state of the domestic industry.  The USIT C also failed to properly 
take into account its own finding of only a small in crease in the market share of the Canadian imports WT/DS277/R 
Page 81 
  
 
and of a lack of evidence either that there had b een significant underselling by the subject imports or 
that they had a significant price effect during the period of investigation.   
5.120  In conclusion, Korea is of the view that the USITC did not base its threat of injury 
determination on positive evidence or conduct an objec tive examination of all of the factors it was 
required to consider.  Furthermore, although the USIT C identified other factors that caused injury to 
the domestic industry, such as the domestic industr y’s own contribution to oversupply, it nevertheless 
attributed such injuries to Canadian imports.  More over, the USITC’s affirmative threat determination 
rests solely on its unscientific prediction that s ubject imports would “increase substantially” absent 
anti-dumping and countervailing duty orders. 
5.121  For the reasons stated above, the investigati on and final determination of the USITC, along 
with the final anti-dumping and countervailing duties im posed as a result of this determination, should 
be found to constitute a violation by the United States of its obligation under the Anti-Dumping 
Agreement , the SCM Agreement  and GATT 1994. 
VI. INTERIM REVIEW 
6.1 On 19 December 2003, we transmitted the interim report in this dispute to the parties.  Both 
parties submitted written requests for the review of pr ecise aspects of the interim report.  Each party 
also subsequently submitted written comments on the other party's comments.  Neither party 
requested an interim review meeting. 
6.2 We have made certain necessary technical revisi ons and corrections to our report, some based 
on comments by the parties and others based on ou r own review of the report.  We address below 
those of the parties' comments that concerned more than merely technical or typographical 
corrections.    
6.3 The United States requests that we reconsider our  findings at paragraphs 6.89 to 6.96, 6.122, 
and 6.132 to 6.137 of the interim report, in light of  the record as a whole.  The United States presents 
no new arguments or reasons in support of this requ est, stating rather that it believes that the Panel 
should have reached contrary conclusions in view  of the reasons set forth in the United States’ 
previous submissions to the Panel.   The United Stat es asks us to reconsider our conclusions in light of 
the record and USITC analysis as a whole, asserting that the record and analysis amply support the 
USITC’s conclusion that the US lumber industry was threatened with material injury by reason of 
dumped and subsidized imports. 
6.4 Canada opposes this aspect of the United States' request. 
6.5 We decline to change our views and conclusions as set forth in the referenced paragraphs.  In 
the course of our consideration of this dispute, we have carefully consid ered the record in the 
underlying investigation, the USITC's analysis and conclusions, and the argument of the parties before reaching our conclusions.  Given no new argum ents, we see no basis to alter our views in any 
material respect.  
6.6 The United States requests that, in the first sente nce of paragraph 6.10 of the interim report, 
and first, third, and last sentences of paragraph 6.11 of the interim report, we change the word 
“determination” to “determinations” and make  conforming changes in those sentences.   
6.7 Canada considers that it would be inappropria te to pluralize "determination" in these 
sentences.  Canada understands the USITC to have issu ed a single threat of injury determination with 
respect to both dumped and subsidized imports.  WT/DS277/R 
Page 82  
 
6.8 We decline to make the changes requested by  the United States to paragraphs 6.10 and 6.11 
of the interim report.  We share the view of Canada  that the USITC issued a single threat of injury 
determination, which was equally applicable in the anti-dumping and counter vailing investigations.  
We note that our view in this regard does not, of c ourse, affect the fact that  under US law, it may be 
that, formally, separate determinations ar e made in anti-dumping and countervailing duty 
investigations.  However, we considered the US ITC's report as constituting a single determination on 
the question of injury and threat of injury throu ghout our analysis, and we see no reason to change 
that treatment in these paragraphs.  We note that in a few instances, we referred to "determinations" in 
the plural in the interim report.  We have changed su ch references in the final report at paragraphs 6.1, 
6.41, and 6.144, as these were inadve rtent or typographical errors.   
6.9 The United States proposes a change to the text of  paragraph 6.13 of the interim report, to 
clarify its meaning.  Canada made no comment on this aspect of the United States' request.   
6.10 We agree with the United States that this pa ragraph could be clearer, and have therefore 
modified it along the lines suggested by the United States. 
6.11 The United States requests that we amend the last  sentence of paragraph 6.31 of the interim 
report to more accurately reflect its position, as se t out in its first submission.  Canada made no 
comment on this aspect of the United States' request. 
6.12 We have reviewed the United States' submissions, and agree that the proposed text more 
accurately reflects the United States arguments, and have therefore made the requested modification 
to this paragraph. 
6.13 Canada notes that, in the third sentence of pa ragraph 6.34, the interim report states that 
“Canada has not asserted any specific legal requireme nts with respect to special care”.  Canada 
asserts, it did make submissions in this regard, referring to paragraph 64  of its First Written 
Submission ("the standard of special care is one that  requires an investigating authority to undertake 
“an especially meticulous examination”"), and to paragraph 7 of Canada’s response to Question #3 
from the First Meeting with the Panel ("Canada ar ticulated the standard as being “a particularly 
careful examination”).  Canada considers that  these formulations echo the first sentence of 
paragraph 6.34 of the interim report, which states  that this obligation requires an investigating 
authority “to act with an enhanced degree of atte ntion” and paragraph 6.37, which refers to “this 
obligation to act with an extra degree of attention” .  Accordingly, Canada requests that we replace the 
word “specific” in the third sentence of paragra ph 6.34 of the interim report with the word 
“additional” to more accurately reflect Canada’s submissions.  
6.14 The United States made no comment on this aspect of Canada's request. 
6.15 We decline to make the change proposed by Ca nada.  As set out in the report, we found the 
parameters of the "special care" requirement set forth in Article 3.8 of the AD Agreement and Article 15.8 of the SCM Agreement unclear.  It is in our discussion of this point that we observed that 
Canada had not asserted any specific legal requirements with respect to special care – that is, Canada 
made no arguments as to what might constitute the special care required by the Agreements in threat 
cases.  This is not a question of additional  requirements, but rather a question of specifying, in the 
sense of defining, the requirement of special care set out in the Agreements themselves.  While the special care obligation might be considered an "a dditional" obligation in the sense that it is an 
obligation on investigating authorities cons idering threat of material injury in addition
 to other 
obligations set out in Articles 3 and 15 of the AD and SCM Agreements, the use of the word 
"additional" as proposed by Canada might be mis understood to imply that Canada could have, or 
should have, suggested obligations in  addition to those set out in the text of Article 3.8 of the AD 
Agreement and Article 15.8 of the SCM Agreement themselves.  Nonetheless, we have modified this paragraph in order to clarify our views in this respect. WT/DS277/R 
Page 83 
  
 
6.16 The United States proposes the addition of a sente nce to paragraph 6.83 of the interim report, 
to more accurately reflect the USITC analysis discussed in that paragraph.  Canada made no comment on this aspect of the United States' request. 
6.17 We have reviewed the USITC determination in  this respect, and have made clarifying 
changes to this paragraph, along the lines suggested by the United States.  
6.18 The United States proposes deleting the fourth sen tence of paragraph 6.93 of the interim 
report, asserting that it is somewhat redundant of  the preceding sentence, but is a less accurate 
characterization of the USITC Final Report. 
6.19 In Canada’s view, the sentence proposed by th e United States for deletion in paragraph 6.93 
of the interim report is not redundant of the pr eceding sentence because the two sentences cover two 
different concepts.  Canada asserts that the thir d sentence deals with the increase in the volume of 
imports during the period of investigation while th e second sentence deals with the rate of increase 
during the period of investigation.  Canada, referring to the Panel's fi ndings at paragraphs 6.77-6.78 of 
the Interim Report,  considers that the two senten ces constitute an accurate characterization of the 
USITC Final Report, and therefore requests th at the Panel retain its current wording. 
6.20 We share Canada's view that the two senten ces in question deal with different aspects of 
analysis of threat of injury, the increase in impor t volume, and the rate of increase in imports.  The 
existing wording, which addresses the two concepts sep arately, accurately describes our assessment of 
the USITC determination in this regard, a nd we therefore decline to change it.   
6.21 Canada comments that, in paragraph 6.131 of the interim report, the sentence immediately 
following the quote from the footnote 195 of the USITC Final Report does not reflect fully Canada’s 
submissions concerning that footnote.  Canada ar gues that its submissions focused on the USITC’s 
explicit rejection of the requirement, articulated by the Appellate Body, to separate and distinguish the 
effects of other known factors from those attributed  to subject imports as part of fulfilling the non-
attribution requirements in Articles 3.5 and 15.5.  Accordingly, Canada proposes modifications to the 
last three sentences of this paragraph.   
6.22 The United States expresses concern that Canada ’s proposed modification of paragraph 6.131 
of the interim report could be misconstrued as not si mply a summary of Canada’s argument, but as an 
implication by the Panel itself that the Appellate  Body has articulated a specific methodology that 
investigating authorities must  employ in ensuring that they do not attribute injuries caused by other 
known factors to dumped or subsidized imports.  The United States asserts that the Appellate Body in 
EC Pipe  explicitly indicated that no specific methodolog y for this analysis is required. (Appellate 
Body Report, European Communities - Anti-Dumping Duties on Malleable Cast Iron Tube or Pipe 
Fittings from Brazil , WT/DS219/AB/R, adopted August 18, 20 03, para. 189 (“provided that an 
investigating authority does not attribute the injuries of other causal factors to dumped imports, it is free to choose the methodology it will use in examining the ‘causal relationship’ between dumped imports and injury”))  Moreover, the United States comments that Canada’s characterization of the 
meaning of the quoted portion of the USITC Final Report and the US case law it referenced omits the 
response made in the US submissions and could be  misconstrued as the Panel’s statement regarding 
US law.  Therefore, the United States urges the Pane l not to adopt the proposed modification, in order 
to avoid any confusion between Canada’s argumen ts and the Panel’s own views, and because the 
implication that could be attributed to the Pane l under Canada’s proposal is inaccurate.  The United 
States further comments that Canada’s argument on the issue of non-attribution is accurately set forth 
at paragraphs 4.56 and 4.209 of the interim report,  and the summary statement in paragraph 6.131 is 
consistent with the arguments set forth at those two paragraphs.  Because the summary as drafted is 
accurate, while the proposed modification is potentially  confusing, the United States requests that the 
Panel decline to make the modification to  this paragraph that Canada proposed. WT/DS277/R 
Page 84  
 
6.23 The referenced text to which Canada proposes modifications is merely a summary statement 
of Canada's arguments on this issue, which are more  fully set forth earlier in the Report, as are the 
United States' arguments in response.   Particularly  since our resolution of this aspect of Canada's 
claims did not turn on our evaluation of the quoted footnote from the USITC's Final Report, nor on Canada's arguments regarding the import of that footnote, we see no need to expand on the summary 
of Canada's arguments in  this paragraph.   
VII. FINDINGS 
A. INTRODUCTION 
7.1 At issue in this dispute is the United States International Trade Commission's investigation 
and determination of threat of material injury cau sed by dumped and subsidized imports of softwood 
lumber imports from Canada and the anti-dumpi ng and countervailing measures imposed on such 
imports.  This is the latest in a series of Canadian  challenges to various aspect s of these investigations.  
WTO Panels have previously considered, inter alia , challenges to the United States Department of 
Commerce's preliminary countervailing duty and critical circumstances determinations
67, the United 
States Department of Commerce's fi nal countervailing duty determination68, and the United States 
Department of Commerce's final anti-dumping duty determination.69  However, those previous 
disputes do not have any direct bearing on the issues before the Panel in this case, which concerns 
exclusively the injury aspects of th e investigations, which were not addressed in the other disputes.  
The majority of the claims put forward by Cana da in this case challenge the United States 
International Trade Commission's consideration of th e evidence underlying its determination of threat 
of material injury by reason of dumped and subs idized imports of softwood lumber from Canada.   
B. FACTUAL  ASPECTS 
7.2 Under US law, two agencies share respons ibility for the conduct of anti-dumping and 
countervailing duty investigations – the United States Department of Commerce (USDOC) and 
United States International Trade Commission (USI TC).  USDOC has responsibility for the formal 
initiation of investigations, and the determination of the existence and margins of dumping and/or 
subsidization.  USITC has responsibility for the de termination of material injury to a domestic 
industry caused by dumped or subsidized imports.  USITC conducts its investigation in every case on 
a timetable which is separate from but overlaps th e time table for USDOC's investigation of dumping 
and subsidization.  Moreover, USITC and USDOC both conduct their investigations in two phases, 
preliminary and final.  The preliminary phase of the injury investigati on begins on the day an 
application for anti-dumping or countervailing duty me asures is filed, and is completed before the 
preliminary determination of dumping and/or subsid ization is made by USDOC.  The final phase of 
USITC's injury investigation usually is begun afte r USDOC's preliminary determination and overlaps 
the issuance of USDOC's final determination of du mping and/or subsidization.  If USDOC's final 
determination is affirmative, USITC completes the final phase of its investigation and issues a final 
determination.   
7.3 In this case, USITC instituted preliminary anti-dumping and countervailing duty injury 
investigations in response to a petition filed on 2 April 2001 on behalf of the US softwood lumber 
industry.  In the preliminary phase, USITC determin ed, on 17 May 2001, that there was a reasonable 
                                                      
67 Panel Report, United States – Preliminary Determinations with Respect to Certain Softwood Lumber 
from Canada  ("US – Softwood Lumber III "), WT/DS236/R, adopted 1 November 2002. 
68 Panel Report, United States – Final Countervailing Duty Determination with respect to certain 
Softwood Lumber from Canada  ("US – Softwood Lumber IV  "), WT/DS257, circulated 29 August 2003, appeal 
pending. 
69 United States – Final Dumping Determination on Softwood Lumber from Canada  ("US – Softwood 
Lumber V  ") WT/DS264 (pending before Panel). WT/DS277/R 
Page 85 
  
 
indication that an industry in th e United States was threatened with  material injury by reason of 
imports from Canada of softwood lumber that were alleged to be subsidized by the Government of 
Canada and sold in the United States at dumped  prices - less than fair value (“LTFV”) in US 
parlance.70 71  
7.4 Subsequent to USDOC's affirmative preliminar y and final determinati ons that imports of 
softwood lumber from Canada were subsidized and sold in the United States at dumped prices, 
USITC instituted the final phase of its investigation.   
7.5 On 16 May 2002, the USITC unanimously determin ed that an industry in the United States 
was threatened with material injury by reason of  imports of softwood lumber from Canada found to 
be subsidized and sold in the United States at LTFV.72  On 22 May 2002, USDOC issued antidumping 
and countervailing duty orders on imports  of softwood lumber from Canada.73 
7.6 In its final determination, the USITC found a single domestic like product consisting of 
softwood lumber products.  Based on the domestic like product determination, the USITC concluded 
that there was a single domestic industry, which included all producers of softwood lumber in the United States.  The USITC found that several cond itions of competition pertinent to the softwood 
lumber industry were relevant to its analysis.
74  In particular, these conditions included the recently 
expired United States/Canada Softwood Lumber Agreement (“SLA”); demand, including factors 
affecting demand, actual demand data and forecasts; supply conditions; species of lumber and 
substitutability; prices; and inte gration of the North American lumber market.  The USITC 
determined that the domestic softwood lumber i ndustry was not materially injured by reason of 
subject imports from Canada found to be sold at LTF V and to be subsidized, but found that there was 
a threat of material injury by reason of such imports. 
7.7 The USITC found that the domestic industry producing softwood lumber was vulnerable to 
injury in light of declines in its performance over th e period of investigation, particularly its financial 
performance.  The USITC noted that the USDOC had determined that there were 11 programmes that 
conferred countervailable subsidies to Canadian  producers and exporters of softwood lumber, 
including:  the Provincial Stumpage programmes in the Provinces of Quebec, British Columbia, 
Ontario, Alberta, Manitoba, and Saskatchewan; tw o programmes administered by the Government of 
Canada; two programmes administered by the Pr ovince of British Columbia; and one programme 
administered by the Province of Quebec.  The USITC found that subject imports were likely to 
increase substantially based on:  Canadian produ cers’ excess capacity and projected increases in 
capacity, capacity utilization, and production; the ex port orientation of Canadian producers to the US 
market; the increase in subject imports over the period of investigation; the effects of expiration of the 
SLA; subject import trends during periods when th ere were no import restraints; and forecasts of 
strong and improving demand in the US market.  The USITC found that there was a moderate degree of substitutability between subject imports of so ftwood lumber from Cana da and the domestic like 
product, and that prices of different species affected the prices of other species.  Given its finding of 
likely significant increases in subject import volum es, and its finding of at least moderate 
substitutability between subject imports and domes tic product, the USITC concluded that subject 
imports were likely to have a significant price depr essing effect in the immediate future.  The USITC 
recognized that while inventories generally were not substantial in the softwood lumber industry, 
                                                     
 
70 66 Fed. Reg. 28541 (23 May 2001).  (Exhibit CDA-4). 
71 Under US law, the standard of determination in preliminary antidumping or countervailing duty 
investigations is whether there is a “a reasonable indication” of material injury or a threat of material injury by 
reason of dumped and subsidized imports of softwood lumber from Canada. 
72 67 Fed. Reg. 36022 (22 May 2002) (Exhibit CDA-2) and USITC Report in Softwood Lumber from 
Canada, Investigations Nos.  701-TA-414 and 731-TA-928 (Final), Publication 3509, (May 2002) (hereinafter USITC Final Report) (Exhibit CDA-1). 
73 67 Fed. Reg. 36068-36077 (22 May 2002).  (Exhibit CDA-2). 
74 USITC Final Report at 21-27 (Exhibit CDA-1). WT/DS277/R 
Page 86  
 
Canadian producers’ inventories as a share of pr oduction had increased and we re consistently higher 
than that reported by US producers during the period of investigation.  Finally, the USITC noted that a number of domestic producers had reported actual an d potential adverse effects on their development 
and production efforts, growth, investment, and ab ility to raise capital due to subject imports of 
softwood lumber from Canada. 
7.8 Thus, the USITC determined that further significant increases in dumped and subsidized 
imports were imminent, that these imports were likely to exacerbate price pressure on domestic producers, and that material injury to the domestic industry would occur as a result.   
C. CLAIMS
 SET  FORTH  IN CANADA'S  PANEL  REQUEST   
7.9 Canada alleges violations of various provisions of the Anti-Dumping (AD) and 
SCM Agreements.  Canada characterizes three of th ese as "overarching" violations, specifically the 
alleged violations of Article 3.1 of the AD Ag reement and Article 15.1 of the SCM Agreement, 
Article 3.8 of the AD Agreement and Article 15.8 of the SCM Agreement,  and Article 12 of the 
AD Agreement and Article 22 of the SCM Agreement.  Canada also alleges violations of specific 
provisions of Article 3 of the AD Agreement, Article  15 of the SCM Agreement and Article VI of the 
General Agreement on Tariffs and Trade 1994 (“GA TT 1994”), in particular Article 3.7 of the 
AD Agreement and Article 15.7 of the SCM Agre ement, Article 3.2 of the AD Agreement and 
Article 15.2 of the SCM Agreement, Article 3. 4 of the AD Agreement and Article 15.4 of the 
SCM Agreement, Article 3.5 of the AD Agreement and Article 15.5 of the SCM Agreement.  Finally, 
Canada alleges violations of Articles 1 and 18.1 of the AD Agreement, Articles 10 and 32.1 of the 
SCM Agreement and Article VI:6(a) of the GATT 1994.    
7.10 These claims for the most part require us to consider the substance of the USITC's final 
determination to determine wh ether it is consistent with US obligations under the AD and 
SCM Agreements.  There are also several issues of interpretation of the Agreements raised by 
Canada's claims.  Therefore, we address below first the general issues of standard of review and relevant principles of treaty interpretation, a nd then go on to address the specific claims.
75   
D. STANDARD  OF REVIEW 
7.11 The injury determination of the USITC was ba sed on a single analysis of the facts, and 
applies without distinction in the context of the anti-dumping and the countervailing duty measures 
issued by USDOC.  The provisions of the AD and SCM Agreements governing injury determinations 
are in large part identical, and the differences that  do exist do not undermine the extensive similarity.  
Thus, in order for us to find that the United Stat es acted consistently with  its obligations under the 
provisions AD and SCM Agreements, we must concl ude that the determination of the USITC is 
consistent with the requirements of both Agreements .  This raises the question of the standard of 
review to be applied in our examin ation of the USITC's determination. 
                                                      
75 On 14 August 2003, the Secretariat received an unsolicited amicus curiae  communication in 
connection with this dispute from the Northwest Ecosyste m Alliance, which indicated that copies had been sent 
to each of the parties and third parties to the dispute.  Having considered carefully the question of how to treat 
that communication, and any further such  communications that might  be received, and in li ght of the absence of 
consensus among WTO Members on the question of how to treat amicus  submissions, we decided not to accept 
unsolicited amicus curiae  submissions in the course of this dispute.  However, we noted that we would consider 
any arguments raised by amici curiae  to the extent that these arguments were taken up in the written 
submissions and/or oral statements of any party or third parties, noting that the communication in question had 
been received prior to the first meeting with the parties, and had been sent to  the parties and third parties.  We 
noted that, as a consequence of our decision in this regard, the communication from the Northwest Ecosystem Alliance does not form part of the record in this disput e.  The parties, third parties, and the submitter were 
informed of our decision on 1 September 2003 
 WT/DS277/R 
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7.12 Article 11 of the DSU sets forth the appropriate st andard of review for panels for all covered 
agreements, including the SCM Agreement.  Ar ticle 11 imposes upon panels a comprehensive 
obligation to make an "objective assessment of th e matter", an obligation which embraces all aspects 
of a panel's examination of the "matter", both fact ual and legal.  Article 17.6 of the AD Agreement  
sets forth a special standard of review applicable to anti-dumping disputes.  It provides, with respect 
to the evaluation of factual issues:  
“(i) in its assessment of the facts of the matter, the panel shall determine whether 
the authorities’ establishment of the facts was proper and whether their evaluation of those facts was unbiased and objective.  If the establishment of the facts was proper 
and the evaluation was unbiased and objectiv e, even though the panel might have 
reached a different conclusion, the evaluation shall not be overturned;”  
With respect to questions of legal interpretation, Article 17.6 provides: 
“(ii) the panel shall interpret the rele vant provisions of the Agreement in 
accordance with customary rules of interpreta tion of public international law.  Where 
the panel finds that a relevant provision of  the Agreement admits of more than one 
permissible interpretation, the panel sha ll find the authorities’ measure to be in 
conformity with the Agreement if it rests upon one of those permissible interpretations". 
Thus, together, Article 11 of the DSU and Article 17.6 of the AD Agreement set out the standard of 
review the Panel is to apply with respect to both th e factual and legal aspects of its examination of the 
claims and arguments raised by the parties in a case under the AD Agreement.
76   
 
7.13 To date, no WTO panel has addressed to what exte nt, if any, these two standards are different.  
Thus, it is not clear from previous decisions whethe r the application of the Article 11 standard to a 
determination could, in appropriate factual ci rcumstances, lead to differing outcomes than the 
application of the Article 11 and Article 17.6(i) sta ndards together to the same determination.  That 
issue would appear to be presented by this case.   
7.14 Canada's argument as originally presented suggest ed that, in Canada's view, the Article 11 
standard required something different and perhaps stri cter than the Article 17.6 standard.  This raised 
the possibility that, in Canada's view, different conc lusions might be reached, on the basis of the same 
determination, regarding viola tions of corollary provisions of the AD and SCM Agreements.  
However, in response to questions from the Panel, Ca nada clarified that it did not consider that the 
standard of review under Article 11 of the DSU is  stricter than that under Article 17.6 of the 
AD Agreement, but rather that they compleme nt each other and should be read together.77  Canada 
further clarified that it was not claiming that th e USITC should have obtaine d additional information 
during the course of its investigation.  Rather, Ca nada specified, its challenge concerned the USITC's 
evaluation of the evidence that w as on the record before it.  Finally, Canada observed that its 
understanding of the applicable standard of revi ew for this dispute was compatible with the 
Declaration of Ministers relating to Dispute Settlement under the AD and SCM Agreements, which 
recognized the need for consistent resolutio n of disputes arising from anti-dumping and 
countervailing duty measures.   
7.15 Under the Article 17.6 standard, with respect to  claims involving questions of fact, Panels 
have concluded that whether the measures at issue are consistent with relevant provisions of the 
 AD Agreement depends on whether the investigati ng authority properly established the facts, and 
                                                      
76 Appellate Body Report, United States – Anti-Dumping Measures on Certain Hot-Rolled Steel Products 
from Japan ("US – Hot-Rolled Steel "), WT/DS184/AB/R, adopted 23 August 2001, paras. 54-62. 
77 Canada's Responses to Questions from the Panel and the United States - First Meeting, question 1.  WT/DS277/R 
Page 88  
 
evaluated the facts in an unbiased and objective ma nner.  This latter has been defined as assessing 
whether an unbiased and objective decision maker, taki ng into account the facts that were before the 
investigating authority, and in light  of the explanations gi ven, could have reached  the conclusions that 
were reached.  A panel's task is not to carry out a de novo  review of the information and evidence on 
the record of the underlying investigation.  Nor ma y a panel substitute its judgment for that of the 
investigating authorities, even though the Panel might have arrived at a different  determination were it 
considering the record evidence for itself. 
7.16 Similarly, the Appellate Body has explained that , under Article 11 of the DSU, a panel’s role 
is not to substitute its analysis for that of the investigating authority.
78  The Appellate Body has stated: 
"We wish to emphasize that, although panels are not entitled to conduct a de novo  
review of the evidence, nor to substitute  their own conclusions for those of the 
competent authorities, this does not mean that panels must simply accept  the 
conclusions of the competent authorities". 79 
7.17 In light of Canada's clarification of its  position, and based on our understanding of the 
applicable standards of review under Article 11 of  the DSU and Article 17.6 of the AD Agreement, 
we do not consider that it is either necessary or appropriate to conduct separate analyses of the USITC 
determination under the two Agreements.  
7.18 We consider this result appropriate in view of  the guidance in the Declaration of Ministers 
relating to Dispute Settlement under the AD and SC M Agreements.  While the Appellate Body has 
clearly stated that the Ministerial Declaration does not require the application of the Article 17.6 standard of review in countervailing duty investigations,
80 it nonetheless seems to us that in a case 
such as this one, involving a single injury determin ation with respect to both subsidized and dumped 
imports, and where most of Canada's  claims involve identical or almost identical provisions of the AD 
and SCM Agreements, we should seek to  avoid inconsistent conclusions.  
7.19 With respect to the question of legal interpretation, Article 3.2 of the DSU provides that 
Members recognise that the dispute settlement system serves to clarify the provisions of the covered 
agreements "in accordance with customary rules of  interpretation of publi c international law".  
Article 31.1 of the Vienna Convention on th e Law of Treaties ('Vienna Convention')81, which is 
generally accepted as such a customary rule, provides: 
"A treaty shall be interpreted in good faith  in accordance with the ordinary meaning 
to be given to the terms of the treaty in their context and in the light of its object and purpose". 
7.20 There is a considerable body of WTO case la w dealing with the application of these 
provisions on treaty interpretation in  dispute settlement in the WTO.  It is clear that interpretation 
must be based above all on the text of the treaty
82, but that the context of the treaty also plays a role in 
                                                      
78Appellate Body Report, United States – Transitional Safeguard Measure on Combed Cotton Yarn 
from Pakistan  ("US – Cotton Yarn "), WT/DS192/AB/R, adopted 5 November 2001, para. 74; Appellate Body 
Report, United States – Safeguard Measures on Imports of Fresh, Chilled or Frozen Lamb Meat from New 
Zealand and Australia ("US – Lamb "), WT/DS177/AB/R, WT/DS178/AB/R, adopted 16 May 2001, para. 106. 
79 Appellate Body Report, US - Cotton Yarn , para. 69, n.42, citing Appellate Body Report, US - Lamb , 
para. 106. 
80 Appellate Body Report, United States – Imposition of Countervailing Duties on Certain Hot-Rolled 
Lead and Bismuth Carbon Steel Products Originating in the United Kingdom ("US – Lead and Bismuth II "), 
WT/DS138/AB/R, adopted 7 June 2000, DSR 2000:V, 2601 at para 49. 
81 (1969) 8 International Legal Materials  679. 
82 Appellate Body Report, Japan – Taxes on Alcoholic Beverages ("Japan – Alcoholic Beverages II "), 
WT/DS8/AB/R, WT/DS10/AB/R, WT/DS11/AB/R, adopted 1 November 1996, DSR 1996:I, 97, p. 11. WT/DS277/R 
Page 89 
  
 
certain circumstances.  It is also well-established that these principles of interpretation "neither require 
nor condone the imputation into a treaty of words that are not there or the importation into a treaty of concepts that were not intended".
83  Furthermore, pane ls "must be guided by the rules of treaty 
interpretation set out in the Vienna Convention, and must not add to or diminish rights and obligations 
provided in the WTO Agreement ".84  
7.21 In the context of WTO disputes under the AD Ag reement, the Appellate Body has made it 
clear that Article 17.6(ii)  
" The  first  sentence of Article 17.6(ii), echoing cl osely Article 3.2 of the DSU, states 
that  panels  "shall" interpret the provisions of the  Anti-Dumping Agreement   "in 
accordance with customary rules of interpreta tion of public intern ational law."  Such 
customary rules are embodied in Articles 31 and 32 of the Vienna  Convention on the 
Law of Treaties   ("Vienna Convention ").  Clearly, this aspect of Article 17.6(ii) 
involves no "conflict" with the DSU but, rather, confirms that the usual rules of treaty interpretation under the DSU also apply to the  Anti-Dumping Agreement .  … 
The  second   sentence of Article 17.6(ii) … presupposes   that application of the rules 
of treaty interpretation in Articles 31 and 32 of the  Vienna Convention   could give 
rise to, at least, two interpretations of some provisions of the  Anti-Dumping 
Agreement ,  which, under that Convention, would both be " permissible   
interpretations".  In that event, a measure is deemed to be in conformity with the 
 Anti-Dumping Agreement   "if it rests upon one of those permissible 
interpretations".
85 
7.22 Thus, it is clear to us that under the AD Agreem ent, a panel is to fo llow the same rules of 
treaty interpretation as in any other dispute.  The di fference is that if a pa nel finds more than one 
permissible interpretation of a provision of the AD Agreement, it may uphold a measure that rests on 
one of those interpretations.  It is not clear  whether the same result could be reached under 
Articles 3.2 and 11 of the DSU.   However, it seems to us that there might well be cases in which the 
application of the Vienna Convention principles  together with the additional provisions of 
Article 17.6 of the AD Agreement could result in a different conclusion being reached in a dispute 
under the AD Agreement than under the SCM Agreemen t.  In this case, it h as not been necessary for 
us to resolve this question, as we did not find an y instances where the question of violation turned on 
the question whether there was more than one permi ssible interpretation of the text of the relevant 
Agreements. 
E. BURDEN  OF PROOF 
7.23 While the parties have not raised burden of pr oof as an issue, we have kept in mind the 
general principles applicable to burden of proof in  WTO dispute settlement, which require that a party 
claiming a violation of a provision of a WTO Agreement by another Member must assert and prove its claim.
86  In this dispute, Canada, which has cha llenged the consistency of the United States' 
measures, thus bears the burden of demonstrating that the measures are not consistent with the 
relevant provisions of the releva nt Agreements.  It is generally for each party asserting a fact to 
provide proof thereof.87  Therefore, it is also for the United States to provide evidence for the facts 
                                                      
83 Appellate Body Report, India – Patent Protection for Pharmaceutical and Agricultural Chemical 
Products ("India – Patents (US) "), WT/DS50/AB/R, adopted 16 January 1998, DSR 1998:I, 9, para. 45. 
84 Ibid., para.  46. 
85 Appellate Body Report, US – Hot-Rolled Steel , para. 57. 
86 Appellate Body Report, United States – Measure Affecting Imports of Woven Wool Shirts and 
Blouses from India  ("US – Wool  Shirts and Blouses") , WT/DS33/AB/R and Corr. 1, adopted 23 May 1997, 
DSR 1997:I, 323, p. 337. 
87 Ibid. WT/DS277/R 
Page 90  
 
which it asserts.  We note in addition that a prima facie  case is one which, in the absence of effective 
refutation by the other party, requires a panel, as a matter of law, to rule in favour of the party 
presenting the prima facie  case.   
F. ALLEGED
 VIOLATIONS  OF ARTICLE 3.1  OF THE  AD AGREEMENT  AND  
ARTICLE 15.1  OF THE  SCM AGREEMENT  - OBLIGATIONS  REGARDING  “POSITIVE  
EVIDENCE”  AND  “OBJECTIVE  EXAMINATION” 
7.24 Article 3.1 of the AD Agreement and Article 15.1 of the SCM Agreement are substantively 
identical.  Article 3.1 provides 
"A determination of injury for purposes of  Article VI of GATT 1994 shall be based 
on positive evidence and involve an objective examination of both (a) the volume of 
the dumped imports and the effect of the dumped imports on prices in the domestic 
market for like products, and (b) the consequent impact of these imports on domestic 
producers of such products". 
Article 15.1 of the SCM Agreement states: 
 
"15.1 A determination of injury for purposes of Article VI of GATT 1994 shall be 
based on positive evidence and involve an objective examination of both (a) the 
volume of the subsidized imports and the eff ect of the subsidized imports on prices in 
the domestic market for like products and (b) the consequent impact of these imports 
on the domestic producers of such products". (footnote omitted) 
7.25 Canada asserts that the obligations set out  in Article 3.1 of the AD Agreement and 
Article 15.1 of the SCM Agreement contain substa ntive, overarching obligations that must be 
observed by investigating authorities in making inju ry determinations.  Canada considers that the 
alleged violations of other, more specific provisions  of Article 3 of the AD Agreement and Article 15 
of the SCM Agreement demonstrate the asserted viol ations of Article 3.1 of the AD Agreement and 
Article 15.1 of the SCM Agreement in this case.  Thus, Canada has not made separate arguments 
supporting these claims of violation.  In response to questions from the Panel, Canada clarified that it 
did not consider these claims to be dependent on th e more specific claims it raised, but acknowledged 
that they are closely related.  Canada explained th at the "same facts give rise to violations under the 
overarching provisions as well as the specific provi sions Canada has invoked in this dispute".88   
7.26 In the absence of independent argumen t supporting these overarching claims under 
Articles 3.1 and 15.1, and in light of Canada's explanation, it is ou r view that the resolution of these 
claims is substantively dependent on our resolution of the specific claims.  In this regard, we note 
Canada's statement that, "Given substantive differe nces in the obligations in Articles 3.1 and 15.1 
compared to [Articles 3.2, 3.4, 3.5 and 3.7 of the AD Agreement and Articles 15.2, 15.4, 15.5 and 
15.7 of the SCM Agreement], certain factual scenarios could give rise to violations of Article 3.1 and 15.1 without violating the provisions of the other Articles.  However, Canada is not raising such 
facts in this dispute ".
89  Thus, in the absence of any additio nal arguments supporting the allegations 
of violation of Articles 3.1 and 15.1, if we find that the facts give rise to a conclusion of no violation under one of Canada's specific claims, we will also consider that those facts give rise to the same 
conclusion, no violation, with respect to th e overarching claims under Article 3.1 of the 
AD Agreement and Article 15.1 of the SCM Agreement.  With respect to any aspect of the determination that is found to be inconsistent w ith any other provision of Articles 3 and 15 of the 
Agreements asserted by Canada, we can see no reason to  conclude, in addition, that it also violates 
Article 3.1 of the AD Agreement and Article 15.1 of the SCM Agreement.  In the absence of 
                                                     
 
88 Canada's Responses to Questions from the Panel and the United States - First Meeting, question 6. 
89 Ibid., (emphasis added). WT/DS277/R 
Page 91 
  
 
additional arguments in support of th ese claims, to say that a viola tion of a specific provision of the 
Agreements also violates the overarching obligations  in Articles 3.1 and 15.1 does not clarify the 
obligation set out in Articles 3.1 of the AD Agreem ent and 15.1 of the SCM Agreement.  Nor would it 
provide any guidance in the context of implem entation of any recommendation of the DSB.  
Therefore, we will make no findings with respect to these claims. 
7.27 Of course, we recognize the importance of the obl igations in Article 3.1 of the AD Agreement 
and Article 15.1 of the SCM Agreement to our evalua tion of the USITC determination at issue in this 
dispute.90  Thus, in considering Canada's specific clai ms of violation, we have considered the 
obligations established in those provisions in eval uating the USITC's determination in light of the 
specific allegations of violation.   
7.28 In this regard, we have kept in mind statemen ts of the Appellate Body regarding the meaning 
of "positive evidence" and "objective examinati on".  While “positive evidence” involves the facts 
underpinning and justifying the injury determinati on, “objective examination”  is concerned with the 
investigative process itself.91  The Appellate Body has interp reted “positive evidence” as follows: 
"The term "positive evidence" relates, in our view, to the  quality  of the evidence that 
authorities may rely upon in making a determin ation.  The word "positive" means, to 
us, that the evidence must be of an affirmative, objective  and  verifiable  character, 
and that it must be credible .  "92  (emphasis in original) 
The Appellate Body has defined an "objective examination":  
 
"The term "objective examination" aims at  a different aspect of the investigating 
authorities' determination.  While the te rm "positive evidence" focuses on the facts 
underpinning and justifying the injury determination, the term "objective 
examination" is concerned with the i nvestigative process itself.  The word 
"examination" relates, in our view, to th e way in which the evidence is gathered, 
inquired into and, subsequently, evaluated;  that is, it relates to the conduct of the 
investigation generally.  The word "objective", which qualifies the word 
"examination", indicates essentially that the "examination" process must conform to the dictates of the basic principles of good faith and fundamental fairness.  "
93 
(footnote omitted) 
The Appellate Body summed up the requirement to conduct an "objective examination" as follows: 
 
"In short, an "objective examination" re quires that the domestic industry, and the 
effects of dumped imports, be investigated in an unbiased  manner, without favouring 
the interests of any interested party , or group of interested parties, in the 
investigation.  The duty of the investigating authorities to conduct an "objective examination" recognizes that the determinati on will be influenced by the objectivity, 
                                                     
 
90 We note in this respect the statement of the Appellate Body: "Article 3 as a whole deals with 
obligations of Members with respect to the determination of  injury.  Article 3.1 is an overarching provision that 
sets forth a Member's fundamental, substantive obligation in this respect.  Article 3.1 informs the more detailed 
obligations in succeeding paragrap hs."  Appellate Body Report, Thailand – Anti-Dumping Duties on Angles, 
Shapes and Sections of Iron or Non-Alloy Steel and H-Beams from Poland (Thailand – H-Beams ), 
WT/DS122/AB/R, adopted 5 April 2001, para. 106. 
91 Appellate Body Report, European Communities – Anti-Dumping Duties on Imports of Cotton-Type 
Bed Linen from India – Recourse to Article 21.5 of the DSU by India  ("EC – Bed Linen (Article 21.5 – India ) "), 
WT/DS141/AB/RW, adopted 24 April 2003, para 114, quoting Appellate Body Report, US – Hot-Rolled Steel , 
para. 192. 
92 Ibid. 
93 Ibid., quoting Appellate Body Report, US – Hot-Rolled Steel , para. 193. WT/DS277/R 
Page 92  
 
or any lack thereof, of the investigative process".
 94 (footnote omitted, emphasis in 
original) 
G. ALLEGED  VIOLATIONS  OF ARTICLE 3.8  OF THE  AD AGREEMENT  AND  
ARTICLE 15.8  OF THE  SCM AGREEMENT  REQUIREMENTS  REGARDING  “SPECIAL  
CARE” 
7.29 Article 3.8 of the AD Agreement and Article  15.8 of the SCM Agreement provide that: 
“with respect to cases where in jury is threatened by dumped [subsidized] imports, the 
application of anti-dumping [countervailing]  measures shall be considered and 
decided with special care”.   
No WTO panel has addressed the interpretation of these provisions to date. 
 
(a) Parties' Arguments 
7.30 Canada asserts that these provisions establish an  independent obligati on with which Members 
must comply, and that they provide context to assist  in the interpretation of the other paragraphs of 
Article 3 of the AD Agreement and Article 15 of th e SCM Agreement that govern threat of injury 
determinations.  However, as is the case concerning  the alleged violations of Article 3.1 of the 
AD Agreement and Article 15.1 of the SCM Agreem ent, Canada does not make any independent 
arguments with respect to these claims, but rather asserts that the "failure to take "special care" 
permeates the entire determination of the [USITC]".95    
7.31 The United States asserts that Canada's argument indicates it considers that the “special care” 
provision means that there is a stricter, higher standa rd of review for threat analysis than for present 
material injury analysis in the context of the c overed Agreements.  The United States, referring to the 
decision of the Appellate Body in a safeguards dispute, US – Line Pipe ,  noted that the Appellate 
Body suggested that the distincti on between threat of injury and present injury “serves the purpose of 
setting a lower threshold  for establishing the right  to apply a safeguard measure” .96 
7.32 However, in response to questions from the Pa nel, Canada clarified that it was not arguing 
that the Panel must apply a different standard of review in cases involving threat of material injury.97  
Rather, Canada's argument was that the "special care" provisions imposed a stricter standard of 
determination in threat cases, requiring a "particular ly careful examination of the required elements of 
Article 3 of the AD Agreement and Article 15 of the SCM Agreement".98  Canada asserts that “special 
care” in threat cases is a crucial safeguard to pr otect against the dangers inherent in the predictive 
nature of such determinations. 
(b) Analysis by the Panel 
7.33 The adjective “special” is defined as, inter alia , “Exceptional in quality or degree; unusual; 
out of the ordinary".99   The noun “care” is defined, inter alia , as "Serious attention, heed; caution, 
pains, regard".100   Thus, it seems clear to us that a degree of  attention over and above that required of 
                                                      
94 Ibid. 
95 Canada's first written submission at para 65. 
96 Appellate Body Report, United States – Definitive Safeguard Measures on Imports of Circular 
Welded Carbon Quality Line Pipe from Korea  ("US – Line Pipe "), WT/DS202/AB/R, adopted 8 March 2002, 
para. 169 (emphasis in original). 
97 Canada's Responses to Questions from the Panel and the United States - First Meeting, question 4. 
98 Ibid 
99 The New Shorter Oxford English Di ctionary (Clarendon Press 1993) 
100 Ibid. WT/DS277/R 
Page 93 
  
 
investigating authorities in all anti-dumping and co untervailing duty injury cases is required in the 
context of cases involving threat of material injury.   We note that Articles 3.8 and 15.8 explicitly state that " the application  of measures shall be considered and decided with special care" (emphasis 
added).  Thus, it might be argued that the provision comes into play only after the investigation and 
consideration of all the re levant factors set out in other provisi ons of Articles 3 and 15 concerning the 
analysis of injury.
101  However, we consider that such a conc lusion is not appropriate in the context of 
Article 3.8 of the AD Agreement or Article 15.8 of the SCM Agreement.  These provisions are part of 
the Article of each Agreement, Articles 3 and 15, wh ich, governs the overall determination of injury, 
which under both Agreements is defined as including threat of material injury.102  Articles 3.7 and 
15.7, set forth factors specific to the determination of threat of material injury, and state that  
investigating authorities shall base a determination of  threat of material injury on facts and not 
allegation, conjecture or remote possibility.  In  our view, Articles 3.8 and 15.8 reinforce this 
fundamental obligation.  Thus, we consider that Article 3.8 and Article 15.8 apply during the process 
of investigation and determin ation of threat of material injury,  th at is, in the establishment of whether 
the prerequisites for application of a measure exis t, and not merely afterward when final decisions 
whether to apply a measure are taken.  
7.34 Thus, we are faced with the question of what is  entailed by this obligation to act with an 
enhanced degree of attention, so as to demonstrate compliance with the "special care" obligation.  The 
Agreements require, as noted above , an objective evaluation based on positive evidence in making 
any injury determination, including one based on thr eat of material injury.  Canada has not asserted 
any specific legal requirements with respect to speci al care – it has made no arguments as to what it 
considers might constitute the special care required by the Agreements in threat cases.  It is not clear 
to us what the parameters of such "special care"  in the context of an objective evaluation based on 
positive evidence would be.  In these circumstances, we consider it appropriate to consider alleged 
violations of Articles 3.8 and 15.8 only after co nsideration of the alleged violations of specific 
provisions.  While we do not consider that a violation of the special care obligation could  not be 
demonstrated in the absence of a violation of th e more specific provision of the Agreements 
governing injury determinations, we believe such a demonstrati on would require additional or 
independent arguments concerning the asserted viola tion of the special care requirement beyond the 
arguments in support of the specific violations, 
7.35 Our review of Canada's arguments indicates that the factual circumstances Canada asserts 
demonstrate the failure of the USITC to take th e requisite "special care" are the same factual 
circumstances that give rise to the asserted specifi c violations.  Indeed, Canada points to examples of 
what it considers are aspects of the USITC determination that demonstrate a lack of special care which are the same aspects that Canada argues demonstrate violations of other provisions of 
Articles 3 of the AD Agreement and 15 of the SCM Agre ement.  Thus, it appears to us that Canada is 
asserting that  the violations of the specific provision s cited in Canada's claims  and the violations of 
Article 3.8 and 15.8 are co-extensive.   
7.36 In light of the foregoing, in the circumstances of this case we can see no basis for a finding of 
violation of the special care requirement with r espect to any aspect of the determination which is 
otherwise found to be consistent  with the other provisions of Articles 3 and 15 asserted by Canada.  
On the other hand, with respect to any aspect of the determination th at is found to be inconsistent  
                                                     
 
101 We note that, in the context of interpreting Ar ticle 15 of the AD Agreement, which requires 
Members to give special regard to the special situation of developing countries "when considering the application of anti-dumping measures", this phrase has been found to refer "to the final decision whether to 
apply a final measure, and not intermediate decisions co ncerning such matters as in vestigative procedures and 
choices of methodology during the course of the investigation."  Panel Report,  United States – Anti-Dumping 
and Countervailing Measures on Steel Plate from India  ("US – Steel Plate  "), WT/DS206/R and Corr.1, adopted 
29 July 2002, para 7.111. 
102 Footnote 9 of the AD Agreement, and footnote 45 of the SCM Agreement. WT/DS277/R 
Page 94  
 
with any other provision of Ar ticles 3 and 15 the Agreements asserted by Canada, we can see no 
reason to conclude, in addition, that it also violat es the special care requirement.   Clearly, whatever 
the precise parameters of "special care" in the cont ext of a threat determination may be, an aspect of 
the determination which does not satisfy the other,  more specific obligations of Articles 3 and 15 
cannot satisfy the special care obligation.  However,  to say so does not in any respect clarify the 
obligation set out in Articles 3.8 of the AD Agreem ent and 15.8 of the SCM Agreement.  Nor would it 
provide any guidance in the context of implemen tation of any recommendation of the DSB.    
Therefore, we will make no findings with respect to this claim. 
7.37 We do, nonetheless, consider the obligation of special care to be important in our evaluation 
of the allegations of violations of specific provisions.  Even thou gh we do not address the issue of 
special care as a separate violati on, that obligation provides important context for our understanding 
of the obligations on the USITC in making a determin ation of threat of material injury.  We have 
therefore kept this obligation on the investigating au thority to act with an extra degree of attention in 
the forefront of our minds in evaluating the particular claims in this dispute.   
H. ALLEGED
 VIOLATIONS  OF ARTICLE 12  OF THE  AD AGREEMENT  AND  
ARTICLE 22  OF THE  SCM AGREEMENT   
7.38 Article 12.2.2 of the AD Agreement provides: 
"A public notice of conclusion or suspension of an investigation in the case of an 
affirmative determination providing for the imposition of a definitive duty or the acceptance of a price underta king shall contain, or otherwise make available through a 
separate report, all relevant information on the matters of fact  and law and reasons 
which have led to the imposition of final measures or the acceptance of a price  
undertaking, due regard being paid to the requi rement for the protecti on of confidential  
information.  In particular, the notice or report shall contain the information described 
in subparagraph 2.1, as well as the reasons fo r the acceptance or re jection of relevant 
arguments or claims made by the export ers and importers, and the basis for any 
decision made under subpara graph 10.2 of Article 6". 
Article 12.2.1, referred to in Article 12.2.2, provides: 
"A public notice of the imposition of provisional measures shall set forth, or 
otherwise make available through a separate report, sufficiently detailed explanations 
for the preliminary determinations on dum ping and injury and shall refer to the 
matters of fact and law which have led to arguments being accepted or rejected.  Such 
a notice or report shall, due regard being paid to the requirement for the protection of 
confidential information, contain in particular: 
 (i) the names of the suppliers, or when this is impracticable, the 
supplying countries involved; 
 (ii) a description of the product which is sufficient for customs purposes; 
 (iii) the margins of dumping established and a full explanation of the 
reasons for the methodology used in the establishment and comparison of the export price and the normal value under Article 2; 
 (iv) considerations relevant to th e injury determination as set out in 
Article 3; 
 (v) the main reasons leading to the determination". WT/DS277/R 
Page 95 
  
 
7.39 Article 22.5 of the SCM Agreement, and Article 22 .4 referred to therein, are similar, and the 
minor textual differences are not relevant to this dispute. 
7.40 As with its other overarching cl aims, Canada does not make specific arguments with respect 
to these claims.  Rather, as Canada clarified in re sponse to the Panel's questions, Canada's claims 
under these provisions are procedural, dealing with the content of the notices, and not with the 
substantive elements of the underlying USITC dete rmination.  Canada specified that the asserted 
requirement for a "reasoned and adequate explan ations" of the USITC's determination, which it 
alleges was not provided in this case, did not derive  from Articles 12.2.2 and 22.5, but rather from the 
substantive obligations of Article 3 of the AD Agreement and Article 15 of the SCM Agreement.103  
In our view, Canada's claims under Articles 12.2.2 of the AD Agreement and 22.5 of the 
SCM Agreement are thus dependent on the dispositi on of the specific claims of violation.     
7.41 In evaluating these claims, we note that our conc lusions with respect to each of the alleged 
substantive violations asserted by Canada rest  on our examination of the USITC's published 
determination, which constitutes the notices provide d by the United States under Article 12.2.2 of the 
AD Agreement and Article 22.5 of the SCM Agreement with respect to the injury determination in 
this case.  No additional materials have been cite d to us with respect to the determination for 
consideration in determining whether or not the USITC's determination are consistent with the 
relevant provisions of the Agreemen ts.  Thus, if we find no violati on with respect to a particular 
specific claim, such a conclusion must rest on the USITC's published determination.  In this 
circumstance, it is clear to us that no violation of  Articles 12.2.2 and 22.5 could be found to exist in 
this case, where it is not disputed that the USIT C determination accurately reflects the analysis and 
determination in the investigations.  On the other ha nd, if we find a violation of a specific substantive 
requirement, the question of whether the notice of the determination is "sufficient" under 
Article 12.2.2 of the AD Agreement or Article 22.5 of the SCM Agreement is, in our view, 
immaterial.   
7.42 As was pointed out by the Panel in EC – Bed Linen :   
"A notice may adequately explain the de termination that was made, but if the 
determination was substantivel y inconsistent with the rele vant legal obligations, the 
adequacy of the notice is meaningless.  Further, in our view, it is meaningless to consider whether the notice of a decision that  is substantively in consistent with the 
requirements of the AD Agreement is, as a separate matter, insufficient under 
Article 12.2.  A finding that the notice of an  inconsistent action is  inadequate does not 
add anything to the finding of violation, the resolution of the dispute before us, or to 
the understanding of the obligations imposed by the AD Agreement".
104   
We share the views of the EC – Bed Linen  Panel in this respect, and adopt them as our own.  In this 
regard, we note Canada's statement that "as a pr actical matter, Canada recognizes that it would be 
unusual for an injury determination to either sa tisfy the obligations in Articles 3 and 15 but not 
Articles 12.2.2 and 22.5 or vice versa ". 105  Canada has made no arguments to suggest that this is such 
an unusual case.   Therefore, we will make no findi ngs with respect to the alleged violations of 
Article 12.2.2 of the AD Agreement and Article 22.5 of the SCM Agreement.  
                                                     
 
103 Canada's Responses to Questions from the Panel and the United States - First Meeting, question 7. 
104 Panel Report, European Communities – Anti-Dumping Duties on Imports of Cotton-Type Bed Linen 
from India ("EC – Bed Linen "), WT/DS141/R, adopted 12 March 2001, as modified by the Appellate Body 
Report, WT/DS141/AB/R, at para. 6.259. 
105 Canada's Responses to Questions from the Panel and the United States - First Meeting, question 7. WT/DS277/R 
Page 96  
 
I. ALLEGED
 VIOLATIONS  OF ARTICLE 3.7  OF THE  AD AGREEMENT  AND  
ARTICLE 15.7  OF THE  SCM AGREEMENT 
7.43 Article 3.7 of the AD Agreement provides: 
"A determination of a threat of material injury shall be based on facts and not merely 
on allegation, conjecture or remote possibilit y.  The change in circumstances which 
would create a situation in which the dumping would cause injury must be clearly 
foreseen and imminent.10  In making a determination  regarding the existence of a 
threat of material injury, the authorities should consider, inter alia , such factors as: 
 (i) a significant rate of increase of dumped imports into the domestic 
market indicating the likelihood of substantially increased importation; 
 (ii) sufficient freely disposable, or an imminent, substantial increase in, 
capacity of the exporter indicating the like lihood of substantially increased dumped 
exports to the importing Member's market, taking into account the availability of 
other export markets to absorb any additional exports; 
 (iii) whether imports are entering at prices that will have a significant 
depressing or  suppressing effect on domes tic prices, and would likely increase 
demand for further imports;  and 
 (iv) inventories of the product being investigated. No one of these factors by itself can necessarily give decisive guidance but the 
totality of the factors considered must l ead to the conclusion that further dumped 
exports are imminent and that, unless protectiv e action is taken, material injury would 
occur. 
__________________ 
10 One example, though not an exclusive one, is that there is convincing reason to 
believe that there will be, in the near futu re, substantially increased importation of the 
product at dumped prices". 
Article 15.7 of the SCM Agreement is the same except that it sets out an additional factor the 
authorities should consider – "nature of the subsid y or subsidies in question and the trade effects 
likely to arise therefrom".  7.44 Canada alleges a series of violations of these provisions, which are addressed below. 
1. "Change in circumstances"  
(a) Parties' Arguments 
7.45 Canada asserts that Article 3.7 of the  AD Agreement and Article 15.7 of the  SCM Agreement 
require that the “change in circumstances” from the non-injurious period of investigation that will create a situation in which the dumping or subsid y will cause injury must be “clearly foreseen and 
imminent”.  Canada refers to this as the "logical predicate" for an affirmative finding of threat of 
material injury.
106  Canada asserts that the change in circ umstances which would create a situation in 
which the dumping or the subsidy would cause injury must be clearly anticipated and on the brink of 
                                                      
106 Canada's first written submission at para. 76. WT/DS277/R 
Page 97 
  
 
happening.  Canada argues that in this case, the US ITC failed to provide a reasoned evaluation of this 
fundamental question.  In particular, Canada argu es that the USITC did not explain how the evidence 
before it provided a non-conjectural basis for concluding that the status quo  would change such that 
imports that did not cause injury to the domestic industr y during the period of investigation would  
cause material injury in the imminent future. 
7.46 Canada argues that one of the few “change[s] in  circumstances” identified in the USITC's  
determination, the prediction of “strong and im proving demand” in the US lumber market, would 
appear to make threat of injury less likely, not mo re likely.   Thus, Canada asserts, the USITC failed 
to provide a reasoned, adequate and consistent explanation supporting a finding that there was a 
change in circumstances that would create a situ ation in which the dumping or subsidy would cause 
injury imminently.  Canada notes that the USITC f ound that imports were likely to increase and that 
subject imports were likely to have a significant pr ice depressing effect in the future.  However, 
Canada asserts that the USITC did not pr operly evaluate whether “the change in 
circumstances…would cause  injury” or whether “unless protective action is taken, material injury 
would occur ”.   
7.47 The United States argues that threat of materi al injury is material injury that has not  yet 
occurred, but remains a future event whose actual materialization cannot be assured with absolute 
certainty.   Thus, the United States asserts that the Agreements recognize that a Member need not wait 
until material injury actually has occurred before ta king remedial action.  Moreover, the United States 
argues that the threat provision recognizes that injury may not occur suddenly but may result from a progression of trade conditions adverse to the industry.   The United States points to the text in this 
regard, which provides an example of the requisite "c hange in circumstances" in footnote 10 --  “that 
there is convincing reason to believe that there w ill be, in the near future, substantially increased 
importation of the product at dumped [subsidized] prices".  
7.48 The United States takes issue with the view that the "change in circumstances" language 
requires the investigating authority to identify “ a” change in circumstances, i.e., “an event,” that will 
abruptly change the status quo  from a threat of material injury to  present material injury.  In the US 
view, this interpretation is neither necessary nor justif ied.  In this regard, the United States points to 
the statement of the Appellate Body in US-Line Pipe  as describing the reality of how injury may occur 
to a domestic industry:  
"In the sequence of events facing a domestic industry, it is fair to assume that, often 
there is a continuous progression of inju rious effects eventually rising and 
culminating in what can be determined to be  “serious injury”.  Serious injury does not 
generally occur suddenly.  Present serious injury is often preceded in time by an 
injury that threatens clearly and imminently  to become serious injury, as we indicated 
in US-Lamb .  Serious injury is, in other words, often the realization of a threat of 
serious injury.  .  .  .  the precise point where a “threat of serious injury” becomes 
“serious injury” may sometimes be difficult to discern.  But, clearly, “the serious 
injury” is something beyond  a “threat of serious injury".
107 
7.49 The United States further argues that the Appella te Body has recognized generally that there 
is a continuum of an injurious condition of a domest ic industry that ascends from a threat of injury up 
to injury, citing the Appellate Body statement that: 
"In terms of the rising continuum of an in jurious condition of a domestic industry that 
ascends from a “threat of serious injury” up to “serious injury”, we see “serious 
                                                      
107 Appellate Body Report,  US – Line Pipe , para. 168 . WT/DS277/R 
Page 98  
 
injury” – because it is something beyond  a “threat” – as necessarily including  the 
concept of a “threat” and exceeding ” the presence of a “threat”.
108 
7.50 The United States argues that based on the facts re garding the present and past situation of the 
domestic industry, an investigating authority can  make reasonable projections about the future, 
namely whether material injury is “clearly foreseen and imminent".  The United States argues that the 
USITC determined that the domestic industry was vu lnerable based on its analysis of the factors in 
Article 3.4, found that the volume of dumped and su bsidized imports was significant, but did not find 
that those imports had caused material injury in li ght of the lack of significant price effects.  The 
USITC then found that dumped and subsidized impor ts were likely to increase, and were likely to 
have significant price effects in the near future, s upporting a finding of threat of material injury.  In 
the US view, there is no need to find that  there will be an abrupt change in the status quo  to justify a 
finding of threat of material injury – it is sufficient that material injury is the foreseeable result of the 
sequence of events. 
7.51 The EC, as third party, considers that the inv estigating authorities are required to determine 
that there is a clearly foreseen and imminent change  in circumstances that would create a situation in 
which dumping or subsidization would cause injury.  However, the EC also is of the view that the 
condition of a domestic industry may develop in a c ontinuous line from non-injury to injury, and that 
it is not possible to predict when the change occurs.  However, in the EC's view, the point is not when 
circumstances will change, but that there must be an  analysis of the factors that create a change in 
circumstances.  Thus, the EC does not consider th at an abrupt change in circumstances must be 
identified, but rather that there mu st be an analysis of the factors relating to the future dumped and/or 
subsidized imports that leads to the conclusion that the industry is on the brink of injury.   
7.52 Japan, as third party, supports Canada's view that  an investigating authority must comply with 
the obligation to identify the "change  in circumstances" that is necessary to move from "no injury" at 
the time of the determination to imminent injury ju stifying a threat determination.  However, Japan 
does not consider that there must be an abrupt change in this context.    
(b) Analysis by the Panel 
7.53 The text of Articles 3.7 and 15.7 concerning "change of circumstances" is not a model of 
clarity.  It provides "The change in circumstan ces which would create a situation in which the 
dumping would cause injury must be clearly foreseen and imminent.10"  Thus, Articles 3.7 and 15.7 
on their face seem to require that some "change of circumstances" must be clearly foreseen and 
imminent, and that it is this change of circumstan ces that would create a situation in which injury 
would occur.  Footnote 10 in the AD Agreement,  which is not repeated in the SCM Agreement, 
provides an example of what might constitute a change  in circumstances: "One example, though not an 
exclusive one, is that there is convincing reason to  believe that there will be, in the near future, 
substantially increased importation of  the product at dumped prices".   
7.54 Thus, the sole example given of a "change of circ umstances" in the text is that there will be 
substantially increased importation of the product at dumped prices.  However, the likelihood of 
substantially increased imports is also one of the spec ific factors that Articles 3.7(i) and 15.7(ii) of the 
AD and SCM Agreements, respectively, provide should be considered in determining the existence of 
a threat of material injury.  The text also specifies that no one of the factors listed in Article 3.7 or 
Article 15.7 "by itself can necessarily give decisive gui dance, but the totality of the factors considered 
must lead to the conclusion that further [dumpe d/subsidized] exports are imminent, and that unless 
protective action is taken, material injury would o ccur".  Thus, the text indicates that both the change 
of circumstances, and further dumped or subsidized  imports, must be imminent, and the likelihood of 
increased imports is both a relevant change of circumstances and a factor to be considered in 
                                                      
108 Appellate Body Report,  US – Line Pipe , para. 170. WT/DS277/R 
Page 99 
  
 
determining the existence of threat.   In our view, based on the text of the Agreements, it is not clear 
that these various elements of Articles 3.7 and 15.7 need necessarily be distinct factual circumstances, each of which must be considered separately in assessing whether there is a threat of material injury.   
7.55 Moreover, while the change in circumstances must  be clearly foreseen and imminent, the text 
does not clearly require the identification of a single event as the relevant change in circumstances.  
Thus, the text does not give us clear guidance as to the nature of the change in circumstances, or the 
degree of specificity with which it must be identified. 
7.56 Looking at the context of Articles 3.7 and 15.7, in particular the remainder of Articles 3 and 
15 as a whole, we note that Article 3 of the AD Agreement and Article 15 of the SCM Agreement 
both deal with the determination of injury.  "Injury"  is defined in the Agreements to mean "material 
injury to a domestic industry, threat of material in jury to a domestic industry, or material retardation 
of the establishment of such and industry".
109  It seems clear to us that  these three concepts describe 
different types of injury, occurring at different times and potentially in different ways.110  Thus, the 
focus of Article 3.7 and Article 15.7, in the c ontext of Articles 3 and 15 as a whole, is the 
determination of one of these three types of injury, th reat of material injury.  The factors set out in 
Article 3.7 and Article 15.7 are elements that s hould be considered in ma king a determination of 
threat of material injury.       
7.57 Following this view, we consider that the releva nt "change in circumstances" referred to in 
Articles 3.7 and 15.7 is one element to be considered  in making a determination of threat of material 
injury.  However, we can find no support for the conc lusion that such a change in circumstances must 
be identified as a single or specific event.  Rather, in  our view, the change in circumstances that would 
give rise to a situation in which injury would occu r encompasses a single event, or a series of events, 
or developments in the situation of the industry, and/or concerning the dumped or subsidized imports, 
which lead to the conclusion that injury which has not yet occurred can be predicted to occur 
imminently.   
7.58 Of course, a reviewing Panel must be able, in dispute settlement, to determine that the 
investigating authority has considered this element in  its analysis.  Thus, the investigating authorities' 
consideration must be discernible fro m its determination.  The nature of that consideration would, in 
our view, necessarily vary depending on the facts of the particular case.  Again, however, it must be possible for the reviewing Panel to ensure that the consideration of the investigating authority took 
into account relevant facts before it, and was an unbiased and objective evaluation of those facts.  
What is critical, however, is that it be clear from th e determination that the investigating authority has 
evaluated how the future will be different from th e immediate past, such that the situation of no 
present material injury will change in the imminent future to a situation of material injury, in the 
absence of measures.   
7.59   In this case, Canada argues that the USITC failed to identify any circumstances that would 
change such that material injury would occur in th e near future.  The United States, on the other hand, 
argues that the discussion of facts and likely events throughout the USITC analysis, demonstrated a 
progression of circumstances which would create a situation in which dumpi ng and subsidies would 
cause injury.  In the US view, the continuation of ad verse trends into the future, as identified in the 
USITC determination, is sufficient to satisfy the change in circumstances requirement.    
                                                     
 
109 AD Agreement footnote 9, SCM Agreement footnote 45. 
110 The Appellate Body, in interpreting the analogous injury provision of the Safeguards Agreement, 
which allows for a finding of "serious injury or threat thereof" and defines "threat of serious injury" as "serious injury that is clearly imminent", found that  "we agree with the Panel that the respective definitions of "serious 
injury" and "threat of serious injury" are two distinct concepts that must be given distinctive meanings in 
interpreting the  Agreement on Safeguards."  Appellate Body Report, US – Line Pipe , para. 167. WT/DS277/R 
Page 100  
 
7.60 As noted above, we do not disagree, in principle,  with the United States' view that Article 3.7 
and Article 15.7 do not require that the investigat ing authority identify a sp ecific event that will 
change such that a situation of no injury will become a situation of in jury in the future.  In this case, 
the facts the United States points to as demonstrating the "progression" of circumstances which would create a situation in which injury would occur in the near future ar e thoroughly intertwined with the 
USITC's discussion of the present condition of the domestic industry, the present impact of imports, 
and the facts asserted in support of the conclusion that imports will increase substantially.  Thus, in our view, the USITC considered these various elemen ts in concluding that the continuation of the 
trends in the situation of the domestic industry,  coupled with predicted substantially increased 
imports, would result in an imminent change in circumstances such that injury would occur.  
However, while this may be enough to allow us to conclude that the USITC considered whether there 
would be a change in circumstances such that th e dumped and subsidized imports would cause injury, 
it does not answer the question whether the overall dete rmination of threat, based on the totality of the 
factors considered, is consistent with the requireme nts of the Agreements.  That question is addressed 
further below. 
2. Consideration of factors in Article 3.7 of  the AD Agreement and Article 15.7 of the 
SCM Agreement 
(a) Parties' Arguments 
7.61 Canada argues that the USITC failed to consider properly the factors listed in Article 3.7 of 
the AD Agreement and Article 15.7 of the  SCM Agreement  and other relevant factors based on the 
evidence before it.  Canada points to the decision of the Panel in Thailand – H-Beams  with respect to 
the meaning of the term "consider", asserting that that Panel found that "consider" means 
“‘contemplate mentally, especially in order to r each a conclusion’; ‘give attention to’; and ‘reckon 
with; take into account’”.
111  The Panel went on to state that it must “be apparent in the relevant 
documents in the record that the investigating au thorities have given attention to and taken into 
account” the factors required to be considered.112  It found that the investigating authorities 
“considered” the significance of an increase in imports  where they “went beyond a ‘mere recitation of 
trends in the abstract and put the import figures into context’”. 113 Canada asserts that the USITC 
failed in this regard.   
7.62 Canada asserts that the USITC's affirmative threat of injury determination is grounded in its 
finding of a likely substantial increase in the subject  imports.  Canada considers that, on the basis of 
this finding alone, the USITC concluded that the s ubject imports were likely to have a significant 
depressing or suppressing effect on domestic prices in  the future. Canada argues that this central 
finding is not supported by the USITC's analysis of the factors listed in Article 3.7 of the AD Agreement and Article 15.7 of the SCM Agreemen t.  Moreover, Canada maintains that this 
central finding is also not supported by the other factors examined by the USITC.  Thus, Canada considers that the totality of the factors consid ered by the USITC do not provide a non-conjectural 
basis for concluding that “subject imports are likel y to increase substantially,” and therefore the 
USITC's  threat of injury determination does not comply with Article 3.7 of the AD Agreement and 
Article 15.7 of the SCM Agreement.  Moreover, Ca nada maintains that the USITC's prediction that 
subject imports are likely to have a significant pr ice depressing effect in the future is derived 
exclusively from its finding that the volume of subject  imports was likely to increase substantially.  In 
Canada's view, the fundamental flaws in the vol ume finding thus mean that the price finding is 
equally flawed and cannot be sustained. 
                                                     
 
111 Panel Report, Thailand – H-Beams , para. 7.161 
112 Ibid. 
113 Ibid.,  at para. 7.170. WT/DS277/R 
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7.63 The United States does not disagree with the contention that the USITC was required to 
consider the factors in Articles 3.7 and 15.7.  Ho wever, the United States argues that the Agreements 
do not require the investigating authorities to make findings  on each factor.  Rather, the United States 
argues that it sufficient, if it is apparent in the re levant documents in the record, that the USITC has 
given attention to and taken the factor into account .  The United States notes that after interpreting the 
term "consider", the Panel in Thailand - H-Beams  went on to state:  "We therefore do not read the 
textual term ‘consider’ in Article  3.2 to require an explicit ‘fi nding’ or ‘determination’ by the 
investigating authorities".114  The United States argues that while Thailand – H-Beams  involved 
Article 3.2 of the AD Agreement, the conclusion that “consider” does not mean “make a finding” 
should equally apply to Article 3.7 of the AD Ag reement and Article 15.7 of the SCM Agreement. 
7.64 Moreover, the United States asserts that consideration of a factor does not necessarily require 
an explicit separate evaluation of that factor if the analysis of the factor is implicit in the analyses of other factors, and that what is important is that  the investigating authority’s decisional path be 
reasonably discernible, not that there be an explic it explanation or finding for each factor to be 
considered.
115  The United States considers that this c onclusion follows from the fact that the 
Agreements provide that "No one of these factors by itself can necessarily give decisive guidance but 
the totality of the factors considered must lead to the conclusion that further dumped exports are 
imminent and that, unless protective action is taken, ma terial injury would occur".  Further, the United 
States argues, the investigating authority is not required to explicitly addr ess every minute detail or 
specific aspect of every argument that is raised by  parties.  The United States asserts that the USITC 
clearly considered the relevant evidence and argum ents raised by parties but found other evidence to 
be more persuasive.  In the US view, Canada's ar guments have little to do with whether the USITC’s 
findings are reasonable and supported by positiv e evidence, or whether the USITC addressed 
alternative arguments, but rather ask the Panel to weigh the evidence for itself.  The United States 
maintains that the USITC's conclusion that impor ts would increase substan tially, and would have 
significant price depressing or suppressing effects, was based on an adequate cons ideration of relevant 
factors. 
7.65 The EC, as third party, supports the US argument that the term "consider" does not require an 
explicit finding on each of the relevant factors. 
(b) Analysis by the Panel 
7.66 We begin our analysis by addressing the interp retation of the term "consider" as used in 
Article 3.7 of the AD Agreement and Article 15.7 of  the SCM Agreement.  The decision of the Panel 
in Thailand – H-Beams  is pertinent to our analysis.  While th at Panel was faced with the question of 
interpreting the term "consider" as used in Article 3. 2 of the AD Agreement, we find that a consistent 
interpretation is necessary, as the term "consider" h as, in our view, the same purpose in Article 3.2 as 
in Article 3.7 of the AD Agreement and Article 15. 7 of the SCM Agreement.  Article 3.2 of the 
AD Agreement establishes factors that the investigati ng authorities are to "consider" with regard to 
the volume of imports and the impact of imports on prices, in the context of making a determination 
of material injury.  Article 3.7 of the AD Ag reement and Article 15.7 of the SCM Agreement 
similarly set forth a series of factors investigati ng authorities should "consider" in the context of 
making a determination of threat of injury.  We can conceive of no basis for concluding that a 
different understanding of the term mi ght be appropriate in these two contexts.  Therefore, the views 
of the Thailand – H-Beams  Panel are highly persuasive in our understanding of the term as used in 
Article 3.7 of the AD Agreement and Article 15.7 of the SCM Agreement.   
                                                      
114 Ibid., at para. 7.161. 
115 Appellate Body Report , European Communities – Anti-Dumping Duties on Malleable Cast Iron 
Tube or Pipe Fittings from Brazil  ("EC – Tube or Pipe Fittings "), WT/DS219/AB/R, 22 July 2003, paras. 160-
161. WT/DS277/R 
Page 102  
 
7.67 Thus, we are of the view that, in order to conclude that the investigating authorities have 
"considered" the factors set out in Articles 3.7 and 15.7, it must be apparent from the determination 
before us that the investigating authorities have  given attention to and taken into account those 
factors.
116  That consideration must go beyond a mere rec itation of the facts in question, and put them 
into context.117  However, the investigating authorities are not required by Articles 3.7 and 15.7 to 
make an explicit "finding" or "determination" with respect to the factors considered.118   
7.68 In this context we note that the parties agreed th at the use of the word "should" in Article 3.7 
of the AD Agreement and Article 15.7 of the SCM Agreement indicated that, unlike the situation 
under Article 3.4 of the AD Agreement, consideration of each of the factors listed in Articles 3.7 and 
15.7 is not mandatory.119  Consequently, a failure to consider a f actor at all, or a failure to adequately 
consider, a particular factor would not necessarily demonstrate a violation of the provisions.  Whether 
a violation existed would depend on the particular f acts of the case, in light of the totality of the 
factors considered and the explanations given.  In this case, it is clear from the face of the determination that the USITC in fact addressed th e facts concerning each of the factors set out in 
Articles 3.7 and 15.7 of the Agreements.   Indeed, Ca nada does not argue that any relevant factor was 
ignored by the USITC, or not addressed in the dete rmination.  Thus, we cannot conclude that the 
USITC failed to consider the factors set forth in Articles 3.7 and 15.7, in the sense of not taking them 
into account at all.   
7.69 However, this does not answer the question wh ether the USITC's overa ll determination of a 
threat of material injury is consistent with the re quirement of Articles 3.7 and 15.7 that the totality of 
the factors considered lead to the conclusion that further dumped and subsidized exports are imminent 
and that, unless protective action was taken, material  injury would occur.  In assessing this question, 
for the sake of clarity, we discuss each of the f actors considered by the USITC, and the parties' 
arguments concerning that consideration individuall y.  However, our determination is based on our 
assessment of the USITC's determination as a whole,  taking into account the evidence that was before 
it and the analysis in the determination itself.  This  is, in our view, in line with the injunction in the 
text that no one factor can necessarily give decisive guidance, but the totality of the factors considered 
must lead to the conclusion regarding threat of material injury.   
7.70 As is discussed in more detail below, the USIT C's affirmative threat determination was based 
principally on the conclusion that dumped a nd subsidized imports were likely to increase 
substantially.  In making this conclusion, the USITC relied on a number of factors it considered 
relevant which are not specifically identified in Article 3.7 of the AD Agreement and Article 15.7 of 
the SCM Agreement.  The USITC found that the proj ected increased imports were likely to have a 
significant price depressing effect in the future.  Therefore, the USITC concluded that imports were 
entering at prices that were likely to have a signi ficant depressing or suppressing effect on domestic 
prices and were likely to increase demand for furthe r imports.  The USITC determined that further 
dumped and subsidized imports were imminent, th at these imports were likely to exacerbate price 
pressure on domestic producers, and that material injury to the domestic industry would occur. 
(i) The nature of the subsidies in question 
7.71 Canada argues that the USITC’s evaluation of this  factor was limited to a description of the 
programmes found by the USDOC to confer countervailable subsidies, a statement that “[n]one of the subsidies identified by Commerce are subsidies descr ibed in Article 3 or 6.1 of the WTO Subsidies 
Agreement,” and a footnote regarding eviden ce submitted by the CLTA, a Canadian party 
                                                     
 
116 See ibid. 
117 See ibid.,  at para. 7.170. 
118 See ibid., at para. 7.161.   
119 See Canada's Responses to Questions from the Panel and the United States - First Meeting and 
United States Response to Questions from the Panel – First Meeting, question 34.   WT/DS277/R 
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participating in the investigation, regarding the stumpage programmes.120  Canada argues that the 
USITC failed to consider all the relevant evidence be fore it concerning the nature of the subsidies and, 
in particular, the likely trade effects of stumpage  programmes.  Specifically, Canada argues that the 
USITC failed to take account of evidence that stumpage programmes do not increase the production of logs or lumber or lower their prices, or increase the quantity or lower the prices of lumber exports, 
and thus have no trade effects.  Canada relies, in this regard, principally on the studies that were 
presented as evidence to the USITC by repr esentatives of Canadian producers.   
7.72 The United States argues that Canada misper ceives the obligation of the investigating 
authorities with respect to this factor.  In the US  view, Canada implies that a proper consideration 
would have required the USITC to make a finding concerning the nature of the subsidies and their 
likely trade effects.  However, the United States contends that the Agreements do not require a 
finding.  The United States maintains that the USIT C’s determinations reflect  consideration of the 
information the USDOC provided the USITC rega rding the subsidies, which was information 
regarding the nature of the subsidies, but not findi ngs regarding the effects of the subsidies.  The 
parties to the investigations did present such inform ation, in the form of competing economic theories 
about the nature and effects of the countervailabl e subsidies.  The United States asserts that the 
USITC considered all of the evidence presented on th is issue by the parties, but did not make the 
finding sought by the Canadian parties.  This is, in  the US view, consistent with the requirements of 
the Agreement, particularly when the evidence did not prov ide a sufficient factual basis to allow the 
USITC to draw reasoned and adequate conclusions  about the trade effects of the subsidies. 
7.73 We note that during the investigation proceeding, Canadian parties presented arguments, 
economic theories and analysis, primarily based on studies prepared by an economist, Dr. William 
Nordhaus.  Contrary arguments, theories, and anal ysis were presented to the USITC by US lumber 
producers.  These same arguments, theories and analysis have been put before us in this dispute.  The 
USITC did not accept the Canadian arguments, but did not make any specific factual findings as to 
the effects of the subsidies.  Canada's argument  suggests that it believes that the absence of a 
conclusion regarding the evidence and theories pre sented concerning the effects of the subsidies 
demonstrates that the USITC did not adequately cons ider this factor, and essentially asks the Panel to 
resolve the underlying issue regarding trade effects of the subsidies.   
7.74 We do not agree with Canada's position on this poi nt.  It seems clear to us the USITC did in 
fact consider the evidence before it regarding the nature of the subs idies and the trade effects arising 
therefrom.  As discussed above, we do not understand the obligation to "consider" a factor to require 
the investigating authorities to make an explicit fi nding regarding the evidence concerning that factor.  
                                                     
 
120 "Stumpage programmes" are the agreements under which enterpri ses are accorded the right, for a 
fee, to harvest timber on government lands in Canada.  According to the Panel in US – Softwood Lumber IV ,  
"stumpage programmes provide standing timber owned by the provinces to harvesters.  The 
only way for harvesters to obtain the trees standing on government-owned Crown land for harvesting and processing is by concluding stumpage agreements (tenures or licences) with 
the governments concerning these trees.  The only way for the government to provide the 
standing timber that it owns to the harvesters and the mills for processing is by allowing the harvesters to come on the land and harvest the trees.  Such legal rights and obligations are 
transferred through the stumpage agreements.  It is thus through the stumpage agreements that 
the governments provide the standing timber to the harvesters. The price to be paid for the 
timber, in addition to the volumetric stumpage charge for the trees harvested, consists of 
various forest management obligations and other in-kind costs relating to road-building or silviculture for example.  In return, the tenure holders receive ownership rights over the trees 
during the period of the tenure.  In other words, with the stumpage agreements, ownership 
over the trees passes from the government to the tenure holders.  Standing timber has thus been provided to the tenure holders." 
US – Softwood Lumber IV , para. 7.15 (footnotes omitted). 
 WT/DS277/R 
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The USITC noted the types of subsidies found to exist by the USDOC, and considered the arguments 
by the parties on this issue.  The USITC conclude d that the economic theory underlying the Canadian 
party's argument was "not clearly applicable" in the market, and explained, albeit briefly, why it took that view.
121  In our view, this demonstrates that the US ITC considered this factor.  Moreover, to 
accept Canada's position in this dispute, we would have to resolve the underlying factual question in 
order to conclude that the USITC erred in not accepti ng the Canadian party's argument in this regard.  
Such a ruling would, we believe, require  us to trespass into the realm of de novo  fact-finding, which 
we will not do.   
7.75 Moreover, the USITC did not rely on its consid eration of the nature of the subsidies as an 
element of its affirmative determination of threat of  material injury.  In such a case, where the nature 
of the subsidies is not an element cited in support of the determ ination in dispute, we cannot conclude 
that the failure to make an explicit finding on this factor demonstrates a violation of the Agreement.   
(ii) Significant rate of increase of dumped and subsid ized imports 
7.76 Canada argues that the USITC merely made observations concerning the increase in volume 
and apparent domestic consumpti on of dumped and subsidized imports without any evaluation of 
whether the rate of increase was “significant” and, if so, whether that rate of increase indicated a 
“likelihood of substantially increased importation”.  Moreover, Canada argues, the USITC could not 
have found a significant rate of increase in light of its earlier findings on material injury.   
7.77 The United States does not appear to rely on this factor directly as support for the USITC's 
determination of threat.  However, the United St ates notes that the USITC found that the level of 
imports was already significant during the period of  investigation, and had increased, and that the 
volume increased substantially during periods when no restraints were in place.   
7.78 We note that the USITC found that the volume of imports was likely to increase substantially, 
based on factors other than the rate of increase during the period of investigat ion.  Thus, it appears 
that this factor was not an element supporting the US ITC's affirmative determination of threat.  Again, 
given our understanding of the term "consider", we believe that the discussion of this factor in the 
determination is sufficient to pr eclude a conclusion that the USITC failed to properly consider this 
factor. 
(iii) Sufficient disposable capacity or immi nent substantial increase in capacity 
7.79 Canada argues that rather than considering th is factor, the USITC merely made observations 
concerning the evidence on capacity.  Canada notes th at the USITC stated that Canadian capacity 
increases were projected, but did not find that there was an imminent, substantial increase in capacity.  
Moreover, Canada argues, the USITC merely noted the existence of excess Canadian capacity without 
explaining how that theoretical ability to increase imports would translate into the likelihood of 
substantially increased dumped and subsidized export s.  In this respect, Canada asserts that the 
USITC ignored the projections provided by Canadian producers regarding their future exports to the 
United States.   
7.80 The United States argues that the USITC gave mo re weight to the actual capacity data in 
concluding that capacity existed to increase expor ts.  With respect to the Canadian producers' 
projections concerning likely future exports to the United States, the USITC found it likely that exports to the United States and ot her destinations would increase consistent with the historical 
distribution of exports, while the Canadian produ cers' export projections showed a lesser proportion 
of the projected increases being exported to the Unites States.  Thus, the USITC concluded that 
                                                     
 
121 USITC Final Report (Exhibit CDA-1) at page 39, footnote 245. WT/DS277/R 
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information regarding capacity s upported the conclusion that exports to the United States would 
increase. 
7.81 Again, it seems clear to us the USITC consider ed the capacity factor in its analysis, but 
reached a conclusion divergent from that argued before  it by the Canadian parties and by Canada in 
this dispute.  This alone does not, of course, demons trate a violation of the Agreements with respect to 
consideration of the relevant factors.  This factor  did play a part in the USITC's overall affirmative 
threat determination, as discussed further below. 
(iv) Price depression and suppression 
7.82 With respect to this factor, Canada ar gues that the USITC failed to evaluate present  import 
prices to determine whether, given their level, th ey are likely to cause significant price depression or 
suppression in the future and whether that level of  pricing is likely to increase demand for further 
imports.  In Canada's view, the USITC's conclusion on this factor relies on an analysis of the impact 
of future imports on prices, and does not address the impact of current  import prices.  Moreover, 
Canada asserts that in light of the USITC's finding of no significant price effects during the period of investigation, there is no basis for a finding that  imports would have a significant depressing or 
suppressing effect on prices in the future.   
7.83 In its analysis of the present condition of th e domestic industry, the USITC did consider 
present import prices.  The USITC concluded that du mped and subsidized imports had some effect on 
prices in the domestic market, noting that both im ports and domestic producers contributed to excess 
supply and thus declining prices.  However, in light of the relatively stable (albeit large) share of the 
market held by imports, the USITC did not find any significant price effects.  This conclusion, 
however, formed part of the basis for the USITC's conclusion that dumped and subsidized imports 
would have a significant price depressing effect in th e future.  Thus, in our view, it seems clear that 
the USITC considered this factor, and that it formed part of the USITC's overall threat determination, 
as discussed further below.   
(v) Inventories of the product being investigated 
7.84 Canada argues that the USITC’s consideration of this factor was limited to a single sentence, 
which does not contain any explanation of how th is factor weighed in the determination.   
7.85 The United States asserts that this suffices as "consideration", and that in any event, the 
USITC did not rely on the level of inventories in order to reach its conclusion of threat of injury. 
7.86 It is clear to us that, in light of the factors and analysis presented in the determination actually 
made, the USITC did not rely on this factor in support of  its determination of thr eat of material injury.  
In light of this, we cannot conclude that the consid eration of the inventories factor was so inadequate 
as to constitute a violation of Article 3.7 of the AD Agreement and 15.7 of the SCM Agreement. 
(vi) Consideration of other factors 
7.87 Having concluded that the USITC did not violate Articles 3.7 and 15.7 of the AD and 
SCM Agreements by failing to properly consider the f actors listed therein, we are then left with the 
question whether the USITC's determination, based on  the totality of the factors considered, including 
factors not listed in the Agreements, is consistent  with those provisions.  Thus, we turn now to an 
assessment of the elements that the United Stat es relies on as demonstrating the adequacy of the 
reasoning and factual basis underlying the USITC's determination.   
7.88 The United States asserts that the USITC determin ed that during the period of investigation, 
imports were at a significant level, and prices declined , particularly at the end of the period, such that WT/DS277/R 
Page 106  
 
the condition of the industry had deteriorated and w as vulnerable.  The USITC concluded that imports 
were likely to increase substantially based on (1) Canadian producers’ excess capacity and projected 
increases in capacity, capacity utilization, and produc tion;  (2) the export orientation of Canadian 
producers to the US market;  (3) the increase in the volume of subject imports over the period of 
investigation;  (4) the effects of expiration of the SLA;  (5) subject import trends during periods when 
there were no import restraints; and (6) forecasts of strong and improving demand in the US market.   
The USITC then concluded that, in light of the at least moderate substitu tability of domestic and 
imported lumber, the fact that prices of one species affected the prices of other species, and that the 
significant volume of imports during the period of investigation had some adverse effects on prices, 
the projected substantial increase in imports would likely have a significant price depressing effect on 
domestic prices and were likely to increase demand for imports.  
7.89 It is clear to us that the fundamental basis of  the USITC's affirmative threat determination is 
the conclusion that dumped and subsidi zed imports from Canada would increase substantially .  
However, looking at the evidence relied on by the Un ited States in support of the determination, we 
cannot accept that this conclusion is one that coul d be reached by an objective and unbiased decision 
maker.  It seems to us that, at most, the evidence relied upon by the USITC could support a 
conclusion that imports of softwood lumber would con tinue at the historical levels, and might increase 
somewhat, in keeping with increased demand, and consis tent with historical patterns.  But we can find 
no rational explanation in the USITC's determinati on, based on the evidence cited, for the conclusion 
that there would be a substantial  increase in impor ts imminently.  In reaching this decision we have 
kept in mind that we may not substitute our judgment for that of the USITC, but must nonetheless 
carry out a detailed and searching analysis of the evidence relied upon and the reasoning and 
explanations given.   
7.90 During the period of investigation, dumped and subsidized imports from Canada were, in the 
USITC's judgement, already at significant levels in terms of absolute volume and in terms of market 
share.  As noted above, the USITC did not rely on a significant rate of increase during the period of 
investigation in support of its conclusion that su bject imports would increase substantially in the 
future.  With respect to the capacity of Canadian producers, the evidence be fore the USITC indicated 
that Canadian capacity was projected to increase by less than one per cent in 2002, and a further 0.83 
per cent in 2003.
122  This certainly does not, in our view, support a conclusion that that there would be 
a substantial increase in capacity, and indeed, the USITC does not appear to have found otherwise.   
7.91 Thus, it is only the existing excess capacity th at might be viewed as supporting a finding that 
imports would increase substantially in the future .  Excess capacity had increased during the period of 
investigation, without resulting in a finding by th e USITC of a significant increase in imports to the 
United States.  The share of total Canadian shipme nts represented by exports to the United States 
during the period of investigation was 57.4 in 1999 and 2000, and increased to 60.9 in 2001.  Canadian producers projected a decline in that share, but only to 58.8 per cent in 2002 and 58.5 per 
cent in 2003, figures well within the historical range.
123  These figures cannot, in our view, support the 
conclusion that excess capacity indicates a likeli hood of substantially increased exports.     
7.92 The United States argues that reliance on the historical distribution of exports to the United 
States and other countries supports the USITC's findi ng.   Nothing in the USITC's determination 
suggests that the share of production shipped to the United States would alter in any significant degree.  Thus, we do not see how this factor s upports the conclusion of a substantial increase in 
imports.  Similarly, while the USITC relied on th e "export-orientation" of the Canadian industry 
toward the United States market, this was true thr oughout the period of investigation.   The data 
regarding exports to the United States do not, however, suggest that there would be any notable change in the levels of exports to the United States, but rather a continuation of the historical patterns.  
                                                     
 
122 USITC Final Report (Exhibit CDA-1) at Table VII-2. 
123 Ibid. WT/DS277/R 
Page 107 
  
 
Nothing in the USITC determination addresses how the projected increases in exports to the United 
States supports the finding that imports would increase substantially. 
7.93 The United States also relies on the effects of the expiration of the Softwood Lumber 
Agreement (SLA).  The USITC found that "the SLA a ppears to have restrained the volume of subject 
imports from Canada at least to some extent as subject imports only increased by 8.8 per cent and 
market share remained relatively constant while  apparent consumption increased by 13.1 per cent 
from 1995 to 2001".124  First, we note that the increase in the volume of imports during the period of 
investigation was apparently not considered signifi cant by the USITC.  Nor did the USITC consider 
that there was a significant rate of increase during the period of investigation.  Second, the USITC 
noted that shipments from provinces not covered unde r the SLA, and whose exports were therefore 
not affected, more than doubled.  However, the USITC did not explain how it concluded that this 
indicated that the SLA had acted to restrain overall exports, as opposed to resulting in a shift in supply 
distribution from provinces covered by the SLA to those not covered.  The USITC had not found that 
the SLA had significantly restrained exports during  the period it was in effect, which might have 
suggested that its expiration would lead to a substantial increase in exports.  The USITC 
determination simply does not address why the expiration of an agreement during the term of which 
exports nonetheless increased, would result in an imminent substantial  increase in exports.   
7.94 The United States argues that trends in imports during  periods when the SLA was not in 
effect support the conclusion that imports were lik ely to increase substantially.  There were two 
periods relied upon in this regard  – the period prior to the SLA from 1994-1996, and the period from 
April 2001 to August 2001, immediately after th e SLA expired and before the imposition of 
provisional measures.  There is no discussion in the USITC's determination that would suggest that 
market conditions during the period before the imposition of the SLA, a period that precedes the 
period of investigation in this case, would be suffici ently similar to predicted market conditions, so as 
to warrant the conclusion that imports would increase substantially.  With respect to the period from 
April to August 2001, the USITC did not discuss whether the increase in imports during that period 
represented an accurate gauge of what would happen in the future, in the absence of anti-dumping and 
countervailing measures, or simply a shift in timin g of exports to take advantage of the window 
between expiration of the SLA and provisional measures.   In this regard, we note that the applications 
for anti-dumping and countervailing measures were f iled the business day after the expiration of the 
SLA, and thus exporters would be aware of the possibility of provisional measures at a predictable 
date.  While it seems obvious that the expiration of  the SLA would result in unrestrained exports, the 
facts cited by the USITC, in light of the lacunae in the explanations given, do not support the 
conclusion of an imminent subs tantial increase in imports.  
7.95 The last factor relied on by the United States is the forecast of strong and improving demand 
in the US market.  All the USITC found in this regard  was that the United States would continue to be 
an important market for Canadian producers.125  We cannot see how this conclusion, which simply 
posits the continuation of the historical situati on, supports a finding that imports would increase 
substantially.  This is particularly the case give n the complete absence of any discussion of third 
country imports, which had increased during the period of investigation.  A situation of strong and improving demand would certainly suggest that th e US market would be an attractive one for 
exporters, but this would seem to be true for all exporters not only Canadian producers.  Moreover, in 
a situation of strong and improving demand, incre ases in imports proportional to the increase in 
demand would seem to be without any injurious effect.  The USITC did not make any findings that 
imports from Canada would increase more than dema nd, thereby accounting for an increased share of 
the US market.  Indeed, the USITC did not address mark et share at all in the context of its threat of 
material injury determination. 
                                                     
 
124 USITC Final Report (Exhibit CDA-1) at p. 41. 
125 USITC Final Report (Exhibit CDA-1) at p. 43. WT/DS277/R 
Page 108  
 
7.96 Based on the foregoing, we are of the view that, in light of the totality of the factors 
considered and the reasoning in the USITC's determin ation, we cannot conclude that the finding of a 
likely imminent substantial increase in imports is one  which could have been reached by an objective 
and unbiased investigating authority.  Therefore,  we find that the USITC's determination is not 
consistent with the obligations set forth in Articles 3.7 and 15.7. 
J. ALLEGED
 VIOLATIONS  OF ARTICLES 3.2  AND  3.4 OF THE  AD AGREEMENT  AND  
ARTICLES 15.2  AND  15.4  OF THE  SCM AGREEMENT   
7.97 Articles 3.2 of the  AD Agreement and 15.2 of the  SCM Agreement require an investigating 
authority to consider whether there has been a significant increase in the volume of the dumped or 
subsidized imports, either in abso lute terms or relative to productio n or consumption in the importing 
Member, whether there has been significant price undercutting by those imports, and whether the 
effect of such imports is to otherwise depress or  suppress prices to a significant degree.  Canada 
asserts that the provisions of Articles 3.2 and 3.4 of the AD Agreement and Article 15.2 and 15.4 of the SCM Agreement apply equally to investigations i nvolving threat of injury determinations, in light 
of the definition of the term “injury” in footnote 9 to the  AD Agreement and footnote 45 of the  
SCM Agreement to include “threat of material injury”.   
(a) Parties' Arguments 
7.98 Canada argues that the USITC did not undertake the required consideration of these factors.  
Thus, Canada asserts that the USITC did not consid er whether the increase in the volume of subject 
imports it observed over its period of investigati on was significant, which Canada maintains it was 
not, and acknowledged that it could not  draw any conclusion as to whether there had been significant 
underselling by the subject imports, and could not c onclude that the dumped and subsidized imports 
had a significant price effect during the period of in vestigation.  Canada then asserts that the USITC 
failed to explain properly how  it could reach its affirmative threat of injury determination in the light 
of these findings, and thus violated Article 3. 2 of the AD Agreement and Article 15.2 of the 
SCM Agreement in the context of threat of injury.   
7.99 Canada also argues that the USITC failed to assess the likely impact of the likely increase in 
imports on the domestic industry.  In Canada's view , a threat of injury determination case "requires a 
meaningful evaluation of how each of the factors listed in Article 3.4 of the  AD Agreement and 
Article 15.4 of the SCM Agreement  will evolve in the future".
126  Canada notes that an evaluation of 
each of the factors is required, and asserts that in this context, “evaluation” has been interpreted to 
mean “a process of analysis and assessment requiring the exercise of judgment on the part of the 
investigating authority” and “not simply a matter of form”.127   Canada cites the decision of the Panel 
in European Communities –Bed Linen (Article 21.5 – India ) in asserting that the investigating 
authority must “assess the role, relevance and relative weight of each factor in the particular investigation”.
128  An “evaluation” “implies the analysis of  data through placing it in context in terms 
of the particular evolution of the data pertaining to each factor individually, as well as in relation to 
other factors examined”.129   Canada argues that the USITC assessed the current state of the domestic 
softwood lumber industry in its “vulnerability” analys is, but failed to evaluate the likely state of the 
domestic industry in the future, and in particular , how further dumped and subsidized imports would 
affect the domestic industry’s condition.  In Canada's  view, this constitutes a fatal deficiency in the 
USITC’s threat of injury analysis.   Canada considers that while the USITC did address a number of 
                                                      
126 Canada's first written submission at para. 145. 
127 Panel Report,  European Communities – Anti-Dumping Duties on Imports of Cotton-Type Bed Linen 
from India: Recourse to Article 21.5 of the DSU  by India ("European Communities –Bed Linen (Article 21.5 – 
India )"), WT/DS141/RW, adopted April 24, 2003, as modified by the Appellate Body Report, para. 6.162. 
128 Ibid. 
129 Ibid. WT/DS277/R 
Page 109 
  
 
the mandatory listed factors, but only with respect to the past, a nd did not assess how any of the listed 
factors was likely to evolve in the future.  Theref ore, it failed to undertake any meaningful evaluation 
of the listed factors for the purpose of its threat of injury analysis.   
7.100  The United States argues that consideration of th e factors listed in Articles 3.2 and 3.4 of the 
AD Agreement and Articles 15.2 and 15.4 of the SCM Agreement establishes a background against 
which the investigating authority can evaluate whether dumped and subsidized imports will likely 
increase substantially, likely will have price eff ects, and consequently will affect the industry’s 
condition in such a manner that material injury w ould occur in the absence of protective action.  The 
United States argues that the USITC addressed all of the factors in its analysis of present material 
injury analysis, finding that the volume of imports was significant, there were some price effects by 
subject imports, that the condition of the domestic industry had deteriorated primarily as a result of 
declining prices, and that the industry was in a vul nerable state.  Moreover, the United States argues, 
projections based on the present and past facts, provide positive evidence justifying the USITC’s 
determination that the domestic industry was on th e verge of material injury by reason of the 
continued dumped and subsidized so ftwood lumber imports from Canada. 
7.101  The United States asserts that Canada’s arguments are variations of the arguments raised 
regarding likely substantial increases in imports and likely price effects, which the United States 
argues are based on Canada’s premise that there could be no threat because there allegedly were no findings of injurious effects in the present material injury analysis.  The United States considers that 
premise to be incorrect.  The United States notes th e finding of the USITC, in its material injury 
analysis, that the volume of imports was significan t and supported a finding of material injury, but 
that there were no significant price effects.  The United States argues that the USITC’s findings in its 
present injury analysis regarding the impact of subject imports on the domestic industry foreshadows 
and supports its finding of threat of material injury.  Like Canada, the United States refers to the Panel 
decision in Mexico – Corn Syrup  to the effect that consideration of the factors relating to the impact of 
imports on the domestic industry “establish a bac kground against which the investigating authority 
can evaluate whether imminent further dumped import s will affect the industry’s condition in such a 
manner that material injury would occur in th e absence of protective action, as required by 
Article 3.7".
130   The United States asserts that the USIT C established such a background in finding 
that the domestic industry producing softwood lumber was vulnerable to injury in light of declines in 
its performance over the period of investigation, part icularly its financial pe rformance, and reasonably 
concluded that the deterioration in the performance of the domestic i ndustry, particularly its financial 
performance, made it vulnerable to injury.  In  the US view, Canada’s challenge suggests a 
requirement to quantify future events, a requirement  the United States maintains does not exist in the 
relevant Agreements. 
7.102  Japan, as third party, asserts that the dumped imports were not a cause of the vulnerable state 
of the domestic industry, and thus that conclusion do es not form a valid basis for the determination of 
threat of injury.  Japan considers that the USIT C failed to evaluate the impact of likely further 
dumped (and subsidized) imports on th e domestic industry and thus failed to comply with Article 3.4 
of the AD Agreement and Article 15.4 of the SCM Agreement. 
7.103  With respect to the alleged violations of Ar ticles 3.4 of the AD Agreement and 15.4 of the 
SCM Agreement, Canada clarified its view, in res ponse questions from the Panel, that an examination 
of the listed "injury" factors must be carried out in a "predictive context" in making a threat of injury 
determination.131  Canada argues that in the absence of an ev aluation of these factors in the future, it is 
impossible to determine whether future dumped/subs idised imports will cause injury.   The United 
                                                      
130 Panel Report, Mexico – Anti-Dumping Investigation of High Fructose Corn Syrup (HFCS) from the 
United States ("Mexico – Corn Syrup "), WT/DS132/R and Corr.1, adopted 24 February 2000, DSR 2000:III, 1345, 
para. 7.132. 
131 Canada's Responses to Questions from the Panel and the United States - First Meeting, question 8. WT/DS277/R 
Page 110  
 
States, on the other hand, argues th at it is not necessary to specifi cally address these injury factors a 
second time where, as it asserts is the case here, it is clear from the discussion of these factors what 
the condition of the industry is, such that a bac kground for the conclusion of likely future injury 
caused by dumped/subsidized imports is established.   
(b) Analysis by the Panel 
7.104  In this context, we recall that the Agreements de fine "injury" to include threat of injury unless 
otherwise specified.  Thus, the requirements of Articles 3.2 and 3.4 of the AD Agreement and Articles 15.2 and 15.4 of the SCM Agreement  mi ght, as Canada argues, be understood to apply 
directly in the threat of injury context such that a predicted "impact" with respect to each of the listed 
factors must be assessed.  However, in our view  the text, context, and object and purpose of the 
relevant provisions do not lead to such an interpretation.  
7.105  It seems clear to us that, as the Panel found in Mexico – Corn Syrup , there must, in every case 
in which threat of material injury is found, be an evaluation of the condition of the industry in light of 
the Article 3.4/15.4 factors to establish the b ackground against which the impact of future 
dumped/subsidized imports must be assessed, in addition to an assessment of specific threat factors.  
However, once such an analysis h as been carried out, we do not read the relevant provisions of the 
Agreements to require an assessment of the likel y impact of future imports by reference to a 
consideration of projections regarding each of the Ar ticle 3.4/15.4 factors.  There is certainly nothing 
in the text of either Article 3.7 of the AD Agre ement and Article 15. 7 of the SCM Agreement, or 
Article 3.4 of the AD Agreement and Article 15.4 of  the SCM Agreement, setting out an obligation to 
conduct a second analysis of the injury factors in cases involving threat of material injury.  Of course, 
such an assessment could be undertaken, to the exte nt available information permitted, and might be 
useful.  However, in many instances, it seems lik ely that the necessary information would not be 
available, for instance projected productivity, return on investment, projected cash flow, etc.  Even if 
projections are made on the basis of the information ga thered in the investigation, this might result in 
a degree of speculation in the decision–making process,  which is not consistent with the requirements 
of the Agreements.   
7.106  In this case, it is clear on the face of the USIT C determination that the injury factors were 
considered in the context of finding no present ma terial injury.  Indeed, Canada does not contend 
otherwise.  It also seems clear to us that the USIT C took that consideration into account in its threat of 
material injury analysis.  At least, that is our un derstanding of the USITC's statement at the beginning 
of the section of the report entitled "threat of material  injury by reason of subject imports" that "[a]s 
an initial matter, we find that the domestic industry producing softwood lumber is vulnerable to injury 
in light of declines in its performance over the peri od of investigation, part icularly its financial 
performance".
132  The USITC then went on to address th e additional threat factors set out in 
Article 3.7 of the AD Agreement and Article 15.7 of the SCM Agreement.  In our view, this is an 
adequate approach to the analysis of threat of ma terial injury with respect to the requirements of 
consideration of the elements set out in Articles 3.2, 3.4, and 3.7 of the AD Agreement, and the 
corresponding provisions of the SCM Agreement.     
7.107  In this context, we note the findings of the Panel in Mexico – Corn Syrup  with respect to the 
nature and purpose of consideration of the Article 3.4 factors in the context of a threat of material 
injury determination: 
"With respect to the question of threat of ma terial injury, we believe an investigating 
authority cannot come to a reasoned conc lusion, based on an unbiased and objective 
evaluation of the facts, without taking into account the Article 3.4 factors relating to the impact of imports on the domestic industry.  These factors all relate to an 
                                                     
 
132 USITC Final Report (Exhibit CDA-1) at p. 37. WT/DS277/R 
Page 111 
  
 
evaluation of the general condition and ope rations of the domestic industry – sales, 
profits, output, market share, productivity, return on investments, utilization of capacity, factors affecting domestic prices, cash flow, inventories, employment, wages, growth, ability to raise capital.  Cons ideration of these factors is, in our view, 
necessary in order to establish a background  against which the investigating 
authority can evaluate whether imminent further dumped imports will affect the 
industry's condition in such a manner that ma terial injury would occur in the absence 
of protective action, as required by Article 3.7".
133 (emphasis added) 
7.108  We share the view of the Mexico-Corn Syrup  Panel in this regard.  In our estimation, this 
requirement of consideration of the Article 3.4 factor s in a threat determination is satisfied by what 
the USITC did in this case.  That is, the USITC di d consider the Article 3.4/15.4 factors to establish a 
background against which to evaluate the effect s of future dumped and subsidized imports.   
7.109  Canada points to another passage in the Panel's decision in Mexico – Corn Syrup Panel  in 
support of its argument that a "predictive analysis" of  the Article 3.4/15.4 injury factors is required.  
That Panel, in finding a violation of Article 3. 4, stated that SECOFI, the Mexican investigating 
authority: 
"concluded that imports were likely to increase, based on the increases during the 
period of investigation, and the available capacity of the exporting producers, but there is no meaningful analysis, based on facts, concerning the likely impact of further dumped imports on the domestic indus try in the final determination, e.g., 
whether such increased imports are likely to  account for an increased share of the 
growing Mexican market, have an effect on pr oduction or sales of sugar, or affect the 
profits of the domestic producers, etc., in such a manner as to constitute material injury".
134 
In Canada's view, this demonstrates that an analys is of projections regarding the injury factors is 
required.   
 
7.110  We do not agree.  The Mexico – Corn Syrup  Panel was faced with a case in which there was 
no discussion of the Article 3.4 injury factors at all .  The Panel found that, in the absence of any 
discussion of the condition of the domestic industry agai nst which the impact of future imports was to 
be assessed, findings that imports would increase a nd be priced below the domestic like product were 
insufficient to support a conclusion of threat of material injury.  The issue of whether a second 
analysis of the Article 3.4 factors was required in the context of making a determination of threat of 
material injury was simply not a question in that  dispute, and was not specifically addressed by the 
Panel.  In this case, the USITC specifically fo und that the domestic industry was in a vulnerable 
condition, based on its consideration of  the Article 3.4/15.4 injury factor s.    Against that background, 
conclusions that an imminent substantial increase in imports is likely, at prices likely to have 
significant price depressing and suppressing effect s and likely to increase demand for imports, 
exacerbating price pressure on domestic producers, and t hus that material injury would occur, could, 
if those conclusions are themselves consistent w ith the obligations of the Agreements, support a 
finding of threat of material injury.     
7.111  With respect to the factors set out in Article 3.2 of the AD Agreement and Article 15.2 of the 
SCM Agreement, we see even less basis for concludi ng that they must be directly considered in a 
"predictive" context in making a threat of material  injury determination.  These provisions require the 
investigating authorities to consider events in th e past, during the period investigated, in making a 
determination regarding present material injury.  Thus , the text directs the investigating authorities to 
                                                      
133 Mexico – Corn Syrup , para. 7.132. 
134 Ibid., at para. 7.140 WT/DS277/R 
Page 112  
 
consider whether there "has been" a significant increase in imports, whether there "has been" 
significant price undercutting, or whether the effect  of imports is otherwise to depress prices or 
prevent price increases which otherwise "would have " occurred.  As with the consideration of the 
Article 3.4/15.4 factors, the consideration of the Ar ticle 3.2/15.2 factors forms part of the background 
against which the investigating authorities can evaluate  the effects of future dumped and/or subsidized 
imports.
135   
7.112  We therefore find no violation of Articles 3.2 and 3.4 of the AD Agreement or of 
Articles 15.2 and 15.4 of the SCM Agreement.   
K. ALLEGED  VIOLATIONS  OF ARTICLES 3.5  AND  3.7 OF THE  AD AGREEMENT  AND  
ARTICLE 15.5  AND  15.7  OF THE  SCM AGREEMENT 
7.113  Article 3.5 of the AD Agreement and Article 15.5 of the SCM Agreement provide as follows: 
"3.5 It must be demonstrated that the dumped imports are, through the effects of 
dumping, as set forth in paragraphs 2 and 4, causing injury within the meaning of this Agreement.  The demonstration of a causal  relationship between the dumped imports 
and the injury to the domestic industry shall be based on an examination of all 
relevant evidence before the authorities.  The authorities shall also examine any 
known factors other than the dumped imports which at the same time are injuring the domestic industry, and the injuries caused by these other factors must not be attributed to the dumped imports.  Factors which may be relevant in this respect 
include, inter alia,  the volume and prices of imports  not sold at dumping prices, 
contraction in demand or changes in patte rns of consumption, trade-restrictive 
practices of and competition between forei gn and domestic producers, developments 
in technology and the export performance a nd productivity of the domestic industry". 
"15.5 It must be demonstrated that the subsidized imports are, through the effects 
47 
of subsidies, causing injury within th e meaning of this Agreement.  The 
demonstration of a casual relationship betw een the subsidized imports and the injury 
to the domestic industry shall be based on an examination of all relevant evidence 
before the authorities.  The authorities sh all also examine any known factors other 
than the subsidized imports which at the sa me time are injuring the domestic industry, 
and the injuries caused by these other factors mu st not be attributed to the subsidized 
imports.  Factors which may be relevant in this respect include, inter alia, the 
volumes and prices of non-subsidized imports of the product in question, contraction 
in demand or changes in the patterns of c onsumption, trade restrictive practices of 
and competition between the foreign a nd domestic producers, developments in 
technology and the export performance and productivity of the domestic industry. 
_______________________ 
 47 As set forth in paragraphs 2 and 4". 
7.114  Canada asserts that these provisions have two main elements: first, there must be a 
demonstration of a causal relationshi p between the dumped or subsidized imports and the injury to the 
domestic industry, which must be based on an ex amination of all relevant evidence before the 
authorities; and, second, the authorities must examin e any known factors other than the dumped or 
                                                      
135 Of course, the proper establishment of a background under Articles 3.2 and 3.4 and 15.2 and 15.4 of 
the AD and SCM Agreements does not determine whether the evaluation of the effects of future imports is 
consistent with the requirements governing determinations of threat of material injury set out in Articles 3.7 and 
15.7 of the AD and SCM  Agreements. WT/DS277/R 
Page 113 
  
 
subsidized imports which at the sa me time are injuring the domestic industry, and the injuries caused 
by these other factors must not be attributed to the dumped or subsidized imports.  In Canada's view, 
the USITC failed to satisfy the requirements relating to each element. 
7.115  The United States does not dispute that there ar e two main elements to the establishment of 
the causal relationship in anti-dumping and counterva iling duty investigations.  However, the United 
States contends that the USITC determination in di spute fully complies with those requirements, in 
that the USITC considered all the relevant ev idence in establishing the causal relationship, and 
properly avoided attributing injuries caused by othe r factors to the dumped and subsidized imports 
from Canada. 
7.116  Japan, as third party, supports Canada's view th at the USITC failed to demonstrate a causal 
relationship and failed to comply with the non-attrib ution requirement in Articles 3.5 and 15.5 of the 
AD and SCM Agreements, respectively.  In the latte r context, Japan focuses on the asserted failure of 
the USITC to separate and distinguish the effects of other known factors on the domestic industry from the effects of further dumped (and subsidized) imports. 
7.117  Korea, as third party, considers that the USIT C determination fails to  properly demonstrate a 
causal relationship and non-attri bution on positive evidence.  Korea considers that the USITC 
identified other known factors causing injury, specifically the domestic industry's contribution to oversupply, but nevertheless attributed injury to the Ca nadian imports.  Korea is also of the view that 
the USITC's threat determination rests on an "unscientific" prediction that imports would increase substantially in the absence of anti- dumping and countervailing duty orders. 
7.118  We address below the two aspects of Canada's cl aim regarding the causal analysis separately. 
1. Alleged failure to demonstrate a causal relationship 
(a) Parties' Arguments 
7.119  In Canada's view, the USITC failed to explain how the predicted substantial increase in the 
volume of imports would be likely to have a signi ficant price depressing effect in the future and 
therefore would threaten to cause injury to the domestic  industry.  In particular, Canada considers that 
the USITC failed to examine and evaluate all evidence relevant to the question of causal relationship,  
including several “conditions of competition” USIT C considered were pertinent to the softwood 
lumber industry and relevant to the analysis.  In this regard, Canada points to the fact that the 
United States is not self-sufficient in lumber and that a significant volume of imports is needed to 
fulfil demand, the concept that competition betw een subject imports and the domestic product is 
attenuated to some extent, and the fact that ther e was increasing integration in the North American 
lumber market and US domestic producers were responsible for purchasing or importing lumber from 
Canada.  Canada argues that the USITC stated that  these conditions were both pertinent and relevant, 
but then ignored them in its threat of injury analys is.  Canada also argues that there is nothing in the 
USITC's determination to support its finding that su bject imports were likely to have a significant 
price depressing effect in the future.   
7.120  The United States argues that, in making its dete rmination, the USITC examined all record 
evidence and carried out a thorough analysis of all relevant factors that the dumped and subsidized 
imports threaten to cause injury to the domestic indus try.  The United States as serts that, in its present 
material injury analysis, the USITC found the domes tic industry vulnerable to injury, but concluded 
that it could not find that subject imports had in jured the domestic industry, largely because it had not 
found that there were significant price effects.  Th e United States asserts that the USITC concluded in 
its threat analysis that dumped and subsidized impor ts already at significant levels would continue to 
enter the US market at significant levels and were projected to increase substantially.  The additional 
imports would increase the excess supply in the ma rket, putting further downward pressure on prices, WT/DS277/R 
Page 114  
 
which at the end of the period of investigation had d eclined to levels as low as they had been in 2000.  
The United States asserts that USITC reasonably found that subject imports were likely to increase 
substantially and were entering at prices that ar e likely to have a significant depressing or suppressing 
effect on domestic prices, and were likely to increas e demand for further imports, thereby threatening 
material injury.  The United St ates considers that Canada’s claims under Article 3.5 and 15.5 are 
based on the premise that there could be no threat because there allegedly were no injury findings in 
the present material injury analysis, a pr emise which the United States rejects.   
7.121  Moreover, the United States asserts that the USITC considered and addressed each of the 
issues raised by Canada, but reached different conc lusions based on the evid ence from those urged by 
Canada.  Thus, for instance, the United States argue s that the USITC consid ered growth in demand 
and the need for imports in light of the inability of US producers to satisfy demand, but found that 
demand was not likely to increase in the manner Cana da suggests or to have the effects that Canada 
posits, as strong demand had not, during the period of investigation, translated into price 
improvements, and was not expected to do so in the future.  The United States also maintains that the 
USITC appropriately considered the substitutab ility of subject imports and domestic product and 
properly took the record evidence into account in maki ng its determinations as evident in its opinion.  
The USITC found that imports and domestic speci es of softwood lumber are used in the same 
applications and that regional preferences merely  reflect availability of species, and that the 
differences in species between subject imports and domestic product did not a ttenuate competition in 
a significant manner.  The United States maintains that Canada recognizes that the USITC considered 
the integration of the North American lumber indus try as a condition of competition, but criticizes the 
USITC for not speculating that integrated companies would not harm related companies without 
referring to any evidence to support its supposition th at integrated firms will not harm their related 
parties.   
(b) Analysis by the Panel 
7.122  As discussed above, we have found that the USIT C's determination is in consistent with the 
requirements of Article 3.7 of the AD Agreement a nd Article 15.7 of the SCM Agreement in that the 
conclusion that imports would increase  substantially is not one that could have been reached by an 
unbiased investigating authority based on an obj ective examination of the evidence concerning 
relevant factors in the investigation.  The entire an alysis of the USITC with respect to causation rests 
upon the likely effect of substantially increased im ports in the near future.  Having found that a 
fundamental element of the  causal analysis is not co nsistent with the Agreements , it is clear to us that 
the causal analysis cannot be consistent with the Agreements.  We therefore find that the 
determination is not cons istent with Article 3.5 of the AD Agreement and Article 15.5. of the 
SCM Agreement in this regard. 
2. Alleged absence of the required non-attribution analysis 
(a) Parties' Arguments 
7.123  Canada argues that the USITC failed to identify,  much less examine, any other known factors 
that could threaten injury to the domestic indus try in addition to the subject imports.  Canada 
maintains that having neglected even to identify ot her causal factors, the USITC also did not separate 
out and distinguish the injurious effects of those ot her factors from the alleged injurious effects of the 
dumped and subsidized imports.  Cana da notes that in a footnote to its report, the USITC stated that it 
is not required, under US case law, to separate and distinguish the injurious effects of the other known 
factors from the injurious effects of  the dumped and subsidized imports.136 Therefore, Canada argues 
that the USITC determination does not comply with the requirements in the third and fourth sentences 
                                                      
136 USITC Final Report (Exhibit CDA-1) at p. 31, footnote 195. WT/DS277/R 
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of Article 3.5 of the AD Agreement  and Article 15.5 of the SCM Agreement  relating to “non-
attribution”. 
7.124  In Canada's view, there was strong evidence be fore the USITC that factors other than the 
subject Canadian softwood lumber imports were  having substantial adverse effects on the US 
domestic industry during the period of  investigation.  Canada also notes that the USITC found that the 
industry had itself contributed to the oversupply that led to price declines over the period of 
investigation, and argues that the USITC failed to examine this, as well as the likely future role of 
non-subject imports and their potential contribution to any threatened injury to  the US industry, and 
other known factors potentially injurious to the domes tic industry, such as chan ges in the patterns of 
consumption.   
7.125  The United States argues that the USITC properly examined any known factors other than the 
dumped and subsidized  imports which are injuring the domestic industry to ensure that it did not 
attribute injury from other causal factors to the su bject imports.  The United States asserts that the 
USITC’s methodology was consistent with the AD and SCM Agreements, which it argues do not 
specify how the investigating authority is to satisfy th e non-attribution test.  In the US view, the 
purpose of the non-attribution requirements is to en sure the existence of an  unsevered causal link 
between the dumped and subsidized im ports and the injury to the domestic industry.  In this context, 
the United States cites the decision of the Appellate Body in EC – Tube or Pipe Fittings , which stated 
that “provided that an investigating authority does not attribute the injuries of other causal factors to 
dumped imports, it is free to choose the methodology it will use in examining the ‘causal relationship’ 
between dumped imports and injury".137   
7.126  The United States maintains that  the USITC’s methodology ensur es that the injurious effects 
of other causal factors are not attributed to subject imports.  The United States describes that methodology as involving the examination of othe r “known” factors to assess whether they may be 
causing injury to the domestic industry.  When the US ITC finds a factor not to have injurious effects 
on the domestic industry, the United States states that such factor is not an “other known factor” for 
purposes of  Article 3.5 of the AD Agreement or Article 15.5 of the SCM Agreement and no further 
consideration or examination of the factor is ca lled for.  The United States considers that this 
approach is sanctioned by the Appellate Body decision in EC – Tube or Pipe Fittings
 . 
7.127  The United States considers that Canada's princi pal argument is that US domestic supply was 
a known causal factor which the USITC found contribut ed to injury in its present material injury 
analysis, but ignored in its threat analysis.  The Un ited States argues that in its threat evaluation, the 
USITC found that the domestic producers had curbed their production, but that overproduction 
remained a problem in Canada.138  Thus, while US domestic overproduction had contributed to 
adverse price effects in 2000, the United States main tains that the evidence demonstrated that it was 
no longer contributing to excess supply while Ca nadian imports continued to oversupply.  
Consequently, the USITC was entitled to not consider th is as an "other factor" causing injury, and was 
not required to address it further in its threat determination..   
7.128  With respect to the other causal factors whic h Canada alleges the USITC failed to consider 
(non-subject imports, other substitutes for lumber , and cyclical demand and housing construction 
cycles) the United States maintains that it is cl ear from the determination that these issues were 
considered and parties' arguments were addressed, but  that the USITC did not consider these issues as 
rising to the level of “other known factors injuring the domestic industry”.  Consequently, the United 
States argues that there was no oblig ation to address them further. 
                                                      
137 Appellate Body Report, EC – Tube or Pipe Fittings , para. 189, citing to Appellate Body Report, US-
Hot-Rolled Steel , para. 224. 
138 USITC Final Report (Exhibit CDA-1) at p. 35, footnote 217. WT/DS277/R 
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(b) Analysis by Panel 
7.129  The non-attribution requirement in anti-dumping investigations has been addressed by the 
Appellate Body in several recent cases.  Alt hough it has not been specifically considered in a 
countervailing duty case, given that the relevant provi sions in the two Agreements are identical, and 
in light of the Declaration of Ministers relating to Dispute Settlement under the AD and 
SCM Agreements, it is clear to us that the requireme nt is the same in the context of both anti-dumping 
and countervailing duty investigations.   
7.130  In its most recent statement on the non-attribution requirement in anti-dumping cases, the 
Appellate Body explained that:  
"This obligates investigating authorities in their causality determinations not to 
attribute to dumped imports the injurious effects of other causal factors, so as to 
ensure that dumped imports are, in fact, " causing injury" to the domestic industry.  In  
US – Hot-Rolled Steel  we described the non-attribution obligation as follows: 
… In order that investigating authorities, applying Article 3.5, are able 
to ensure that the injurious effect s of the other known factors are not 
"attributed" to dumped imports, they must appropriately assess the 
injurious effects of those other factors.  Logically, such an assessment must involve separating and distinguishing the injurious effects of the 
other factors from the injurious effects of the dumped imports .  If the 
injurious effects of the dumped imports are not appropriately 
separated and distinguished from the injurious effects of the other 
factors, the authorities will be unable to conclude that the injury they 
ascribe to dumped imports is actually caused by those imports, rather than by the other factors.   
Non-attribution therefore requires separation and distinguishing of the effects of other 
causal factors from those of the dumped imports so that injuries caused by the 
dumped imports and those caused by other factors are not "lumped together" and 
made "indistinguishable".
139   
We underscored in  US – Hot-Rolled Steel , however, that the  Anti-Dumping 
Agreement  does not prescribe the methodology  by which an investigating authority 
must avoid attributing the injuries of other causal factors to dumped imports: . . . Thus, provided that an investigating authority does not attribute the injuries of other 
causal factors to dumped imports, it is free to choose the methodology it will use in 
examining the "causal relationship" between dumped imports and injury".
140 
7.131  In this case, in addition to pointing out what it considers to be the deficiencies in the USITC's 
analysis, Canada points to a statement in the USITC's decision: 
"CLTA [a Canadian party] contended th at the Commission “must separate and 
distinguish the injurious effects of the ot her factors from the injurious effects of 
dumped imports.” CLTA’s Prehearing Brief at 8; see also.  Government of Canada’s 
Prehearing Brief at 4-11.  This argument does not have a basis in the case law.  Asociacion de Productores de Salmon y Trucha de Chile AG v.  United States, 180 F.  
Supp.  2d 1360, 1375 (Ct.  Int’l Trade 2002) (“Chilean Salmon”) (affirmed that “[t]he Commission is not required to isolate the ef fects of subject imports from other factors 
                                                     
 
139Ibid., para. 228. 
140 Appellate Body Report, EC – Tube or Pipe Fittings , paras. 188-189. WT/DS277/R 
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contributing to injury” or make “bright line distinctions” between the effects of 
subject imports and other causes.  Id.); Taiwan Semiconductor Industry Ass’n v.  
USITC, 266 F.3d 1339, 1345 (Fed. Cir.  2001) (“[T]he Commission need not isolate the injury caused by other factors from injury caused by unfair imports.  .  .  .  Rather, 
the Commission must examine other factors to ensure that it is not attributing injury 
from other sources to the subject imports.” Id.  (emphasis in original))".
141 
Canada contends that this statement makes it clear that the USITC failed to satisfy the non-attribution 
test.  However, Canada does not dispute that non-at tribution is required under US law.  Thus, the 
question facing us in this dispute is whether the USITC analysis of causation satisfies the non-
attribution requirement set forth in the Agreements.   
7.132  As discussed above, having found that a fundamental element of the  causal analysis is not 
consistent with the Agreements, we consider that the USITC's causal analysis cannot be consistent 
with the Agreements, and we therefore concluded that the determination is  not consistent with 
Article 3.5 of the AD Agreement and Article 15.5. of  the SCM Agreement in this regard.  In light of 
this conclusion, we consider that we cannot meanin gfully evaluate the question of violation of the 
non-attribution aspect of those provisions.  In th e absence of a finding that dumped and subsidized 
imports caused – in this case threatened – material inju ry  that is consistent with the Agreements, the 
question of whether injuries caused by other factor s are attributed to dumped and subsidized imports 
becomes meaningless.  Nonetheless, we do have serious  concerns with the analysis of the USITC in 
this regard.  In order to elucidate our views s hould the Appellate Body reach the question and give 
some guidance should the issue arise in implementation, and in view of the fundamental significance 
of the non-attribution requirement, we set out our concerns below. 
7.133  It is clear from the determination that USITC addressed other factors potentially causing 
injury in the context of its determination, in pa rticular in discussing the "conditions of competition" 
relevant to the US softwood lumber industry, with re spect to the finding of no present material injury.  
Thus, it would seem that there was some analysis in the USITC decision that addressed other factors 
potentially causing injury.  For instance, the USITC noted in discussing the volume of imports that 
imports from countries not subject to investigation were small in volume but had increased during the 
period of investigation.142  In this regard, we note particularly the USITC's finding that both domestic 
and imported Canadian softwood lumber contributed  to excess supply in the market during the period 
of investigation, and thus to the declining prices.143  This finding was fundamental to the further 
conclusion that Canadian imports had no significant  effect on prices, and did not have a significant 
impact on the domestic industry, and the ultimate fi nding of no present material injury caused by the 
subject Canadian imports.  Based on this reasoning, it seems to us that the USITC did undertake some 
analysis of other factors potentially causing injury, wh ich analysis led in part to the negative finding 
with respect to present material injury caused by imports. 
7.134    However, in the context of its analysis of threat of material injury, we see no similar 
discussion of other factors that are threatening inju ry at the same time as dumped and subsidized 
imports.  There is no reference at all to imports fro m countries not subject to investigation.  Yet, in 
light of the increase in such imports during the period of investigation, and given that the matter was specifically put before the USITC in arguments, it would seem that some discussion of the likely future impact of such imports should have been  undertaken.  Nor is there any discussion of the 
relationship between predicted increases in impor ts and the predicted strong and increasing demand 
for lumber in the US market.  In the absence of so me increase in Canadian market share in the future, 
it is difficult to see how the USITC could come to the conclusion that Canadian imports would cause 
injury in the future when they had not done so during the period of investigation, despite their 
                                                     
 
141 USITC Final Report (Exhibit CDA-1) at page 31, footnote 195. 
142 USITC Final Report (Exhibit CDA-1) at page 32, footnote 199. 
143 USITC Final Report (Exhibit CDA-1) at page 35. WT/DS277/R 
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significant and increased volume and market share.  There is similarly no discussion of the effects of 
increasing integration of the North American lumb er market on the behaviour of lumber producers 
and the potential effects on trade flows.   
7.135  A glaring omission is the failure to discuss the likely future effects of domestic supplies of 
lumber. The single reference to domestic oversupply and its potential effect on the domestic industry 
in the future is in a footnote in the section of th e report discussing price declines during the period of 
investigation.  The last sentence of that footnote cites a consultant's report stating that lumber overproduction had been "curbed considerably [i n the United states] but remains a problem in 
Canada".
144  Even were this single statement drawn from a consultant's report deemed sufficient to 
support the conclusion that there would be no US oversupply affecting lumber prices in the future, 
there is nothing in the report to link such a conclusi on to the USITC's analysis of causation of material 
injury in the near future.    
7.136  We do not mean to suggest that all aspects of th e investigating authorities' determination must 
be entirely contained in the specific parts of the repor t dealing with particular issues.  Certainly, in 
dispute settlement, a Member may argue the cons istency of an anti-dumpi ng or countervailing duty 
determination based on the entirety of that dete rmination.  However, that does not excuse the 
investigating authority from the necessity of, at the time of its determination,  providing an adequate 
explanation of its analysis such that a Pane l can, with confidence, understand the reasoning 
underlying the decision that was actually made in or der to be able to assess its consistency with the 
relevant provisions of the Agreements.   
7.137  Given the overall absence of discussion of ot her factors potentially causing injury in the 
future, we would conclude that the USITC determin ation is not consistent with the obligation in 
Article 3.5 of the AD Agreement and Article 15.5 of the SCM Agreement that "injuries caused by 
these other factors must not be attributed" to the subject imports.   
L. ALLEGED  VIOLATIONS  OF THE  SCM AGREEMENT  AND  THE  AD AGREEMENT  IN 
THE  USITC’S  COMBINED  INJURY  ANALYSIS   
(a) Parties' Arguments 
7.138  Canada argues that by carrying out a combin ed injury analysis in the anti-dumping and 
countervailing duty investigations, the USITC failed to  comply with the specific requirements that 
must be satisfied by an investigating authority wh en making a determination of injury, or threat of 
injury, in an anti-dumping or subsidy investigation.   Specifically, Canada asserts that Articles 1, 9.1, 
and 18.1 of the AD Agreement establish that a fi nal anti-dumping duty can be imposed only when the 
investigating authority has complied with the specifi c requirements of the AD Agreement, and that the 
same principle applies for the imposition of a fina l countervailing duty in light of parallel provisions 
in Articles 10 and 32.1 of the SCM Agreement.  Ca nada asserts that when an investigation involves 
both dumped and subsidized imports, the investigating authority is obliged to comply with the specific 
requirements of both the AD Agreement and the SCM Agreement.  Canada considers this obligation 
to satisfy the distinct requirements of both the  AD Agreement  and the  SCM Agreement is reinforced 
by paragraph (a) of Article VI:6 of GATT 1994, whic h provides:  “No contracting party shall levy any 
anti-dumping or countervailing duty on the importati on of any product of the territory of another 
contracting party unless it determines that the effect of the dumping or subsidization, as the case may 
be, is such as to cause or threaten material injury to an established domestic industry, or is such as to 
retard materially the establishment of a domestic industry” [emphasis added].   
7.139  Canada asserts that by combining the dumped and subsidized imports in its threat of injury 
analysis, the USITC failed to comply with the sp ecific requirements of the AD Agreement and the 
                                                      
144 USITC Final Report (Exhibit CDA-1) at page 35, footnote 217. WT/DS277/R 
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SCM Agreement, and of Article VI of GATT  1994, because it failed to undertake all of the necessary 
evaluations specified in the AD Agreement  and SCM Agreement respectively.   Canada points to 
several of the asserted substantive violations as exam ples in this regard – alleged failure to properly 
consider the nature and trade effects of the subsid ies in question as required by Article 15.7(i) of the 
SCM Agreement, failure to consider all th e mandatory factors under Articles 3.4 of the 
AD Agreement and Article 15.4 of the SCM Agreem ent; and failure to conduct a proper causation 
analysis under Article 3.5 of the AD Agreement and Article 15.5 of the SCM Agreement.  Moreover, 
Canada maintains, the USITC never provided a r easoned explanation of why, in the particular 
circumstances of this case, it was appropriate to conduct its analysis as it did.   
7.140  Canada asserts that the USITC failed to satis fy the specific requirements of the AD and 
SCM Agreements by carrying out a combined analysis, thereby making it more likely that an 
affirmative determination would be the result.  In th is regard Canada refers to the statement of the 
Appellate Body in US-Hot Rolled Steel that, “investigating authorities are not entitled to conduct their 
investigation in such a way that it becomes more  likely that, as a result of the fact-finding or 
evaluation process, they will determine that the domestic industry is injured”.145  
7.141  In USITC practice, the consideration of s ubsidized and dumped imports jointly in the 
consideration of whether the volume and price effe cts of subject imports threatened the domestic 
industry with material injury is known as "cross-c umulation".  The United States contends that 
USITC’s cross-cumulation in this case, that is, the conduct of combined inves tigations, is consistent 
with US obligations under the AD Agreement and th e SCM Agreement.  The United States maintains 
that the requirements contained in the AD and SCM Ag reements regarding the de termination of injury 
are virtually identical.  In the US view, the fact that neither Agreement speak s to the issue of cross-
cumulation does not mean that such an analysis is pr ecluded or inconsistent with either Agreement, as 
Canada alleges. 
7.142  The United States argues that Canada’s reliance on the “effect of dumping or subsidization” 
language in Article VI:6 of GATT 1994 to mandate separate investigati ons fails to recognize the more 
specific language in each of the covered Agreements  regarding the injury analysis, which specifies 
that the appropriate focus for an injury assessment  is the “effect of dumped imports” and the “effect 
of subsidized imports” rather than the “effect of du mping or subsidization".  In this regard, the United 
States points to the decision of the Panel in EC-Bed Linen  which stated that the language “through the 
effects of dumping” in Article 3.5 of the AD Agreement “did not require that the volume, price, and impact ‘effects’ to be considered be those of dumpi ng, but rather those of the dumped imports, that is, 
the ‘effects of dumping’ were equated .  .  .  with ‘the effects of dumped imports.’”
146   
7.143  The United States asserts that the purpose of th e Agreements is to provide a remedy against 
unfair trade practices causing injury to a domestic in dustry, and suggests that it would frustrate that 
purpose to deny a remedy where the cumulative effect  of dumped and subsidized imports is injury to 
the domestic industry.  The United States poi nts to the Appellate Body decision in EC – Tube or Pipe 
Fittings  addressing the cumulation provision in the AD Agreement (Article 3.3) in support of its 
view.  The Appellate Body stated that “the role of cumulation [is to] ensur[e] that each of the multiple 
sources of ‘dumped imports’ that cumulatively contribut e to a domestic industry’s material injury be 
subject to anti-dumping duties".147  The United States argues that although the Appellate Body 
                                                      
145 Appellate Body Report, US – Hot-Rolled Steel , para. 196. 
146 Panel Report, EC-Bed Linen , para. 6.141. 
147 Appellate Body Report , EC – Tube or Pipe Fittings , para. 117.  The Appellate Body observed: 
"A cumulative analysis logically is premised on a recognition that th e domestic industry faces 
the impact of the “dumped imports” as a whole and that it may be injured by the total impact of the dumped imports, even though those imports originate from various countries.  .  .  
.negotiators appear to have recognized that  domestic industry confronted with dumped 
imports originating from several countries may be injured by the cumulated effects of those WT/DS277/R 
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decision concerned Article 3.3 of the AD Agreemen t, and involved cumulation of dumped imports 
from more than one country, the same logic supports the USITC's consistent practice of considering 
dumped and subsidized imports from the same country together.   The United States asserts that other 
countries, including Canada, have this same practi ce.  Finally, the United States maintains that the 
allegation that the USITC conducted its investigations on a joint basis so as to more likely result in an 
affirmative determination in this case has no merit.   
7.144  Canada clarified, in its oral statement and in  its answer to the Panel's question 14 after the 
first meeting, that it is not arguing that a comb ined analysis of injury  caused by dumped and 
subsidized imports is per se  inconsistent with the Agreements.  Rather, Canada argues that the alleged 
violations of Articles 1, 9.1, and 18.1 of th e AD Agreement and Articles 10 and 32.1 of the 
SCM Agreement, and Article VI:1 of GATT 1994 are "consequential" to the asserted specific 
violations, and argues that any violation of any of the common provisions in Articles 3 and 15 of the AD and SCM Agreements respectively should result in a finding by the Panel that the injury 
determination as a whole is inconsis tent with both Agreements.   The United States does not appear to 
disagree with the principle underlying Canada's position, i.e., that a finding of violation of a provision 
of either Agreement would undermine the entire dete rmination.  However, the United States argues 
that the attempt to raise the specific alleged viola tions a second time as separate violations based on 
the mere carrying out of combined investigations  and making of a single determination should be 
rejected. 
(b) Analysis by the Panel 
7.145  Although the focus of Canada's argument was not entirely clear at the outset of this 
proceeding, over the course of the proceeding it was made clear that Canada is not arguing that a 
combined analysis or a single determination of in jury caused by dumped and subsidized imports is per 
se inconsistent with the cited provisions of the Agreements.
148   However, in the absence of a 
challenge to a combined analysis or combined determination per se , it is less than clear to us what the 
alleged violation asserted by Canada is.   
7.146  The request for establishment and the argument in the first submission both refer to the failure 
of the USITC to undertake the evaluations require d by the AD and SCM Agreements.  Thus, it seems 
to us that Canada is relying on the specific viola tions alleged in support of an argument that, if any 
provision of either Agreement is found to have been violated, both the anti-dumping and 
countervailing duty measures should be found to be inconsistent with th e Agreements due to that fact 
that a single combined investigation and determination ar e at issue.  It is clear to us that both measures 
depend on the single injury determination.  We agree with the view that if that single determination is 
found to be inconsistent with a provision of e ither the AD or SCM Agreement, then a necessary 
underpinning of both measures is lacking, and both measures must be found to be inconsistent with 
the United States' obligations.   Any other conc lusion would of necessity involve the Panel in a 
speculative exercise of attempting to decipher what the analysis and conclusions of the USITC would 
                                                                                                                                                                     
imports, and that those effects may not be adequately taken into account in a country-specific 
analysis of the injurious effects of dumped imports." 
Id.  at para. 116. 
148 Indeed, it seems clear that, as the US asserts, Canada itself undertakes a combined analysis in 
similar circumstances.  In a recent case involving dumped  and subsidized imports of  stainless steel bar from 
Brazil and subsidized stainless steel bar from India, the Canadian International Trade Tribunal conducted a single, integrated injury analysis.  Moreover, although the CITT discussed whether to cumulate the imports from 
India and Brazil, it did not distinguish in any way between dumped and subsidized imports in that discussion, or 
elsewhere in its analysis.  Certain Stainless Steel Round Bar Originating In or Exported from Brazil and India , 
Inquiry No.:  NQ-2000-002.   See also, Certain Grain Corn Originating In or Exported from the Unites States of 
America and Imported into Canada for use or consumption west of the Manitoba-Ontario Border , Inquiry No.: 
NQ-2000-005 (Exhibit USA-22) and cases cited therein at footnote 14. WT/DS277/R 
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have been in the absence of the aspect  found to be in violation.   We do not believe such an exercise 
could be carried out consistent with the standard of review in either Article 11 of the DSU, or 
Article 17.6 of the AD Agreement.    
7.147  However, is not altogether clear to us that such a finding would also, without more, support a 
finding of violation of Articles 1, 9.1, and 18. 1 of the AD Agreement, Articles 10 and 32.1 of the 
SCM Agreement, and paragraph (a) of Article VI:6 of GATT 1994.  Canada has made no independent 
arguments in support of these claims.  Indeed, Ca nada acknowledged in response to questions from 
the Panel that these violations are consequential to the finding of violations under the specific 
requirements of the AD and SCM Agreements.149  Thus, in absence of any additional or independent 
argument in support of Canada's claims under these pr ovisions, a finding of violation with respect to 
any of the specific allegations would result in a finding of violation of these provisions as well.  
However, such a finding would neither elucidat e the scope of these provisions nor assist in any 
meaningful way in implementation of any recommendation of the DSB.  Therefore, in these circumstances, we consider that it is neither appropriate nor necessary to make findings on these claims.   
VIII.  CONCLUSIONS AND RECOMMENDATION 
8.1 In light of the findings above, we conclude  
(a) that the USITC determination is not cons istent with Article 3.7 the AD Agreement 
and Article 15.7 of the SCM Agreement in that the finding of a likely imminent substantial increase in imports is not one  which could have been reached by an 
objective and unbiased investigating authority in light of the totality of the factors 
considered and the reasoning in the USITC determination. 
(b) With respect to the allegations of violati ons of Article 3.7 of the AD Agreement and 
Article 15.7 of the AD Agreement in respect of other aspects of the USITC determination, we conclude that the USITC determination is not in consistent with the 
asserted provisions. 
8.2 In light of the findings above, we conclude  
(a) that the USITC determination is not consis tent with Article 3.5 of the AD Agreement 
and Article 15.5 of the SCM Agreement in that the causal analysis is based on a 
finding which is, itself, not consistent with  Article 3.7 the AD Agreement and Article 
15.7 of the SCM Agreement. 
(b) With respect to the allegations of violati ons of Article 3.5 of the AD Agreement and 
Article 15.5 of the AD Agreement in respect of other aspects of the USITC 
determination, we conclude that it is neither necessary nor appropriate to make 
findings with respect to these claims.  
8.3 In light of the findings above, we conclude that  the USITC determinati on is not inconsistent 
with Articles 3.2 and 3.4 of the AD Agreement and Articles 15.2 and 15.4 of the SCM Agreement.   
8.4 With respect to those of Canada's claims not addressed above, i.e., alleged violations of 
Articles 1, 3.1, 3.8, 12, and 18.1 of the AD Agreemen t and Articles  10, 15.1, 15.8, 22, and 32.1 of the 
SCM Agreement,  and Article VI:6(a) of the GATT 1994
, we conclude, in light of the findings above, 
that it is neither necessary nor appropriate to make findings with respect to these claims.  
                                                      
149 Canada's Responses to Questions from the Panel and the United States - First Meeting, question 14. WT/DS277/R 
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8.5 Under Article 3.8 of the DSU, in cases where there is infringement of the obligations assumed 
under a covered agreement, the action is considered prima facie  to constitute a case of nullification or 
impairment of benefits under that agreement.  Accordingly, we concl ude that to the extent the United 
States has acted inconsistently with the provisions of the AD and SCM Agreements, it has nullified or 
impaired benefits accruing to Ca nada under that Agreement.  
8.6 We therefore recommend that the Dispute Settleme nt Body request the United States to bring 
its measures into conformity with its ob ligations under the AD and SCM Agreements. 
8.7 In addition to its request for findings of viol ation, Canada requests that we recommend that 
the United States bring its measures into confor mity with its WTO obligations, "including by 
revoking the final determination of threat of injury, ceasing to impose anti-dumping and 
countervailing duties and returning the cash deposits imposed as a result of th e United States’ actions 
in this matter".
150  
8.8 Article 19.1 of the DSU provides that: 
"In addition to its recommendations, the pa nel or Appellate Body may suggest ways 
in which the Member concerned c ould implement the recommendations". 
While we are free to suggest ways in which we  believe the United States could appropriately 
implement our recommendation, we decide not to do so  in this case.  We have found that the United 
States failed to act consistently with the requireme nts of the AD and SCM Agreements in its analysis 
and explanation of its determination of threat of  material injury, and have recommended that the 
United States bring its measures into conformity with its obligations. In this regard, we note 
Article 21.3 of the DSU, which provides: 
"At a DSB meeting held within 30 days afte r the date of adoption of the panel or 
Appellate Body report, the Member concerne d shall inform the DSB of its intentions 
in respect of implementation of the r ecommendations and rulings of the DSB".  
(footnote omitted). 
Thus, while a panel may suggest ways of implem enting its recommendation, the choice of means of 
implementation is decided, in the first instance, by the Member concerned.  In this case, we see no 
particular need to suggest a means of impl ementation, and therefore decline to do so. 
 
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150 Canada's first written submission at para. 181. 