01-10687. Notice of Initiation of Countervailing Duty Investigation: Certain Softwood Lumber Products from Canada

AGENCY:

Import Administration, International Trade Administration, Department of Commerce.

EFFECTIVE DATE:

April 30, 2001.

FOR FURTHER INFORMATION CONTACT:

Eric B. Greynolds at [phone] or James Terpstra at [phone], Office of AD/CVD Enforcement VI, Group II, Import Administration, International Trade Administration, U.S. Department of Commerce, Room 1870, 14th Street and Constitution Avenue, NW., Washington, DC 20230.

Initiation of Investigation

The Applicable Statute and Regulations

Unless otherwise indicated, all citations to the statute are references to the provisions effective January 1, 1995, the effective date of the amendments made to the Tariff Act of 1930 (the Act) by the Uruguay Round Agreements Act (URAA). In addition, unless otherwise indicated, all citations to the Department of Commerce (the Department) regulations are references to the provisions codified at 19 CFR part 351 (2001).

The Petition

On April 2, 2001, the Department received a petition filed in proper form by the Coalition for Fair Lumber Imports Executive Committee,^[1] the United Brotherhood of Carpenters and Joiners, and the Paper, Allied-Industrial, Chemical and Energy Workers International Union (collectively, the petitioners). On April 20, 2001, the petition was amended to include the following four companies individually as petitioners: Moose River Lumber Co., Shearer Lumber Products, Shuqualak Lumber Co. and Tolleson Lumber Co., Inc. The Department received information supplementing the petition during the twenty-day initiation period. In accordance with section 702(b) of the Act, petitioners allege that Canadian producers of softwood lumber products received countervailable subsidies within the meaning of section 701 of the Act, and that such imports are materially injuring an industry in the United States.

The Department finds that the petitioners have standing to file this petition on behalf of the domestic industry because they are interested parties as defined in sections 771(9)(C), (D) and (E) of the Act and have demonstrated sufficient industry support with respect to the countervailing duty investigation that they are requesting the Department to initiate. See Determination of Industry Support for the Petition, below.

Scope of Investigation

The products covered by this investigation are softwood lumber, flooring and siding (softwood lumber products). Softwood lumber products include all products classified under headings 4407.1000, 4409.1010, 4409.1090, and 4409.1020, respectively, of the Harmonized Tariff Schedule of the United States (HTSUS), and any softwood lumber, flooring and siding described below. These softwood lumber products include:

(1) Coniferous wood, sawn or chipped lengthwise, sliced or peeled, whether or not planed, sanded or finger-jointed, of a thickness exceeding six millimeters;

(2) Coniferous wood siding (including strips and friezes for parquet flooring, not assembled) continuously shaped (tongued, grooved, rabbeted, chamfered, V-jointed, beaded, molded, rounded or the like) along any of its edges or faces, whether or not planed, sanded or finger-jointed;

(3) Other coniferous wood (including strips and friezes for parquet flooring, not assembled) continuously shaped (tongued, grooved, rabbeted, chamfered, V-jointed, beaded, molded, rounded or the like) along any of its edges or faces (other than wood mouldings and wood dowel rods) whether or not planed, sanded or finger-jointed; and

(4) Coniferous wood flooring (including strips and friezes for parquet flooring, not assembled) continuously shaped (tongued, grooved, rabbeted, chamfered, V-jointed, beaded, molded, rounded or the like) along any of its edges or faces, whether or not planed, sanded or finger-jointed.

Although the HTSUS subheadings are provided for convenience and U.S. Customs purposes, the written description of the merchandise under investigation is dispositive.

During our review of the petition, we discussed the scope with the petitioners to ensure that it accurately reflects the products for which the domestic industry is seeking relief. Moreover, as discussed in the preamble to the Department's regulations (62 FR 27323), we are setting aside a period for parties to raise issues regarding product coverage. The Department encourages all interested parties to submit such comments within twenty days after the date of publication of this notice in the Federal Register. Comments should be addressed to Import Administration's Central Records Unit at Room 1870, U.S. Department of Commerce, 14th Street and Constitution Avenue, NW., Washington, DC 20230. The period for scope comments is intended to provide the Department with ample opportunity to consider all comments and consult with parties prior to the issuance of the preliminary determination.

Consultations

Pursuant to section 702(b)(4)(A)(ii) of the Act, the Department invited representatives of the Government of Canada (GOC) for consultations with respect to the countervailing duty investigation. The Department held consultations with representatives of the GOC on April 18, 2001. See the April 19, 2001, memorandum to the file regarding these consultations (public documents on file in the Central Records Unit (CRU) of the Department of Commerce, Room B-099). In addition, on April 19 and 20, 2001, the Government of Canada submitted additional written comments pursuant to the consultations.

Determination of Industry Support for the Petition

Section 771(4)(A) of the Act defines the “industry” as the producers of a domestic like product. Thus, when determining the degree of industry support, the statute directs the Department to look to producers and workers who produce the domestic like product. The International Trade Commission (ITC), which is responsible for determining whether “the domestic industry” has been injured, must also determine what constitutes a domestic like product in order to define the industry. While both the Department and the ITC must apply the same statutory definition regarding the domestic like product (section 771(10) of the Act), they do so for different purposes and pursuant to separate and distinct authority. In addition, the Department's determination is subject to limitations of time and information. Although this may result in different definitions of the like product, such differences do not render the decision of either agency contrary to the law.^[2]

Section 771(10) of the Act defines the domestic like product as “a product which is like, or in the absence of like, most similar in characteristics and uses with, the article subject to an investigation under this subtitle.” Thus, the reference point from which the domestic like product analysis begins is “the article subject to an investigation,” i.e., the class or kind of merchandise to be investigated, which normally will be the scope as defined in the petition.

The petition covers softwood lumber as defined in the Scope of Investigation section, above, a single class or kind of merchandise. The petitioners define the domestic like product as the class or kind of merchandise covered by the scope of the investigation. The Department has no basis on the record to find the petitioners' definition of the domestic like product to be inaccurate.

The Department, therefore, has adopted the domestic like product definition set forth in the petition.

Section 702(b)(1) of the Act requires that a petition be filed on behalf of the domestic industry. Section 702(c)(4)(A) of the Act provides that a petition meets this requirement if the domestic producers or workers who support the petition account for: (1) At least 25 percent of the total production of the domestic like product; and (2) more than 50 percent of the production of the domestic like product produced by that portion of the industry expressing support for, or opposition to, the petition. Finally, section 702(c)(4)(D) of the Act provides that if the petition does not establish support of domestic producers or workers accounting for more than 50 percent of the total production of the domestic like product, the administering agency shall: (i) Poll the industry or rely on other information in order to determine if there is support for the petition as required by subparagraph (A), or (ii) determine industry support using a statistically valid sampling method.

In this case, the Department has determined that the petition (and subsequent amendments) contain adequate evidence of industry support; therefore, polling is unnecessary. See Attachment I to Initiation of Countervailing Duty Investigation: Certain Softwood Lumber Products from Canada (April 23, 2001) (Initiation Checklist), a public document on file in the CRU. To estimate total domestic production of softwood lumber products, the petitioners relied on year 2000 production figures published by the American Forest and Paper Association (AF&PA). The petitioners also made an upward adjustment to this figure to account, conservatively, for flooring and siding that may or may not otherwise be included in the AF&PA total production figure, but which is included in the definition of domestic like product. In a letter dated April 20, 2001, the Government of Canada attempted to show that this upward adjustment to the year 2000 total production figure was inadequate, and argued that numerous other product categories should also be added to the total production figure. We analyzed the claim made by the Government of Canada and have concluded that it would result in significant double-counting. Further, we have found no other evidence through independent research that would indicate that the petitioners' figure for total U.S. production is in any way understated. We therefore conclude that 67 percent of the U.S. softwood lumber-producing industry supports the petition. Because the petition has support from more than 50 percent of the entire domestic industry, we are not required to consider any expression of opposition in our determination to initiate this investigation. Accordingly, the Department determines that this petition is filed on behalf of the domestic industry within the meaning of section 702(b)(1) of the Act.

Injury Test

Because Canada is a “Subsidies Agreement Country” within the meaning of section 701(b) of the Act, section 701(a)(2) applies to this investigation. Accordingly, the ITC must determine whether imports of the subject merchandise from Canada materially injure, or threaten material injury to, a U.S. industry.

Allegations of Subsidies

Section 702(b) of the Act requires the Department to initiate a countervailing duty proceeding whenever an interested party files, on behalf of an industry, a petition that: (1) Alleges the elements necessary for an imposition of a duty under section 701(a); and (2) is accompanied by information reasonably available to petitioners supporting the allegations.

We are initiating an investigation of the following programs alleged in the petition to have provided countervailable subsidies to producers and exporters of the subject merchandise in Canada (a full description of each program is provided in the Initiation Checklist):

A. Federal and Provincial Timber Management Systems

This includes stumpage provided for less than adequate remuneration in the Provinces of British Columbia, Quebec, Ontario, Alberta, Manitoba, Saskatchewan, and the Yukon Territory and Northwest Territories. With respect to the Provinces of British Columbia, Quebec, Ontario, and Alberta, if we determine that cross-border is not an appropriate benchmark, we will also examine log export restrictions under the criteria of 771(5)(B). See Initiation Checklist.

B. Programs Administered by the Government of Canada

1. Non-Repayable Grants and Conditionally Repayable Contributions from the Department of Western Economic Diversification

2. Canadian Forest Service: Industry, Trade and Economics Program

3. Federal Economic Development Initiative in Northern Ontario

C. Programs Administered by the Province of British Columbia

1. Grants, Loans and Loan Guarantees Provided from Forest Renewal B.C.

2. Job Protection Act

3. Subsidies to Skeena Cellulose Inc.

D. Programs Administered by the Province of Quebec

1. Societe de Recuperation, d'Exploitation et Developpement Forestiers du Quebec (REXFOR)

2. Assistance under Article 7 of the Societe de Developpement Industriel du Quebec (SDI)

3. Export Assistance under SDI

4. Export Assistance from Investissement Quebec

5. Redemption by Tembec, Inc. of Preferred Stock Held by SDI

6. Private Forest Development Program

7. Funds to Create Jobs in Forest Industry under Budget of Quebec

E. Programs Administered by the Province of Ontario

1. Development Corporations of the Government of Ontario: Export Support Loan Program

2. Sales Tax Exemption for Seedlings

F. Program Administered by the Province of Alberta

1. Loan Guarantees to Attract New Mills

We are not initiating an investigation of the following programs alleged in the petition to have provided countervailable subsidies to producers and exporters of the subject merchandise in Canada (a full description of each program and the reason for not initiating an investigation of the program is provided in the Initiation Checklist):

A. Programs Administered by the Government of Canada

1. Loan Gurantees, Loan Insurance and Credit Insurance from the Department of Western Economic Diversification

2. Northern Ontario Business Development Loan Fund for Small to Medium Sized Businesses

3. Logging Tax Deduction

B. Programs Administered by the Province of British Columbia

1. B.C. Rail Volume Incentive Program for Lumber

2. Forest Science Program

3. Identified Wildlife Management Strategy and Landscape Unit Planning

4. B.C. Council of Forest Industries Marketing Plan

5. Toleration of Timber Theft

6. Excessive Contract Payments to Producers from Forest Renewal B.C.

C. Programs Administered by the Province of Quebec

1. Small-Wood Subsidy

2. Timber Under-Scaling

3. Financing Assistance from Investissement Quebec

4. Preferential Loans to Tembec, Inc.

5. APEX Program

6. Refinancing of Domtar Inc: New Share Subscription by Crown Corporations

7. Refinancing of Domtar Inc: Conversion of SDI Loan into Preferred Shares

D. Programs Administered by the Province of Alberta

1. Industrial Electricity Rebate Program

2. Infrastructure Grants to Attract New Mills

Critical Circumstances

In their submission, the petitioners claim that, following the March 31, 2001, expiration of the U.S.-Canada Softwood Lumber Agreement (SLA), there is a reasonable basis to believe or suspect that critical circumstances will exist with regard to imports of softwood lumber from Canada.

Section 703(e)(1) of the Act states that the Department will find that critical circumstances exist, at any time after the date of initiation, when there is a reasonable basis to believe or suspect that under paragraph (A) the alleged countervailable subsidies are inconsistent with the Subsidies Agreement and that under paragraph (B) there have been massive imports of the subject merchandise over a relatively short period of time. Section 351.206(h) of our regulations defines “massive imports” as imports that have increased by at least by 15 percent over the imports during an immediately preceding period of comparable duration. Section 351.206(i) of the regulations states that “relatively short period” will normally be defined as the period beginning on the date the proceeding begins and ending at least three months later.

In the petition, petitioners allege various export subsidy programs. We have initiated investigations on the following alleged export subsidy programs: (1) Export Assistance from the SDI, (2) Export Assistance from Investissement Quebec, and (3) the Development Corporations of the Government of Ontario Export Support Loan Program. Petitioners have alleged that these programs are inconsistent with the Subsidies Agreement.

The petitioners request that the Department immediately begin reviewing import data of the subject merchandise and that the Department request the U.S. Customs Service to compile information on an expedited basis regarding entries of subject merchandise. We note that section 702(e) of the Act states that when there is a reasonable basis to believe or suspect that the alleged countervailable subsidies are inconsistent with the Subsidies Agreement, the Department may request the Commissioner of Customs to compile information on an expedited basis regarding entries of the subject merchandise.

Taking into consideration the foregoing, we will analyze this matter further and continue to monitor imports of softwood lumber from Canada. If at any time, the criteria for a finding of critical circumstances are established, we will issue a critical circumstances finding at the earliest possible date. See Policy Bulletin 98/4, 63 FR 55364, (October 15, 1998) (determination of critical circumstances may be made any time after initiation).

Allegations and Evidence of Material Injury and Causation

The petitioners allege that the U.S. industry producing the domestic like product is being materially injured, or is threatened with material injury, by reason of the subsidization of individual and cumulated imports of the subject merchandise. Petitioners contend that the industry's injured condition is evident in the declining trends in net operating profits, net sales volumes, profit-to-sales ratios, and capacity utilization. The allegations of injury and causation are supported by relevant evidence including U.S. Customs import data, lost sales, and pricing information. We have assessed the allegations and supporting evidence regarding material injury and causation, and have determined that these allegations are properly supported by accurate and adequate evidence and meet the statutory requirements for initiation. See Attachment II of the Initiation Checklist.

Initiation of Countervailing Duty Investigation

The Department has examined the countervailing duty petition on certain softwood lumber products from Canada, and found that it complies with the requirements of section 702(b) of the Act. Therefore, in accordance with section 702(b) of the Act, we are initiating a countervailing duty investigation to determine whether manufacturers, producers, or exporters of certain softwood lumber products from Canada receive countervailable subsidies.

Exclusion Requests

Due to the extraordinarily large number of Canadian producers, the Department anticipates that it will conduct this countervailing duty investigation on an aggregate basis consistent with section 777A(e)(2)(B) of the Act. If so, the Department expects that it will receive numerous requests for exclusions during the course of this investigation. In light of petitioners' allegation that 75 percent of timber harvest in the Maritime Provinces are from private lands, we anticipate a particularly large percentage of exclusion requests from the Maritimes. The circumstances that warranted a general exclusion for the Maritimes in the past are not present in this case. Therefore, the Department anticipates creating a system that will allow us to expeditiously process and rule on these exclusion requests without compromising the integrity of the CVD law, while, at the same time, ensuring fairness and transparency in the treatment of the exclusion requests. We will seek the cooperation of the Government of Canada and the provincial governments in Canada in implementing any such system, which could involve, for example, province and/or company certifications. Comments on this issue should be submitted to the Department within 15 days of the publication of this notice in the Federal Register. Comments should be addressed to Import Administration's Central Records Unit at Room 1870, U.S. Department of Commerce, 14th Street and Constitution Avenue, NW., Washington, DC 20230.

Distribution of Copies of the Petitions

In accordance with section 702(b)(3)(A) of the Act, a copy of the public version of the petition has been provided to the representatives of the GOC.

ITC Notification

We have notified the ITC of our initiation, as required by section 702(d) of the Act.

Preliminary Determination by the ITC

The ITC will determine, no later than May 17, 2001, whether there is a reasonable indication that imports of certain softwood lumber products from Canada are causing material injury, or threatening to cause material injury, to a U.S. industry. A negative ITC determination will result in the investigation being terminated; otherwise, the investigation will proceed according to statutory and regulatory time limits.

This notice is published pursuant to section 777(i) of the Act. Effective January 20, 2001, Bernard T. Carreau is fulfilling the duties of the Assistant Secretary for Import Administration.

Dated: April 23, 2001.

Bernard T. Carreau,

Deputy Assistant Secretary, Import Administration.

Footnotes

1.  The Coalition for Fair Lumber Imports Executive Committee is comprised of Hood Industries, International Paper Company, Moose River Lumber Company, New South Incorporated, Plum Creek Timber Company, Polatch Corporation, Seneca Sawmill Company, Shearer Lumber Products, Shuqualak Lumber Company, Sierra Pacific Industries, Swift Lumber Incorporated, Temple-Inland Forest Products, and Tolleson Lumber Company, Incorporated.

2.  See Algoma Steel Corp. Ltd., v. United States, 688 F. Supp. 639, 642-44 (CIT 1988); High Information Content Flat Panel Displays and Display Glass from Japan: Final Determination; Rescission of Investigation and Partial Dismissal of Petition, 56 FR 32376, 32380-81 (July 16, 1991).