70 FR 33088, June 7, 2005

DEPARTMENT OF COMMERCE

International Trade Administration

(C-122-839)

Notice of Preliminary Results of Countervailing Duty Administrative Review: 
Certain Softwood Lumber Products from Canada

AGENCY: Import Administration, International Trade Administration, 
Department of Commerce.

SUMMARY: The Department of Commerce (the Department) is conducting an 
administrative review of the countervailing duty order on certain 
softwood lumber products from Canada for the period April 1, 2003, 
through March 31, 2004. If the final results remain the same as these 
preliminary results of administrative review, we will instruct U.S. 
Customs and Border Protection (CBP) to assess countervailing duties as 
detailed in the ``Preliminary Results of Review'' section of this 
notice. Interested parties are invited to comment on these preliminary 
results. (See Public Comment section of this notice.)

EFFECTIVE DATE: June 7, 2005.

FOR FURTHER INFORMATION CONTACT: Stephanie Moore at (202) 482-3692, or 
Robert Copyak at (202) 482-2209, AD/CVD Operations, Office 3, Import 
Administration, International Trade Administration, U.S. Department of 
Commerce, Room 4012, 14th Street and Constitution Avenue, NW, 
Washington, DC 20230.

SUPPLEMENTARY INFORMATION:

Background

    On May 22, 2002, the Department published in the Federal Register 
(67 FR 36070) the amended final affirmative countervailing duty (CVD) 
determination and CVD order on certain softwood lumber products from 
Canada (67 FR 37775, May 30, 2002). On May 3, 2004, the Department 
published a notice of opportunity to request an administrative review 
of this CVD order.

[[Page 33089]]

See Antidumping or Countervailing Duty Order, Finding, or Suspended 
Investigation; Opportunity to Request Administrative Review, 69 FR 
24117 (May 3, 2004). The Department received requests that it conduct 
an aggregate review from, among others, the Coalition for Fair Lumber 
Imports Executive Committee (petitioners) and the Government of Canada 
(GOC), as well as requests for review covering an estimated 263 
individual companies.\1\ On June 25, 2004, we initiated the review 
covering the period April 1, 2003, through March 31, 2004. See 69 FR 
39409.
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    \1\ Of these 263 company-specific requests, 116 were for zero/de 
minimis rate reviews under 19 CFR 351.213(k)(1).
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    On July 30, 2004, we determined to conduct this administrative 
review on an aggregate basis consistent with section 777A(e)(2)(B) of 
the Tariff Act of 1930, as amended (the Act). See the memorandum to 
James J. Jochum, Assistant Secretary for Import Administration, from 
Jeffrey May, Deputy Assistant Secretary for Import Administration, 
entitled, ``Methodology for Conducting the Review,'' dated July 30, 
2004, which is a public document on file in the Central Records Unit 
(CRU) in room B-099 of the main Commerce building. The Department 
further determined that it was not practicable to conduct any form of 
company-specific review. Id.
    On September 8, 2004, we issued our initial questionnaire to the 
GOC as well as to the Provincial Governments of Alberta (GOA), British 
Columbia (GOBC), Manitoba (GOM), New Brunswick (GONB), Newfoundland 
(GON), Nova Scotia (GONS), Ontario (GOO), Prince Edward Island (GOPEI), 
Quebec (GOQ), and Saskatchewan (GOS).
    On September 30, 2004, we extended the period for completion of 
these preliminary results until May 31, 2005, pursuant to section 
751(a)(3)(A) of the Act. See Certain Softwood Lumber Products From 
Canada: Extension of Time Limit for Preliminary Results of 
Countervailing Duty Administrative Review, 69 FR 58394 (September 30, 
2004).
    On November 22, 2004, the GOC, GOA, GOBC, GOM, GONB, GON, GONS, 
GOO, GOPEI, GOQ, and GOS submitted their initial questionnaire 
responses.
    From February through May 2005, we issued a series of supplemental 
questionnaires to the GOC, GOBC, GOA, GOS, GOM, GOO, GOQ, GONS, and 
GONB. The Federal and Provincial Governments of Canada responded to all 
supplemental questionnaires in a timely manner.
    Pursuant to 19 CFR 351.301, the deadline for interested parties to 
submit factual information is 140 days after the last day of the 
anniversary month. However, both petitioners' and the Canadian parties 
requested that the Department extend this due date. After a series of 
extensions, we established that the deadline for interested parties to 
submit factual information would be March 2, 2005. Accordingly, the due 
date for submitting rebuttal and/or clarifying information was extended 
to March 15, 2005. Both petitioners and the Canadian parties submitted 
factual information by the March 2 and March 15 deadlines.

Period of Review

    The period of review (POR) for which we are measuring subsidies is 
April 1, 2003, through March 31, 2004.

Scope of the Review

    The products covered by this order 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 moldings 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 
customs purposes, the written description of the merchandise subject to 
this order is dispositive.
    As specifically stated in the Issues and Decision Memorandum 
accompanying the Notice of Final Determination of Sales at Less Than 
Fair Value: Certain Softwood Lumber Products from Canada, 67 FR 15539 
(April 2, 2002) (see comment 53, item D, page 116, and comment 57, item 
B-7, page 126), available at http://www.ia.ita.doc.gov, drilled and notched 

lumber and angle cut lumber are covered by the scope of this order.
    The following softwood lumber products are excluded from the scope 
of this order provided they meet the specified requirements detailed 
below:
    (1) Stringers (pallet components used for runners): if they have at 
least two notches on the side, positioned at equal distance from the 
center, to properly accommodate forklift blades, properly classified 
under HTSUS 4421.90.98.40.
    (2) Box-spring frame kits: if they contain the following wooden 
pieces--two side rails, two end (or top) rails and varying numbers of 
slats. The side rails and the end rails should be radius-cut at both 
ends. The kits should be individually packaged, they should contain the 
exact number of wooden components needed to make a particular box 
spring frame, with no further processing required. None of the 
components exceeds 1'' in actual thickness or 83'' in length.
    (3) Radius-cut box-spring-frame components, not exceeding 1'' in 
actual thickness or 83'' in length, ready for assembly without further 
processing. The radius cuts must be present on both ends of the boards 
and must be substantial cuts so as to completely round one corner.
    (4) Fence pickets requiring no further processing and properly 
classified under HTSUS heading 4421.90.70, 1'' or less in actual 
thickness, up to 8'' wide, 6' or less in length, and have finials or 
decorative cuttings that clearly identify them as fence pickets. In the 
case of dog-eared fence pickets, the corners of the boards should be 
cut off so as to remove pieces of wood in the shape of isosceles right 
angle triangles with sides measuring 3/4 inch or more.
    (5) U.S. origin lumber shipped to Canada for minor processing and

[[Page 33090]]

imported into the United States, is excluded from the scope of this 
order if the following conditions are met: 1) the processing occurring 
in Canada is limited to kiln-drying, planing to create smooth-to-size 
board, and sanding, and 2) if the importer establishes to the 
satisfaction of CBP that the lumber is of U.S. origin.
    (6) Softwood lumber products contained in single family home 
packages or kits,\2\ regardless of tariff classification, are excluded 
from the scope of this order if the importer certifies to items 6 A, B, 
C, D, and requirement 6 E is met:
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    \2\ To ensure administrability, we clarified the language of 
exclusion number 6 to require an importer certification and to 
permit single or multiple entries on multiple days as well as 
instructing importers to retain and make available for inspection 
specific documentation in support of each entry.
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    A. The imported home package or kit constitutes a full package of 
the number of wooden pieces specified in the plan, design or blueprint 
necessary to produce a home of at least 700 square feet produced to a 
specified plan, design or blueprint;
    B. The package or kit must contain all necessary internal and 
external doors and windows, nails, screws, glue, sub floor, sheathing, 
beams, posts, connectors, and if included in the purchase contract, 
decking, trim, drywall and roof shingles specified in the plan, design 
or blueprint.
    C. Prior to importation, the package or kit must be sold to a 
retailer of complete home packages or kits pursuant to a valid purchase 
contract referencing the particular home design plan or blueprint, and 
signed by a customer not affiliated with the importer;
    D. Softwood lumber products entered as part of a single family home 
package or kit, whether in a single entry or multiple entries on 
multiple days, will be used solely for the construction of the single 
family home specified by the home design matching the entry.
    E. For each entry, the following documentation must be retained by 
the importer and made available to CBP upon request:
    i. A copy of the appropriate home design, plan, or blueprint 
matching the entry;
    ii. A purchase contract from a retailer of home kits or packages 
signed by a customer not affiliated with the importer;
    iii. A listing of inventory of all parts of the package or kit 
being entered that conforms to the home design package being entered;
    iv. In the case of multiple shipments on the same contract, all 
items listed in E(iii) which are included in the present shipment shall 
be identified as well.
    Lumber products that CBP may classify as stringers, radius cut box-
spring-frame components, and fence pickets, not conforming to the above 
requirements, as well as truss components, pallet components, and door 
and window frame parts, are covered under the scope of this order and 
may be classified under HTSUS subheadings 4418.90.45.90, 4421.90.70.40, 
and 4421.90.97.40.
    Finally, as clarified throughout the course of the investigation, 
the following products, previously identified as Group A, remain 
outside the scope of this order. They are:
    1. Trusses and truss kits, properly classified under HTSUS 4418.90;
    2. I-joist beams;
    3. Assembled box spring frames;
    4. Pallets and pallet kits, properly classified under HTSUS 
4415.20;
    5. Garage doors;
    6. Edge-glued wood, properly classified under HTSUS item 
4421.90.98.40;
    7. Properly classified complete door frames;
    8. Properly classified complete window frames;
    9. Properly classified furniture.
    In addition, this scope language has been further clarified to now 
specify that all softwood lumber products entered from Canada claiming 
non-subject status based on U.S. country of origin will be treated as 
non-subject U.S.-origin merchandise under the countervailing duty 
order, provided that these softwood lumber products meet the following 
condition: upon entry, the importer, exporter, Canadian processor and/
or original U.S. producer establish to CBP's satisfaction that the 
softwood lumber entered and documented as U.S.-origin softwood lumber 
was first produced in the United States as a lumber product satisfying 
the physical parameters of the softwood lumber scope.\3\ The 
presumption of non-subject status can, however, be rebutted by evidence 
demonstrating that the merchandise was substantially transformed in 
Canada.
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    \3\ See the scope clarification message ( 3034202), 
dated February 3, 2003, to CBP, regarding treatment of U.S. origin 
lumber on file in the CRU.
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Subsidies Valuation Information

Allocation Period

    In the underlying investigation and pursuant to 19 CFR 
351.524(d)(2), the Department allocated, where applicable, all of the 
non-recurring subsidies provided to the producers/exporters of subject 
merchandise over a 10-year average useful life (AUL) of renewable 
physical assets for the industry concerned, as listed in the Internal 
Revenue Service's (IRS) 1977 Class Life Asset Depreciation Range 
System, as updated by the Department of the Treasury. See Notice of 
Preliminary Affirmative Countervailing Duty Determination, Preliminary 
Affirmative Critical Circumstances Determination, and Alignment of 
Final Countervailing Duty Determination With Final Antidumping 
Determination: Certain Softwood Lumber Products From Canada, 66 FR 
43186 (August 2001) (Preliminary Determination); see also Notice of 
Final Affirmative Countervailing Duty Determination and Final Negative 
Critical Circumstances Determination: Certain Softwood Lumber Products 
From Canada, 67 FR 15545 (April 2, 2002) (Final Determination). No 
interested party challenged the 10-year AUL derived from the IRS 
tables. Thus, in this review, we have allocated, where applicable, all 
of the non-recurring subsidies provided to the producers/exporters of 
subject merchandise over a 10-year AUL.

Recurring and Non-Recurring Benefits

    The Department has previously determined that the sale of Crown 
timber by Canadian provinces confers countervailable benefits on the 
production and exportation of the subject merchandise under 
771(5)(E)(iv) of the Act because the stumpage fees at which the timber 
is sold are for less than adequate remuneration. See, e.g., ``Recurring 
and Non-Recurring Benefits'' section of the March 21, 2002, Issues and 
Decision Memorandum the accompanied the Final Determination (Final 
Determination Decision Memorandum); see also Notice of Preliminary 
Results of Countervailing Duty Administrative Review: Certain Softwood 
Lumber Products from Canada, 69 FR 33204 (June 14, 2004) (Preliminary 
Results of 1st Review). For the reasons described in the program 
sections, below, the Department continues to find that Canadian 
provinces sell Crown timber for less than adequate remuneration to 
softwood lumber producers in Canada. Pursuant to 19 CFR 351.524(c)(1), 
subsidies conferred by the government provision of a good or service 
normally involve recurring benefits. Therefore, consistent with our 
regulations and past practice, benefits conferred by the provinces' 
administered Crown stumpage programs

[[Page 33091]]

have, for purposes of these preliminary results, been expensed in the 
year of receipt.
    In this review the Department is also investigating other programs 
that involve the provision of grants to producers and exporters of 
subject merchandise. Under 19 CFR 351.524, benefits from grants can 
either be classified as providing recurring or non-recurring benefits. 
Recurring benefits are expensed in the year of receipt, while grants 
providing non-recurring benefits are allocated over time corresponding 
to the AUL of the industry under review. However, under 19 CFR 
351.524(b)(2), grants which provide non-recurring benefits will also be 
expensed in the year of receipt if the amount of the grant under the 
program is less than 0.5 percent of the relevant sales during the year 
in which the grant was approved (referred to as the 0.5 percent test). 
We have preliminarily determined to expense all grants under non-
stumpage programs in the year of receipt.

Benchmarks for Loans and Discount Rate

    In selecting benchmark interest rates for use in calculating the 
benefits conferred by the various loan programs under review, the 
Department's normal practice is to compare the amount paid by the 
borrower on the government provided loans with the amount the firm 
would pay on a comparable commercial loan actually obtained on the 
market. See section 771(5)(E)(ii) of the Act; 19 CFR 351.505(a)(1) and 
(3)(i). However, because we are conducting this review on an aggregate 
basis and we are not examining individual companies, for those programs 
requiring a Canadian dollar-denominated, short-term or long-term 
benchmark interest rate, we used for these preliminary results the 
national average interest rates on commercial short-term or long-term 
Canadian dollar-denominated loans as reported by the GOC.
    The information submitted by the GOC was for fixed-rate short-term 
and long-term debt. For short-term debt, the GOC provided monthly 
weight-averaged short-term interest rates based on the prime business 
rate, small and medium enterprise (SME) rate, three-month corporate 
paper rate, and one-month bankers' acceptance rate, as reported by the 
Bank of Canada. For long-term debt, the GOC provided quarterly implied 
rates calculated from long-term debt and the interest payments made on 
long-term debt as reported by Statistics Canada (STATCAN). Based on 
these rates, we derived simple averaged POR rates for both short-term 
and long-term debt.
    Some of the reviewed programs provided long-term loans to the 
softwood lumber industry with variable interest rates instead of fixed 
interest rates. Because we were unable to gather information on 
variable interest rates charged on commercial loans in Canada, we have 
used as our benchmark for those variable loans the rate applicable to 
long-term fixed interest rate loans for the POR as reported by the GOC.

Aggregate Subsidy Rate Calculation

    As noted above, this administrative review is being conducted on an 
aggregate basis. We have used the same methodology to calculate the 
country-wide rate for the programs subject to this review that we used 
in the Final Determination and Notice of Final Results of 
Countervailing Duty Administrative Review and Rescission of Certain 
Company-Specific Reviews: Certain Softwood Lumber Products from Canada, 
69 FR 75917 (December 20, 2004) (Final Results of 1st Review).

Provincial Crown Stumpage Programs

    For stumpage programs administered by the Canadian provinces 
subject to this review, we first calculated a provincial subsidy rate 
by dividing the aggregate benefit conferred under each specific 
provincial stumpage program by the total stumpage denominator 
calculated for that province. For further information regarding the 
stumpage denominator, see ``Numerator and Denominator Used for 
Calculating the Stumpage Programs' Net Subsidy Rates'' section, below. 
As required by section 777A(e)(2)(B) of the Act, we next calculated a 
single country-wide subsidy rate. To calculate the country-wide subsidy 
rate conferred on the subject merchandise from all stumpage programs, 
we weight-averaged the subsidy rate from each provincial stumpage 
program by the respective provinces' relative shares of total exports 
to the United States during the POR. As in Final Determination and the 
Final Results of the 1st Review, these weight-averages of the subject 
merchandise do not include exports from the Maritime Provinces or sales 
of companies excluded from the countervailing duty order.\4\ We then 
summed these weight-average subsidy rates to determine the country-wide 
rate for all provincial Crown stumpage programs.
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    \4\ The Maritime provinces are Nova Scotia, New Brunswick, 
Newfoundland, and Prince Edward Island.
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Other Programs

    We also examined a number of non-stumpage programs administered by 
the Canadian Federal Government and certain Provincial Governments in 
Canada. To calculate the country-wide rate for these programs, we used 
the same methodology employed in the first administrative review. For 
federal programs that were found to be specific because they were 
limited to certain regions, we calculated the countervailable subsidy 
rate by dividing the benefit by the relevant denominator (i.e., total 
production of softwood lumber in the region or total exports of 
softwood lumber to the United States from that region), and then 
multiplying that result by the relative share of total softwood exports 
to the United States from that region. For federal programs that were 
not regionally specific, we divided the benefit by the relevant 
country-wide sales (i.e., total sales of softwood lumber, total sales 
of the wood products manufacturing industry (which includes softwood 
lumber), or total sales of the wood products manufacturing and paper 
industries).
    For provincial programs, we calculated the countervailable subsidy 
rate by dividing the benefit by the relevant sales amount for that 
province (i.e., total exports of softwood lumber from that province to 
the United States, total sales of softwood lumber in that province, or 
total sales of the wood products manufacturing and paper industries in 
that province). That result was then multiplied by the relative share 
of total softwood exports to the United States from that province.
    Where the countervailable subsidy rate for a program was less than 
0.005 percent, the program was not included in calculating the country-
wide countervailing duty rate.
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    \5\ The denominators used for non-stumpage programs are 
discussed below in the individual program write-ups.
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Numerator and Denominator Used for Calculating the Stumpage Programs' 
Net Subsidy Rates\5\

1. Aggregate Numerator and Denominator
    As noted above, the Department is determining the stumpage 
subsidies to the production of softwood lumber in Canada on an 
aggregate basis. The methodology employed to calculate the ad valorem 
subsidy rate requires the use of a compatible numerator and 
denominator. In the final results of the first review, the Department 
explained that in the numerator of the net subsidy rate calculation, 
the Department

[[Page 33092]]

included only the benefit from those softwood Crown logs that entered 
and were processed by sawmills during the POR (i.e., logs used in the 
lumber production process). See ``Denominator'' section of the December 
13, 2004, Issues and Decision Memorandum that accompanied the Final 
Results of 1st Review (Final Results of 1st Review Decision 
Memorandum). Accordingly, the denominator used for the final 
calculation included only those products that result from the softwood 
lumber manufacturing process. Id. For purposes of these preliminary 
results, we continue to calculate the numerator and denominator using 
the approach adopted in the final results of the first review.\6\
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    \6\ In the case of Alberta and British Columbia, it was 
necessary to derive the volume of softwood Crown logs that entered 
and were processed by sawmills during the POR (i.e., logs used in 
the lumber production process). Our methodology for deriving those 
volumes is described in the Calculation of Provincial Benefits 
section of these preliminary results.
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    Consistent with the Department's previously established 
methodology, we included the following in the denominator: softwood 
lumber, including softwood lumber that undergoes some further 
processing (so-called ``remanufactured'' lumber), softwood co-products 
(e.g., wood chips and sawdust) that resulted from softwood lumber 
production at sawmills, and residual products produced by sawmills that 
were the result of the softwood lumber manufacturing process, 
specifically, softwood fuelwood and untreated softwood ties.
    We would have included in the denominator those softwood co-
products produced by lumber remanufacturers that resulted from the 
softwood lumber manufacturing process. However, the GOC failed to 
separate softwood co-products that resulted from the softwood lumber 
manufacturing process of lumber remanufacturers from those resulting 
from the myriad of other production processes performed by producers in 
the remanufacturing category that have nothing to do with the 
production of subject merchandise. Lacking the information necessary to 
determine the value of softwood co-products that resulted from the 
softwood lumber manufacturing process of lumber remanufacturers during 
the softwood lumber manufacturing process, we have preliminarily 
determined not to include any softwood co-product values from the non-
sawmill category. See Final Results of 1st Review Decision Memorandum 
at Comment 16.
2. Adjustments to Account for Companies Excluded from the 
Countervailing Duty Order
    In the investigation, we deducted from the denominator sales by 
companies that were excluded from the countervailing duty order. The 
Department has since also concluded expedited reviews for a number of 
companies, pursuant to which a number of additional companies have been 
excluded from the countervailing duty order. See Final Results of 
Countervailing Duty Expedited Reviews: Certain Softwood Lumber Products 
from Canada: Notice of Final Results of Countervailing Duty Expedited 
Reviews, 68 FR 24436, (May 7, 2003); see also Notice of Final Results 
of Countervailing Duty Expedited Reviews of the Order on Certain 
Softwood Lumber from Canada, 69 FR 10982 (March 9, 2004). In the final 
results of the first review, we removed the sales of companies excluded 
from the countervailing duty order from the relevant sales denominators 
of our country-wide rate calculations. See ``Excluded Companies'' 
section of the Final Results of 1st Review Decision Memorandum.
    In its case briefs submitted for consideration in the final results 
of the first review, the GOC argued for the first time in that 
proceeding that, for the numerator and denominator to match, the 
Department must also reduce the numerator to account for any de minimis 
benefits received by the excluded companies.\7\ See, e.g., Final 
Results of 1st Review Decision Memorandum at Comment 15. We agreed with 
the GOC in principle. Id. However, because the GOC first raised the 
issue in its case briefs, the Department was unable to solicit the 
information from the excluded Canadian parties regarding the 
appropriate numerator. Thus, we placed the exclusion calculations from 
the underlying investigation and expedited reviews on the record of the 
first review. Id. We then multiplied the countervailable volumes of 
logs and lumber reported by the excluded companies by each subject 
provinces' weight-average unit benefit. The resulting products were 
then removed from provincial stumpage benefit of each of the 
corresponding province. See Final Results of 1st Review Decision 
Memorandum at Comment 15.
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    \7\ Though excluded from the countervailing duty order, many 
companies involved in the exclusion and/or expedited review 
processes received de minimis levels of countervailable benefits.
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    In the current review, we requested benefit and sales data, on an 
aggregate basis for each province, as they pertained to the excluded 
companies during the POR. [bsol] page 2 of our April 8, 2005 
supplemental questionnaire. The GOC, GOO, and GOQ responded that they 
did not have the requested POR sales data. See page 2 of the GOC's 
April 28, 2005 questionnaire response. Regarding the benefit 
information we requested, the GOQ and GOO stated that the excluded 
companies in their respective provinces did not harvest Crown timber 
during the POR. The GOC stated the same with respect to the excluded 
companies in the Yukon Territories. Id. at page 6. The GOC, GOO and GOQ 
further claimed they did not have any information regarding the volume 
of lumber and/or Crown logs purchased by the excluded companies during 
the POR.
    Pursuant to our prior practice and, as discussed above, we have 
deducted the sales of all companies excluded from the countervailing 
duty order from the relevant sales denominators used to calculate the 
country-wide subsidy rates. Because we lack POR sales data from the 
excluded companies, we have, consistent with our approach in the final 
results of first review, indexed the excluded companies' sales data to 
the POR using province-specific lumber price indices obtained from 
STATCAN. We then subtracted the indexed sales data of the excluded 
companies from the corresponding provincial denominators. See 
Preliminary Results of 1st Review, 69 FR at 33207 and the ``Excluded 
Companies'' section of the Final Results of 1st Review Decision 
Memorandum.
    Because the Canadian parties have stated that the excluded 
companies did not acquire Crown timber during the POR and because they 
have not provided any other additional benefit data from the companies, 
we have not adjusted the aggregate numerator data from the relevant 
provinces.
3. Pass-through
    In the first administrative review, the Canadian parties claimed 
that a portion of the Crown timber processed by sawmills was purchased 
by the mills in arm's-length transactions with independent harvesters. 
The Canadian parties further claimed that such transactions must not be 
included in the subsidy calculation unless the Department determines 
that the benefit to the independent harvester passed through to the 
lumber producers. In the first review, we determined that Alberta, 
British Columbia (B.C.), Manitoba, Ontario, and Saskatchewan each 
failed

[[Page 33093]]

to substantiate this claim. See Preliminary Results of 1st Review, 69 
FR at 33208, 33209 and Comments 10 and 11 of the Final Results of 1st 
Review Decision Memorandum.
    The basis of our determination in the first administrative review 
was that transactions cannot be considered arm's-length transactions if 
they are characterized by limitations that constrain buyers and sellers 
of harvested Crown timber or other conditions that render those sales 
ineligible for the pass-through analysis. The limitations and other 
conditions we identified include (1) government-imposed appurtenancy 
and local processing requirements; (2) government-mandated wood supply 
agreements; (3) the structure of certain log purchase agreements; (4) 
fiber exchanges between Crown tenure holders; and (5) the payment of 
Crown stumpage fees by sawmills for logs purchased from independent 
harvesters. Thus, the starting point of our analysis was to examine 
whether in these log sale transactions the ability of a buyer or seller 
to bargain freely with whomever they chose was encumbered by government 
mandates or other conditions that render those sales not at arm's-
length or otherwise ineligible for the pass-through analysis. If a 
transaction was conducted under the constraint(s) of one or more of 
these factors, we determined that it was not conducted at arm's-length 
or otherwise is ineligible for a pass-through analysis, and no 
adjustment to the stumpage calculation was warranted. For example, 
where we found that the sawmills paid the Crown for stumpage fees for 
logs acquired from so-called independent harvesters, no pass-through 
analysis was warranted because any benefits go directly to the sawmill. 
Id.
    In anticipation of a similar claim in this administrative review, 
we requested in the initial questionnaire that each of the Canadian 
provinces report, by species, the volume and value of Crown logs sold 
by independent harvesters to unrelated parties during the POR. See 
e.g., page III-22 of the Department's September 8, 2004, initial 
questionnaire. In response to the Department's original questionnaire, 
the Canadian parties provided two sets of information for us to 
analyze. The GOA, GOBC, British Columbia Lumber Trade Counsel (BCLTC), 
and GOO each provided an ``aggregate'' claim (with accompanying 
information) of the amount of Crown timber that was obtained by the 
sawmills through arm's-length transactions. The Ontario Lumber 
Manufacturers Association (OLMA) also provided company-specific 
transaction data and supporting information for us to analyze with 
respect to Ontario and Manitoba. Regarding Quebec, the GOQ asserted 
that the Department would have to conduct a pass-through analysis 
before it included any softwood log volumes harvested under Forest 
Management Contracts (FMCs) and Forest Management Agreements (FMAs).\8\
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    \8\ The GOM and GOS did not claim that their sawmills purchased 
Crown logs in arm's length transactions. See page MB-69 of the GOM's 
November 22, 2004 questionnaire response and page SK-99 of the GOS's 
November 22, 2004 questionnaire response. Therefore, we have 
preliminarily concluded that a pass-through analysis is not 
warranted for Manitoba and Saskatchewan.
---------------------------------------------------------------------------

    We have reviewed and considered all of the information provided on 
the record of this administrative review. We determine that none of the 
provinces or parties provided any new information regarding their 
aggregate claims which warrants a change in or departure from the 
methodology we used in the first administrative review. As in the first 
administrative review, we determine that Alberta, B.C., Manitoba, 
Ontario, and Saskatchewan each failed to provide the information 
necessary to demonstrate that the transactions included in their 
respective ``aggregate'' claims were in fact conducted at arm's length. 
Consistent with our determination in the first administrative review, 
we also determine that no pass-through analysis is warranted for many 
of the transactions, e.g., where the sawmill paid the stumpage fee 
directly to the Crown, and for fiber exchanges between Crown tenure 
holders. We therefore preliminarily determine that changes to the 
subsidy calculation based on the provinces' ``aggregate'' claims are 
not warranted.
    However, for purposes of these preliminary results, we 
preliminarily determine that, based our analysis of the company-
specific data and information provided by the OLMA, a reduction in the 
Ontario subsidy benefit is warranted. Our analysis and preliminary 
findings with respect to these claims are detailed, by province, below.

a. Alberta

    In the first review, the GOA claimed that the numerator of 
Alberta's provincial subsidy rate calculation should be reduced to 
account for fair-market, arm's length sales of Crown logs between 
unrelated parties. The GOA based its claim on a survey of TDA 
transactions that was conducted by a private consulting firm hired by 
the GOA. See Preliminary Results of 1st Review, 69 FR at 33208. In the 
final results of the first review, the Department found that it is 
common for sawmills in Alberta to enter into agreements where a tenure-
holding independent harvester will supply timber to the sawmills but 
the sawmill will pay the stumpage directly to the GOA. Id.; see also 
Final Results of 1st Review Decision Memorandum at Comment 11. 
Accordingly, we found that in such transactions, known as ``delegation 
of signing authority'' or SA agreements, any stumpage benefit would go 
directly to the sawmill paying the stumpage fee, just as if the sawmill 
were drawing from its own tenure and contracting out for harvesting and 
hauling services. We therefore found that the GOA failed to 
substantiate that the volumes in the TDA survey were free of any 
volumes associated with SA agreements and, thus, the GOA's pass-through 
claim was not warranted. Id.
    In the current review, we stated that for any pass-through claim, 
the GOA had to provide a breakdown by species of the total volume and 
value that it claims did not pass-through to the purchasing sawmill. 
See page III-22 of our September 8, 2004 questionnaire. We also 
instructed the GOA not to include in its pass-through claim any 
purchases for which the mills paid the stumpage fee to the Crown. Id.
    The GOA claimed in its initial questionnaire response that ``at 
least by 1.7 million cubic meters of softwood logs were purchased by 
Alberta mills in arm's length, cash only transactions with unrelated 
parties.'' See page XII-1 and AB-S-76 of the GOA's November 22, 2004 
questionnaire response. As in the first review, the GOA based its 
contention on the TDA survey, as updated for the POR. We note that the 
updated TDA survey and the GOA's questionnaire responses do not 
indicate whether the volumes it analyzed were subject to SA agreements. 
See page 45 of the GOA's April 8, 2005 supplemental questionnaire 
response.
    In fact, regarding the TDA survey, the GOA stated that ``Alberta 
does not have access to the detailed information on log sales collected 
on a company-by-company basis by the independent private consultant . . 
.'' hired by the GOA to conduct the TDA survey. See page XII-2 of the 
GOA's November 22, 2004 questionnaire response.
    Given the GOA's failure to indicate whether the sales in the TDA 
survey were made pursuant to SA agreements, and the GOA's statement 
that it lacked access to company-specific data collected by the 
consultant it hired to conduct the TDA survey, we asked the GOA to 
respond to the pass-through

[[Page 33094]]

questions contained in our initial questionnaire without reliance on 
the TDA survey. See page 9 of our March 16, 2005 supplemental 
questionnaire. In particular, we instructed the GOA to:

    . . . breakout all data on arm's length log transactions and 
include information regarding the volume, value, species, corporate 
affiliations of the parties subject to the transaction, {as well 
as{time}  a chart identifying whether or not the transaction is subject 
to a delegation of signing authority (SA) agreement.

    Id. The GOA responded that it did not maintain or collect such 
information as any part of its normal function and that it had no means 
on its own to respond to our pass-through questions aside from the TDA 
survey. See page 45 of the GOA's April 8, 2005 supplemental 
questionnaire response.
    In our subsequent supplemental questionnaire, we noted the GOA's 
claims regarding its inability to respond to our pass-through questions 
without reliance on the TDA survey and pointed out that in the 
concurrent Section 129 proceeding the GOA was, indeed, able to report 
company-specific data separate from the TDA survey in response to the 
same pass-through questions.\9\ We therefore asked the GOA to provide 
in this review the same type of company-specific data, updated for the 
POR. See page 2 of the Department's April 21, 2005 supplemental 
questionnaire. In response to our request for company-specific pass-
through information that was not reliant on the TDA survey, the GOA 
answered that the Province ``does not keep the information requested 
here'' and it reiterated its assertion that the Department should 
conduct its pass-through analysis for Alberta using the TDA survey. See 
page 2 of its May 2, 2005 questionnaire response.
---------------------------------------------------------------------------

    \9\ In our April 21, 2005 supplemental questionnaire, we 
inadvertently referred to the first administrative review of the 
countervailing duty order when we should have instead referred to 
the Section 129 proceeding concerning the pass-through issue in the 
underlying investigation.
---------------------------------------------------------------------------

    The GOA further stated that, ``in an effort to provide some 
additional information,'' it contacted PricewaterhouseCoopers LLP (PwC) 
to provide a ``limited'' update of the survey that was included in the 
pass-through claim the GOA made in the context of the Section 129 
proceeding. Id. PWC performed this update of the Section 129 data using 
information held by the GOA on volumes of section 80/81 wood 
purportedly transferred to tenure-holding sawmills from unrelated 
parties. Id.
    In regard to the volume represented in the TDA survey, we note that 
the GOA failed to indicate whether the sales in the TDA survey were 
made pursuant to SA agreements and the GOA explained that it lacks 
access to the underlying company-specific data. Regarding the claimed 
lack of access, the GOA has been unable or unwilling to demonstrate 
that it made reasonable efforts to obtain the necessary company-
specific data. Consequently, we preliminarily find that we are unable 
to rely on the TDA survey as a basis for the GOA's pass-through claim.
    Regarding the data supplied by the PwC, we note that, by the GOA's 
own admission, the data constitutes a ``limited'' survey population 
and, thus, does not reflect the total volumes included in the pass-
through claim made by the GOA in this review. See page 2 and Exhibit 
AB-S-102 of the GOA's May 2, 2005 supplemental questionnaire response. 
Further, the information from PwC does not include any documentation 
regarding purchase agreements, as requested in our April 21, 2005 
questionnaire.\10\ See pages 1-3 and Exhibit AB-S-102 of the GOA's May 
2, 2005 supplemental questionnaire response. Moreover, the information 
from PwC lacks any corresponding value information that would enable 
the Department to conduct its pass-through analysis on a transaction-
specific basis. Id. The GOA has been unable or unwilling to explain why 
it has not supplied the necessary information. Therefore, we 
preliminarily determine to reject the information from the PwC as a 
basis for the GOA's pass-through claim.
---------------------------------------------------------------------------

    \10\ As explained above, it is necessary to examine purchase 
contacts in order to determine whether they were structured as SA 
agreements. In addition, it is necessary to review the purchase 
contracts to ensure that the transactions were made at arm's length, 
i.e., were not affected by any additional factors we previously 
identified, including: (1) limitations on log sales that may be 
contained in Crown tenure contracts such as appurtenancy 
requirements (2) local processing requirements, or (3) fiber 
exchanges between Crown tenureholders.
---------------------------------------------------------------------------

    Therefore, based on our findings above, we preliminarily determine 
that a pass-through analysis for Alberta is not warranted.

b. British Columbia

    The GOBC claims that 14.7 million cubic meters of Crown timber, or 
22 percent of the total Crown softwood log harvest, was harvested by 
so-called independent harvesters, i.e., harvesters that do not own and 
are not affiliated with sawmills during the POR. The GOBC further 
claims that no subsidy that may be attributable to this harvest volume 
passed through to purchasing sawmills and, thus, the volumes should not 
be included in the numerator of British Columbia's provincial subsidy 
rate calculation. See page BC-XIV-2 of the GOBC's November 22, 2004 
questionnaire response. In support of this claim, the GOBC provided 
survey data on what were purported to be B.C.'s primary sawmills' 
arm's-length log purchases. These data, covering the prior review 
period, were originally placed on the record of the first review by the 
BCLTC. See ``Norcon Forestry Ltd. Survey of Primary Sawmills' Arm's 
Length Log Purchases in the Province of British Columbia,'' which was 
placed on the record of this review at Volume IV, Exhibit 24 A, B of 
the BCLTC's February 24, 2005 submission (Norcon Study).\11\
---------------------------------------------------------------------------

    \11\ In its initial questionnaire response, the GOBC claimed 
that the BCLTC would provide a Norcon Study updated for the POR of 
this review. See page BC-XIV-1 of the GOBC's November 22, 2004 
questionnaire response.
---------------------------------------------------------------------------

    In the first review, the Department found that the transactions in 
the Norcon Study involved sales of Crown logs through Section 20 
auctions as well as sales to mills by small woodlot owners. See e.g., 
Preliminary Results of 1st Review, 69 FR 33208 and Final Results of 1st 
Review Decision Memorandum at Comment 10. In the first review, we 
further found that most of the Section 20 transactions are structured 
under standard contracts called ``Log Purchase Agreements'' in which 
sawmills purchasing the Crown timber are billed for the Crown stumpage 
fee directly by the B.C. Ministry of Forests. Id. As explained above, 
in the first review, we determined that no pass-through analysis is 
warranted where the sawmill or some third-party company pays Crown 
stumpage fees for logs purchased from independent harvesters. See Final 
Results of 1st Review Decision Memorandum at Comment 10.
    In addition to the information in the Norcon Study, evidence 
obtained in this review further supports our finding that sawmills pay 
the stumpage fee directly to the Crown for logs purchased from so-
called independent harvesters. See Exhibits BC-S-245, 246, and 247 of 
the GOBC's April 21, 2005 questionnaire response, which contain source 
documents illustrating how sawmills pay for stumpage on Section 20 
sales. Thus, under such arrangements, any stumpage benefit would go 
directly to the sawmills paying the stumpage fee, just as if the 
sawmill were drawing from its own tenure and contracting out for 
harvesting and hauling services, thereby eliminating the need for a 
pass-through analysis.

[[Page 33095]]

    In the prior review, we determined that log sales cannot be 
considered to be arm's-length transactions where there are restrictive 
government-imposed appurtenancy and local processing requirements that 
dictate to the harvester those entities to whom it may sell, thereby 
severely hampering the ability of the harvesters to bargain freely with 
willing purchasers in the marketplace. See Final Results of 1st Review 
Decision Memorandum at Comment 10. However, in this review the GOBC has 
stated that amendments to the Forest Act, effective November 2003, 
nullified the timber processing and appurtenancy clauses for 
replaceable and non-replaceable licenses older than 10 years. For 
licenses in effect fewer than 10 years, the timber processing and 
appurtenancy clauses will expire with the licenses or be nullified upon 
the license's tenth anniversary. Further, the GOBC claims that no new 
licenses advertised after November 4, 2003 contain any of these 
clauses. See GOBC's November 22, 2004 questionnaire response at BC-III-
11 and GOBC's April 13, 2005 questionnaire response at page 60.
    In light of the GOBC's new legislation and because pre-existing 
licenses continued to retain the appurtenancy clauses we identified in 
the prior review, we requested that the GOBC demonstrate that none of 
the tenure agreements for which it claimed no benefits passed through 
from the independent harvesters to the sawmills contained any of these 
restrictive clauses. In response, the GOBC claimed that the timber 
processing and appurtenancy clauses have no impact on the arm's length 
transactions and are therefore irrelevant to the Department's pass-
through analysis. As to our request that it demonstrate that none of 
the tenure agreements included in its pass-through claim contained any 
restrictive clauses, the GOBC claimed that it could not provide such 
information because it would be burdensome. See page 61 of the GOBC's 
April 13, 2005 questionnaire response. Instead, the GOBC provided some 
copies of the types of tenure agreements that may have been held by so-
called independent harvesters during the POR. However, regarding these 
agreements, the GOBC provided no information linking the tenure 
agreements it submitted to those transactions included in its no-pass-
through claim (e.g., several of the submitted agreements were merely 
blank templates). Therefore, for purposes of these preliminary results, 
we find that the GOBC has failed to demonstrate that the restrictive 
clauses were eliminated as a consequence of the amendments to the 
Forest Act. We also continue to disagree with the GOBC that these 
restrictions are irrelevant to the pass-through analysis. These 
government-imposed restrictions severely limit the ability of buyers 
and sellers of logs to bargain freely with whomever they choose or to 
bargain on terms that are not encumbered by government mandates.
    For the reasons explained above, and the fact that the GOBC has not 
submitted any new information that warrants reconsideration of the 
Department's prior findings, we preliminarily conclude that the GOBC 
has failed to adequately substantiate its pass-through claim, and no 
adjustment to the provincial numerator has been made.

c. Ontario

    As mentioned above, in response to the Department's initial 
questionnaire, the GOO submitted an ``aggregate'' claim of the portion 
of the Crown timber processed by Ontario sawmills that was purchased in 
arm's-length transactions. The GOO made a claim of no pass-through for 
2,459,812 cubic meters or 23.55 percent of the total invoiced volume of 
Crown timber entering the largest 25 sawmills in Ontario during the 
POR. In support of this claim, the GOO provided a breakdown of log 
transactions between the 25 largest mills in Ontario and tenure holders 
that do not own a sawmill, and certifications from officials of three 
mills each stating that their mill is not affiliated with its timber 
suppliers. The OLMA separately submitted company-specific information 
for one harvester and eight mills. The information included 
transaction-specific data, statements and certification of non-
affiliation, and additional supporting documentation.
    For the reasons described below, we preliminarily determine that 
the GOO failed to substantiate its ``aggregate'' no-pass-through claim. 
Although the Department accepts the three certifications of non-
affiliation provided by the GOO, the GOO's submission is lacking 
certifications for the other mills it included in its claim. 
Furthermore, in the initial questionnaire, we requested that the GOO 
``not include (as part of its claim) any transactions that were made 
pursuant to wood supply commitments or purchases for which the mills 
paid the stumpage to the Crown rather than the harvester.'' page VI-22 
of the Initial Questionnaire at ``Section VI: Questionnaire for the 
Province of Ontario. However, the GOO did not delineate the 
transactions in which the mills paid the stumpage fees directly to the 
Crown or the transactions that were made under a wood supply commitment 
letter or a wood supply agreement. See pages ON-237 and ON-238 of Vol. 
1 of 19 and exhibit ON-PASS-1 of Vol. 17 of 19 of the GOO's November 
22, 2004, initial questionnaire response. Due to these deficiencies, we 
are unable to conduct a pass-through analysis using the ``aggregate'' 
data provided by the GOO. We therefore preliminarily determine that 
changes to the subsidy calculation based on the GOO's ``aggregate'' no-
pass-through claim are not warranted.
    With respect to the company-specific data and information provided 
by the OLMA, we preliminarily determine that these are sufficient for 
purposes of conducting a pass-through analysis. We accept the 
certifications by the companies that the transactions they reported 
were between unaffiliated parties. In addition, the company-specific 
data clearly identified those transactions for which the harvesters 
(rather than the mills) paid the stumpage fees and those that were not 
subject to other restrictions, such as government-mandated wood supply 
commitments or fiber exchange agreements. Accordingly, we determine 
that a portion of the log sale transactions reported by the OLMA were 
conducted at arm's-length and were otherwise not affected by other 
conditions during the POR.
    For these transactions, we then performed the next step of our 
pass-through analysis by examining whether the mill received a 
competitive benefit from the purchase of the subsidized logs. This 
competitive benefit analysis is guided by the provisions of the 
Department's regulation on upstream subsidies. See 19 CFR 351.523. 
Under this analysis, a competitive benefit exists when the price for 
the input is lower than the price for a benchmark input price. The 
Department's regulations provide for the use of actual or average 
prices for unsubsidized input products, including imports, or an 
appropriate surrogate as the benchmark input price.
    We have previously determined that the record in the first 
administrative review did not contain any private prices in Ontario 
that were suitable for use as benchmarks to measure the adequacy of 
remuneration for Crown provided stumpage. See ``Private Provincial 
Market Prices'' section and Final Results of 1st Admin Review at 
Comments 20, 21. As explained in ``Provincial Stumpage Programs'' 
below, we have reached the same conclusion

[[Page 33096]]

based on the record in this proceeding. We have also explained in the 
first administrative review with respect to British Columbia, that 
``stumpage and log markets are closely intertwined and therefore Crown 
stumpage prices affect both stumpage and log prices, `` and that 
subsidized prices in the stumpage market would result in price 
suppression in log markets. Id. at ``B.C. Log Prices Are Not An 
Appropriate Benchmark.'' We have reached the same conclusion with 
respect to the log markets in Ontario. In Ontario, Crown timber 
supplies a dominant portion of the market, and the unit cost of this 
supply effectively determines the market prices of logs in Ontario. As 
shown on the record in this review and the prior review, the prices 
harvesters charge for logs are derived directly from the prices they 
pay for stumpage plus harvesting costs. Because of the relationship 
between timber (stumpage) and log prices, prices for logs in Ontario 
would be suppressed by the subsidized prices in the timber markets. As 
such, log prices in Ontario are unsuitable for purposes of measuring 
whether a competitive benefit has passed-through in transactions 
involving sales of Crown logs.
    Instead, we have turned to private stumpage prices in the 
Maritimes, which we have determined are market-determined, in-country 
prices. However, because we are measuring the competitive benefit for 
the sale of subsidized logs, we have derived species-specific benchmark 
log prices by combining the unsubsidized Maritimes stumpage prices with 
the various harvest, haul, road, and management costs reported by the 
GOO.
    We then compared the per unit prices listed for each transaction 
reported by the OLMA that we determined was eligible for a competitive 
benefit analysis with our benchmark log prices. If the price per cubic 
meter was equal to or higher than the benchmark price, we determined 
that no competitive benefit passed through and the corresponding volume 
was excluded from the numerator of our calculations. Where the per unit 
price was lower than the benchmark price, and where the difference 
between the benchmark and actual log prices was greater than that 
province-specific per-unit stumpage benefit (e.g., C$8.74 for Ontario 
SPF), we capped the amount of the subsidy considered to have ``passed-
through'' by the province-specific per-unit stumpage benefit. As such, 
the amount of the competitive benefit that calculated as was not passed 
though in the transaction was never greater than the subsidy granted by 
the Crown. The result of these calculations is that only a small 
portion of the Crown harvest volume originally included in the 
numerator is excluded from the numerator of our revised subsidy 
calculations. Accordingly, a small reduction in the Ontario subsidy 
benefit is warranted. The calculations are business proprietary. See 
the May 31, 2005, Preliminary Calculations Memorandum for Ontario. As 
noted above, if we were unable to determine that the transaction 
qualified as an arm's-length transaction or was subject to other 
conditions (e.g., the stumpage for the log was paid by the harvester), 
we did not conduct a competitive benefit analysis and the corresponding 
volume associated with these transactions was not excluded from the 
subsidy calculation.

d. Manitoba

    The Canadian parties and the GOM did not make an ``aggregate'' 
claim of the portion of the Crown timber processed by Manitoba sawmills 
that was purchased in arm's-length transactions. Rather, the OLMA 
submitted company-specific information on behalf of Tembec Inc.
    We determine that the company-specific data and information 
provided by the OLMA are sufficient for purposes of our analysis and 
that a portion of the transactions in Manitoba constitute arm's-length 
sales of logs by independent harvesters to unaffiliated sawmills during 
the POR. We accept the statement that ``with respect to its operations 
in Manitoba, Tembec is an independent harvester.'' See page 4 of Volume 
1 of the OLMA''s November 22, 2004, submission. In addition, the 
information and data provided indicate that the transactions were not 
characterized by the limitations which constrain buyers and sellers of 
harvested Crown timber from free negotiation, described above. 
Accordingly, we determine that a portion of the transactions in 
Manitoba constitute arm's-length sales of logs by independent 
harvesters to unaffiliated sawmills during the POR.
    We applied the same methodology as described above in the Ontario 
pass-through section when conducting our competitive benefit analysis. 
Because the GOM did not submit any log pricing data on the record, we 
derived the species-specific benchmark log price by combining the 
private market-determined, in-country Maritime stumpage prices with the 
various costs reported by the GOM. Because the GOM did not report 
certain harvesting costs and hauling costs, we used, where necessary, 
harvesting and hauling costs placed on the record by the GOO as 
surrogates. The result of these calculations is that none of the Crown 
harvest volume originally included in the numerator is excluded from 
the numerator of our revised subsidy calculations. Accordingly, no 
reduction in the Manitoba subsidy benefit is warranted. The 
calculations contain business proprietary information and, thus, cannot 
be discussed in further detail in these preliminary results. Therefore, 
for further details, see the May 31, 2005, Preliminary Calculations 
Memorandum for Manitoba.

e. Quebec

    In the first review, the Department did not include Crown timber 
harvested by FMC and FMA licensees in the numerator of Quebec's 
provincial subsidy rate calculation. While we acknowledged that 
evidence on the record of the first review demonstrated that some of 
the timber harvested under FMCs was sold to sawmills during the POR, 
such transactions may have included sales of logs from non-sawmill 
owning tenure holders to sawmills and, thus, would have required a 
pass-through analysis. SeeFinal Results of the 1st Review Decision 
Memorandum at Comment 13. Because in the first review we did not 
examine the relationship between the harvesters and sawmills or the 
terms and conditions of the timber sales in the context of a pass-
through analysis, we found that we were unable to reach a determination 
as to whether the volume of timber harvested under FMCs should be 
included in the numerator. Id. However, we indicated that we would 
reconsider the issue in the course of the second review. Id.
    In this review, petitioners assert that the Department must include 
in the numerator of the Quebec provincial subsidy rate calculation the 
volumes of Crown timber harvested by FMC and FMA licensees on the 
grounds that the GOQ has refused to answer the Department's questions 
concerning these licensees. See page 112 through 114 of petitioners' 
April 29, 2005 submission.
    For purposes of these preliminary results, we have included the 
volume of Crown timber harvested under the FMC license program in the 
numerator of Quebec's provincial subsidy rate calculation. In our 
initial questionnaire, we explained to the GOQ that if it wished to 
claim that any portion of the reported volume of Crown timber harvested 
under the FMC and FMA licences was sold in arm's length transactions 
and that any subsidies provided for that portion of timber of the Crown 
harvest did not ``pass-

[[Page 33097]]

through'' to purchasing sawmill(s), it had to provide a breakdown, by 
species, of the total volume and value of this harvested timber during 
the POR. In addition, we instructed the GOQ to respond to a series of 
questions regarding the terms and conditions of the transactions 
covered by any pass-through claim and to identify any affiliations 
between the buyer and seller of the logs in question. See VII-30 of our 
September 8, 2005 questionnaire. In its response, the GOQ stated:

    At this time, the Gouvernment of Quebec is not claiming that any 
portion of the reported volume of Crown harvest was sold in arms' 
length transactions. This is not to suggest that there are no such 
transactions. To the contrary, the volumes of Crown timber harvested 
pursuant to FMCs and FMAs, and subsequently sold in open market 
transactions are undoubtedly arm's length transactions. . . Because the 
volume of standing timber harvested under FMCs and FMAs is negligible, 
the Department's consistent practice has been to base its calculations 
on the volumes harvested pursuant to TSFMAs. Adherence to this practice 
obviates the need for pass-through analysis in Quebec.

    See page QC-157 through QC-158 of the GOQ's November 22, 2004 
questionnaire response. The GOQ added that if the Department decided to 
include FMC and FMA volumes in its calculations, then it would have to 
undertake a pass-through analysis. Id.
    In our initial questionnaire, we further asked the GOQ to indicate 
the total volume and value of Crown timber billed to any person or 
company that did not own or operate a sawmill and was not affiliated 
with a sawmill that the GOQ permitted to harvest Crown timber during 
the POR. See page VII-6 of our September 8, 2004 questionnaire. In 
response, the GOQ provided a list of FMC holders that it claimed did 
not own or operate sawmills during the POR. See Exhibit 50 of its 
November 22, 2004 questionnaire response. Many of the FMC holders 
identified in Exhibit 50 were municipalities. The GOQ also provided 
consolidated volume and value harvest data for FMC holders that ``paid 
no stumpage'' and those that ``paid stumpage.'' See Exhibit 57 of the 
GOQ's November 22, 2004 questionnaire response. However, this exhibit 
did not list the volume and value data separately for each FMC holder, 
as instructed by our initial questionnaire.
    In our initial questionnaire, we also asked the GOQ to identify the 
volume and value, by species and grade, of Crown log sales by FMC 
holders to companies that own sawmills. See page VII-7 of our September 
8, 2004 questionnaire. In its questionnaire response, the GOQ stated:

    The requested volume and value data is collected by the {Ministry 
of Natural Resources{time}  as part of an annual process. The data for 
the POR are not yet available. The {Ministry{time}  does not know the 
specific arrangements entered into by holders of FMCs and FMAs and, 
therefore, cannot describe the nature of those agreements or provide 
the representative contracts.

See page QC-48 of the GOQ's November 22, 2004 questionnaire response.

FMC Licences

    Pursuant to section 102 of the Forestry Act, the GOQ may grant a 
FMC license to any ``person.'' See QC-S-13 and page QC-44 of the GOQ's 
November 22, 2004 questionnaire response. Thus, FMC license holders may 
or may not own sawmills. However, cross-referencing a list of FMC 
holders, as provided in Exhibit 32 of the GOQ's November 22, 2004 
questionnaire response, with a list of sawmills with GOQ authorization 
to consume softwood timber, reveals that several sawmills did hold FMCs 
during the POR. For authorized consumption data, see page 55, 
Attachment III, of the June 2, 2004 ``Quebec Private Price 
Documentation Memo'' from the Preliminary Results of the 1st Review, 
which was placed on the record of this review the February 28, 2005 
memorandum to the file from Maura Jeffords, Case Analyst.
    In addition, evidence indicates that the GOQ often grants FMCs to 
municipalities in the province. See page QC-24 of the GOQ's November 
22, 2005 questionnaire response and Preliminary Results of 1st Review, 
69 FR at 33225. Further, sections 104.2 and 104.3 of the GOQ's Forestry 
Act stipulate that the holder of a FMC license must supply standing 
timber covered by the license to timber wood processing plants in 
Quebec in the amount specified on the license's management permit. This 
stipulation is also reflected in the standard language of the FMC 
contract. See e.g., page 3 and 10 of the sample FMC contract contained 
in Exhibit 31 of the GOQ's November 22, 2004 questionnaire response. 
Therefore, based on the information discussed above, we preliminarily 
determine that the FMC volume reported by the GOQ includes FMC licenses 
held by sawmills as well as softwood log volumes that were sold 
directly by government entities in Quebec (e.g., municipalities) to 
sawmills.
    As explained above, we provided the GOQ an opportunity to 
substantiate its claim that Crown logs were sold in arm's length 
transactions and that any subsidies did not ``pass-through'' to 
purchasing sawmills. We also specifically instructed the GOQ not to 
include in its pass-through claim any logs sold directly by government 
entities holding FMCs. The GOQ did not do so. Rather, the GOQ reported 
the entire volume of timber harvested under FMC licenses, which, apart 
from government municipalities, may also include timber harvested by 
sawmills with tenure. The volume of timber harvested by government 
entities and sawmills with tenure is not be eligible for a pass-through 
analysis. The sale by government municipalities of Crown-harvested logs 
is no different from the provincial government itself selling the logs 
and thus does not involve an ``indirect'' subsidy. Further, timber 
harvested by sawmills with tenure would be used by these mills to 
produce lumber in their own facilities rather than for the sale of logs 
to other sawmills. Because the GOQ did not break out separately the 
volume of Crown timber harvested by government entities and sawmills 
with tenure from the volume harvested by independent harvesters that 
sold logs to sawmills during the POR, we preliminarily determine that a 
pass-through analysis is not warranted. Therefore, we have included all 
of the FMC harvest volume in the numerator of our subsidy calculations.
    Petitioners have further argued that the GOQ's questionnaire 
response indicates that no stumpage fees at all were paid for a portion 
of FMC harvest volume and that the Department should reflect that lack 
of payment in our calculations. See Exhibit QC-S-82 of the GOQ's 
November 22, 2004 questionnaire response. We disagree. In cases where 
the FMC licensee is a municipality, the municipality collects dues for 
the cutting rights, not the GOQ. See QC S--92 of the GOQ's November 22, 
2004 questionnaire response. Thus, the information contained in Exhibit 
QC-S-82 reflects the FMC harvest volumes sold by government 
municipalities and non-profit organizations but not the corresponding 
prices charged to the buyers of the logs. Therefore, lacking the price 
information for these FMC volumes, as facts available we are applying 
the unit prices

[[Page 33098]]

that the GOQ reported for the remaining amount of the FMC volume.

FMA Licenses

    We are not including the timber volumes harvested under FMA 
licenses in the numerator of our calculations. Under section 84.1 of 
the Forest Act, an FMA licensee may not be the holder of a wood 
processing permit nor be affiliated with the holder of a wood 
processing permit. See QC-S-13 of the GOQ's November 22, 2004 
questionnaire response. Although the record does not contain the prices 
which the FMA license holders charge their customers for Crown logs 
even if the full amount of the subsidy is assumed to pass-through to 
its customer, inclusion of this volume in the numerator has no impact 
on the portion of the country-wide rate attributable to Quebec. 
Therefore, we have not included any of the FMA harvest volume in our 
calculations.

Analysis of Programs

I. Programs Preliminarily Determined to Confer Subsidies

A. Provincial Stumpage Programs
    In Canada, the vast majority of standing timber sold originates 
from lands owned by the Crown. Each of the reviewed Canadian provinces, 
i.e., Alberta, British Columbia, Manitoba, Ontario, Quebec and 
Saskatchewan,\12\ has established programs through which it charges 
certain license holders ``stumpage'' fees for standing timber harvested 
from these Crown lands. With the exception of British Columbia, these 
administered stumpage programs have remained largely unchanged. Thus, 
for a description of the stumpage programs administered by the GOA, 
GOS, GOM, GOO, and GOQ, see ``Description of Provincial Stumpage 
Programs'' section of the Preliminary Results of 1st Review. Changes to 
British Columbia administered stumpage system are discussed below.
---------------------------------------------------------------------------

    \12\ In this review, we did not examine the stumpage programs 
with respect to the Yukon Territory, Northwest Territories, and 
timber sold on federal land because the amount of exports to the 
U.S. is insignificant and would have no measurable effect on any 
subsidy rate calculated in this review.
---------------------------------------------------------------------------

Legal Framework

    In accordance with section 771(5) of the Act, to find a 
countervailable subsidy, the Department must determine that a 
government provided a financial contribution and that a benefit was 
thereby conferred, and that the subsidy is specific within the meaning 
of section 771(5A) of the Act. As set forth below, no new information 
or argument on the record of this review has resulted in a change in 
the Department's determinations from the final results of the first 
review that the provincial stumpage programs constitute financial 
contributions provided by the provincial governments and that they are 
specific.

Financial Contribution and Specificity

    In the underlying investigation, the Department determined, 
consistent with section 771(5)(D)(iii) of the Act, that the Canadian 
provincial stumpage programs constitute a financial contribution 
because the provincial governments are providing a good to lumber 
producers, and that good is timber. The Department further noted that 
the ordinary meaning of ``goods'' is broad, encompassing all ``property 
or possessions'' and ``saleable commodities.'' See ``Financial 
Contribution'' in the Final Determination Decision Memorandum. Further, 
the Department found that ``nothing in the definition of the term 
'goods' indicates that things that occur naturally on land, such as 
timber, do not constitute 'goods.''' To the contrary, the Department 
found that the term specifically includes ''. . . growing crops and 
other identified things to be severed from real property.'' Id. The 
Department further determined that an examination of the provincial 
stumpage systems demonstrated that the sole purpose of the tenures was 
to provide lumber producers with timber. Thus, the Department 
determined that regardless of whether the provinces are supplying 
timber or making it available through a right of access, they are 
providing timber. Id. No new information has been placed on the record 
of this review warranting a change in our finding that the provincial 
stumpage programs constitute a financial contribution in the form of a 
good, and that the provinces are providing that good, i.e., timber, to 
lumber producers. Consistent with our findings in the underlying 
investigation, we preliminarily continue to find that the stumpage 
programs constitute a financial contribution provided to lumber 
producers within the meaning of section 771(5)(D)(iii) of the Act.
    In the investigation, the Department determined that provincial 
stumpage subsidy programs were used by a ``limited number of certain 
enterprises'' and, thus, were specific in accordance with section 
771(5A)(D)(iii)(I) of the Act. More particularly, the Department found 
that stumpage subsidy programs were used by a single group of 
industries, comprised of pulp and paper mills, and the sawmills and 
remanufacturers that produce the subject merchandise. See 
``Specificity'' section of the Final Determination Decision Memorandum. 
This was true in each of the reviewed provinces. No information in the 
record of this review warrants a change in this determination and, 
thus, we preliminarily continue to find that the provincial stumpage 
programs are specific within the meaning of section 771(5A)(D)(iii)(I) 
of the Act.

Benefit

    Section 771(5)(E)(iv) of the Act and 19 CFR 351.511(a) govern the 
determination of whether a benefit has been conferred from subsidies 
involving the provision of a good or service. Pursuant to section 
771(5)(E)(iv) of the Act, a benefit is conferred by a government when 
the government provides a good or service for less than adequate 
remuneration. Section 771(5)(E) further states that the adequacy of 
remuneration:

    . . . shall be determined in relation to prevailing market 
conditions for the good or service being provided . . . in the country 
which is subject to the investigation or review. Prevailing market 
conditions include price, quality, availability, marketability, 
transportation, and other conditions of . . . sale.

    The hierarchy for selecting a benchmark price to determine whether 
a government good or service is provided for less than adequate 
remuneration is set forth in 19 CFR 351.511(a)(2). The hierarchy, in 
order of preference, is: (1) market-determined prices from actual 
transactions within the country under investigation or review; (2) 
world market prices that would be available to purchasers in the 
country under investigation; or (3) an assessment of whether the 
government price is consistent with market principles.
    Under this hierarchy, we must first determine whether there are 
actual market-determined prices for timber sales in Canada that can be 
used to measure whether the provincial stumpage programs provide timber 
for less than adequate remuneration. Such benchmark prices could 
include prices resulting from actual transactions between private 
parties, actual imports, or, in certain circumstances, actual sales 
from competitively-run government auctions. See 19 CFR 
351.511(a)(2)(i).
    The Preamble to the CVD Regulations provides additional guidance on 
the use of market-determined prices stemming from actual transactions 
within the country. See ``Explanation of the Final Rules `` 
Countervailing Duties, Final Rule, 63 FR 65348, 65377 (November

[[Page 33099]]

25, 1998) (the Preamble). For example, the Preamble states that prices 
from a government auction would be appropriate where the government 
sells a significant portion of the good or service through competitive 
bid procedures that are open to everyone, that protect confidentiality, 
and that are based solely on price. The Preamble also states that the 
Department normally will not adjust such competitively bid prices to 
account for government distortion of the market because such distortion 
will normally be minimal as long as the government involvement in the 
market is not substantial. 63 FR at 65377.
    The Preamble also states that ``[w]hile we recognize that 
government involvement in the marketplace may have some impact on the 
price of the good or service in that market, such distortion will 
normally be minimal unless the government provider constitutes a 
majority or, in certain circumstances, a substantial portion of the 
market. Where it is reasonable to conclude that actual transaction 
prices are significantly distorted as a result of the government's 
involvement in the market, we will resort to the next alternative in 
the hierarchy.''\13\
---------------------------------------------------------------------------

    \13\ Preamble, 63 FR at 65377-78 (emphasis added); see also Hot-
Rolled Carbon Steel Flat Products from Thailand, 66 Fed. Reg. at 
20259.
---------------------------------------------------------------------------

    The guidance in the Preamble reflects the fact that, when the 
government is the predominant provider of a good or service there is a 
likelihood that it can affect private prices for the good or service. 
Where the government effectively determines the private prices, a 
comparison of the government price and the private prices cannot 
capture the full extent of the subsidy benefit. In such a case, 
therefore, the private prices cannot serve as an appropriate benchmark.
    In the first administrative review, the Department determined that 
there were no usable private market stumpage prices in the provinces 
whose stumpage programs are under review that could serve as 
benchmarks. See ``Private Provincial Market Prices'' section of the 
Final Results of 1st Review Decision Memorandum. For the reasons 
discussed below, the Department continues to find that there are no 
private stumpage market prices in the provinces under review that can 
serve as first-tier benchmarks in Alberta, British Columbia, Manitoba, 
Ontario, Quebec, and Saskatchewan.

There Are No Useable First-Tier Benchmarks in the Subject Provinces 
Measuring the Benefit on Stumpage Programs Administered by the GOA, 
GOBC, GOO, GOQ, GOM, and GOS

    In this administrative review, the GOA reported private price data 
and government competitive bid data as reported in Alberta's 2004 
Timber Damage Assessment (TDA) update; the GOO provided an updated 
survey of private prices prepared by Demers Gobeil Mercier & Associes 
Inc. (DGM); the GOQ provided private stumpage prices charged in its 
province; and the GOBC provided prices from auctions the government 
administers under the B.C. Timber Sales (BCTS) program. As discussed 
below, we have preliminarily determined that pricing data reported by 
the GOA, GOO, GOQ, and GOBC are not suitable for use as a benchmark 
within the meaning of 19 CFR 351.111(a)(2)(i).

Province of Alberta

    In response to the Department's request for private timber prices, 
the GOA explained that it is not involved in private party transactions 
and does not know the process by which private timber is sold. See 
GOA's November 22, 2004 response, Volume 1 at page VIII-1. However, the 
GOA submitted the TDA as a source of data for arm's-length, cash only 
private log sales. See GOA's November 22, 2003 response at Exhibit AB-
S-76. We have examined Alberta's TDA private price data and government 
``competitive'' bid data reported in Alberta's TDA 2004 update and 
continue to find that the TDA prices are not actual market-determined 
prices, as required by the CVD regulations, and, thus, cannot be used 
as a benchmark. See Preliminary Results of 1st Review, 69 FR at 33214 
and ``Private Provincial Market Prices'' section of the Final Results 
of 1st Review Decision Memorandum and at Comment 19.
    The GOA explains that the TDA began in the mid-1990's as a means 
for mediating disputes between timber operators and other industrial 
operators concerning the value of standing timber adversely affected by 
industrial operations on timber tenures. Pursuant to these efforts, a 
consultant has collected information on log purchases which does not 
differentiate between private and Crown sources. The GOA describes the 
methodology, stating that ``the values on the {TDA{time}  table are 
derived by consultants from a two year average of competitive 
Commercial Timber Permit (CTP) sales values, as well as the value of 
arm's length log purchases, adjusted to stumpage values by backing out 
harvesting and haul costs.'' See the GOA's November 22, 2004, 
Questionnaire Response at Volume 1, page I-8.
    The GOA's response indicates that the methodology used to report 
the TDA private timber transaction data for this administrative review 
is consistent with and has not changed since the period covered by the 
prior administrative review. Id. As previously explained by the 
Department, the vast majority of the CTP prices do not reflect 
competition for the right to harvest timber and the CTP prices 
underlying the TDA calculations do not reflect market determined 
prices. See Final Results of 1st Review Decision Memorandum at Comment 
19.
    There is no new evidence offered by the GOA that would result in a 
reconsideration of the Department's decision to reject the use of TDA 
as a provincial benchmark. Moreover, due to the fact that the TDA data 
does not differentiate private and Crown sources in its survey, there 
is no method for the Department to identify the potentially private 
transactions captured by the TDA survey (which would only represent a 
maximum of 203,041 cubic meters or 2 percent of Alberta's total 
softwood sawmill Section 80/81 harvest volume that is reported as 
harvested from private lands). See GOA's November 22, 2003 response 
Table 1 at Exhibit AB-S-1. Therefore,
    based on the record evidence and consistent with the Department's 
prior determinations, we find that the TDA prices are not actual 
market-determined prices, as required by the CVD regulations, and, 
thus, cannot be used as a benchmark. See 19 CFR 351.511(a)(2).

Province of British Columbia

    British Columbia did not provide private stumpage prices for the 
record of this proceeding. Instead, the Province provided prices from 
auctions the government administers under section 20 of the Forest Act. 
These auctions were formerly conducted under the Small Business Forest 
Enterprise Program (SBFEP). In the investigation and first 
administrative review, the Department determined that the auction 
prices under the SBFEP program were not suitable for use as benchmarks 
in determining whether the GOBC sold Crown timber for less than 
adequate remuneration because the SBFEP auctions were only open to 
small business forest enterprises. As such, we determined that these 
prices did not reflect prices from a competitively run government 
auction, as required by our regulations. See 19 CFR 351.511(a)(2)(i) 
and the Preamble, 63 FR at 65377; see also the ``Private Provincial 
Market

[[Page 33100]]

Prices'' section of the Final Results of 1st Review Decision Memorandum 
and Preliminary Results of 1st Review, 69 FR at 33214.
    The GOBC has explained in this proceeding that the Forest Act was 
amended effective November 4, 2003. The amendments include specific 
changes to the section 20 auction program, under which the SBFEP was 
replaced by the new B.C. Timber Sales (BCTS) program. The GOBC claims 
that pursuant to these changes, section 20 auction prices may serve as 
first-tier benchmarks for the November 2003 to April 2004 period to 
determine whether Crown timber in British Columbia was sold for less 
than adequate remuneration. See GOBC November 22, 2004 Questionnaire 
Response, BC-III-1. See also GOBC May 18, 2005 Comments at page 2.
    To support its claim, the GOBC highlights an amendment that 
eliminated the limitation of section 20 auctions to small businesses. 
Before the amendment, section 20 sales under the SBFEP were classified 
under three categories. The second and third categories were subsumed 
into the new BCTS program largely unchanged, and continue to contain 
the same restrictions on participants as before the amendments to the 
law. According to the GOBC, the first category, however, was broadened 
to include individuals or corporations that own a timber processing 
facility. Previously, these participants were excluded. This change 
effectively eliminated the restriction of section 20 auction sales to 
small businesses allowing them to include all applicants in the 
Province. See GOBC November 22, 2004 Questionnaire Response, BC-III-2.
    As explained in detail, below, the Department preliminarily 
determines that record evidence does not support the use of prices for 
Crown timber auctioned under section 20 of the Forest Act, as amended, 
as benchmarks to measure the adequacy of remuneration for Crown 
stumpage. Firstly, the volume sold at auction does not meet the 
standard set out in the Department's Regulations. Secondly, the auction 
prices submitted by the GOBC are not market determined prices as they 
are effectively limited by Crown stumpage prices paid by Crown tenure-
holding sawmills. The Department's analysis cannot utilize a benchmark 
that would reflect any underlying subsidy to determine whether and to 
what extent that very subsidy exists.
    Section 351.511(a)(2)(i) of the CVD Regulations states that in 
measuring the adequacy of remuneration the benchmark may be derived 
from actual sales from competitively run government auctions and that, 
when choosing from such auction prices, product similarity, quantities 
sold, and other factors affecting comparability will be considered. The 
Preamble to the CVD Regulations further elaborates on this as it 
requires the use of market determined prices which may include actual 
sales prices from government-run auctions where such sales are 
competitive, account for a significant portion of the total market, and 
are based solely on price. See Preamble, 63 FR at 65377. Record 
evidence does not support the use of prices for Crown timber auctioned 
under section 20 of the Forest Act, as amended, as benchmarks because 
the volumes sold under the auctions are not ``significant.'' As such, 
these prices do not meet this part of the standard as stipulated in the 
CVD Regulations.
    Specifically, since the amendments to the Forest Act became 
effective, on November 4, 2003, to the end of the POR, on March 31, 
2004, participants in the BCTS program, including all auction sales 
(i.e., section 20 and section 21), accounted for 7.1 percent of the 
total Crown harvest and volume billed, while participants in the newly 
``unrestricted'' category 1 auction sales accounted for only 1.1 
percent of the total Crown harvest and volume billed. See GOBC April 
13, 2005, Exhibit BC-S-225. Thus, the volume of Crown timber sold by 
the GOBC through the section 20 auctions during the POR cannot be 
considered to represent a ``significant'' portion of the timber sold in 
British Columbia during the POR, and the prices from these auctions 
therefore do not meet a key requirement for their consideration as 
benchmarks for measuring the adequacy of remuneration for government 
provided goods.
    Our determination that the prices for Crown timber auctioned under 
section 20 of the Forest Act, as amended, are not market-determined 
prices, but rather reflect prices for administratively-set Crown 
stumpage, is based on a number of factors. First, participants in the 
auctions included Crown tenure holding sawmills but, most often, were 
loggers who then sold the timber to Crown tenure holding sawmills. 
Second, the price that Crown tenure holding mills are willing to pay at 
auction or, more frequently, to loggers is determined by the price they 
pay for Crown stumpage because of the non-binding Annual Allowable Cut 
(AAC) in B.C. Third, the price loggers bid at the auctions is limited 
by the price they receive from their customers, the largest of whom are 
tenure-holding sawmills. Therefore, the auction prices represented 
directly or indirectly by sales to Crown tenure-holding sawmills are 
effectively determined by Crown stumpage prices. The substantial 
presence of valuations by Crown tenure-holding sawmills within the BCTS 
prices means that the BCTS auction prices are not market-determined 
prices as required in the Department's Regulations and are not useable 
as benchmarks for measuring the adequacy of remuneration.
    Record information demonstrates that the participants in BCTS 
section 20 auctions were primarily logging firms but included some 
limited participation by Crown tenure-holding sawmills . In a study 
prepared by Susan Athey and Peter Cramton of Market Design Inc, titled 
``Competitive Auction Markets in British Columbia,'' (BCLTC Study), the 
authors state at pages 6--7, that ``most of the bidders in the auctions 
during this time period were not the major timber companies or tenure-
holders, but rather most bidders were logging firms.'' See BCLTC's 
March 2, 2005, factual submission. A footnote in the study clarifies 
that ``about two-thirds of the 34 Coast tracts were won by log brokers 
or market loggers, while about four-fifths of the 142 Interior tracts 
were won by log brokers or market loggers.'' Id
    The record further shows that a large portion of the Crown timber 
purchased in the auctions by loggers was, in turn, sold to Crown 
tenure-holding sawmills in the province. The BCLTC Study explains that 
because of the nature of the industry in B.C.:

    the efficient industry structure has specialized logging firms and 
manufacturing firms. The logging firms place bids in BCTS auctions, and 
they sell the timber directly to mills, through log markets, or some 
combination thereof. Mills occasionally participate in auctions 
directly, but this participation is the exception rather than the rule. 
Id.

    During the course of this proceeding, we specifically asked the 
GOBC for additional information concerning the identity of the BCTS 
section 20 auctions bidders and the use of the timber obtained from 
these auctions. See the Department's requests for information in the 
questionnaires to the GOBC, dated March 16, 2005, March 23, 2005, and 
April 5, 2005. The GOBC contacted the Department on March 21, March 28, 
and on April 8, to advise that it was unable to respond fully to these 
questionnaires because of the voluminous data associated with each of 
the timber sale

[[Page 33101]]

licences (TSL) associated with the section 20 auctions sales.\14\
---------------------------------------------------------------------------

    \14\ TSLs grant the right to harvest timber within a specific 
Timber Supply Area or TFL Area. TSLs have a duration of no more than 
10 years. TSLs under Section 20 and 23 typically have a one-year 
term while TSLs under Section 21 have terms averaging four or five 
years.
---------------------------------------------------------------------------

    In light of this, the Department requested information from 14 
randomly selected TSLs, including a copy of ``payment distribution,'' 
of the Ministry of Forests (MOF) invoices. The GOBC provided the 
requested information for ten of these TSLs, stating that no invoices 
were issued during the POR for the remaining four TSLs selected by the 
Department. The information from these 10 TSLs shows that the winning 
bidders of the Crown timber under BCTS section 20 auctions sold at 
least 65 percent of the timber to large Crown tenure holders with 
sawmills. See Exhibits BC-S-245 and 246 of the GOBC's April 21, 2005 
questionnaire response.
    The evidence that the auction winning loggers' principal customers 
are large tenure-holding sawmills is supported by the dominance of the 
B.C. timber market by the large Crown tenure-holding sawmills. This is 
significant to the extent that it limits the loggers' ability to sell 
timber bought at the auctions to other customers. Record information 
demonstrates that a small number of these large tenure-holding sawmills 
harvest the majority of the Crown timber in B.C. For example, the ten 
largest licensees by AAC (Canadian Forest Products Ltd., Weyerhaeuser 
Company Limited, Slocan Forest Products Ltd., West Fraser Mills Ltd., 
Doman Industries, International Forest Products, Riverside Forest 
Products Limited, Weldwood of Canada Limited, Tolko Industries Ltd., 
and Tembec Industries Inc) account for approximately 59 percent of the 
Crown harvest and 52 percent of all timber harvested in the province. 
See BC-III-14 of the GOBC's November 22, 2004 questionnaire response 
and Exhibits BC-S-1 and BC-S-10. These large Crown tenure-holding 
sawmills, and the timber harvested from administratively-set Crown 
logs, thus dominate a significant portion of the timber market in 
British Columbia.
    The idea that the customers of loggers bidding at the auctions are 
large tenure-holding sawmills is further supported with other 
information on the record. For example, West Fraser, a large Crown 
tenure-holding sawmill, claims that it purchased logs from market 
loggers who won bids in section 20 small business or BCTS auctions; in 
such purchases, West Fraser also claims that other sawmills 
participated. See BCLTC's February 28, 2005 submission at Appendix C, 
page 2. Other sawmills submitted statements that they too purchased 
section 20 auction logs from winning bidders. Id. at Appendices B--G.
    On the basis of the record information described above showing that 
most of the participants in the auctions were loggers who sold most of 
the timber bought at auction to Crown tenure-holding sawmills, we 
determine that it is reasonable to conclude that most of the Crown 
timber sold in BCTS section 20 auctions was ultimately purchased and 
used by Crown tenure-holding sawmills.
    The AAC in the province effectively limits the amount that Crown 
tenure-holding mills are willing to pay for timber from the auctions or 
pay to loggers who win bids at the auctions. The AAC in BC is not an 
effective limitation on timber supply for Crown tenure-holding 
sawmills, as sawmills can just decide to harvest more from their Crown 
tenure, the price they pay for auctioned timber would be limited by 
what they pay for Crown stumpage. The record shows that these large 
Crown tenure-holding sawmills did not exhaust the amount of timber they 
could harvest from their tenures during the POR. As such, they were not 
forced to obtain timber from other sources, such as the BCTS section 20 
auctions, because of a scarcity of available timber on their own 
tenure.
    Specifically, the Crown tenure-holding sawmills, who hold forest 
licenses and tree farm licenses, were allocated 61.0 million cubic 
meters of timber or 85 percent of the AAC, which is the annual rate of 
timber harvesting specified in each Timber Supply Area (TSA), during 
the POR. However, these licensees harvested only 42.4 million cubic 
meters or 70 percent of their AAC, a shortfall of 18.6 million cubic 
meters. See GOBC's November 22, 2004, Questionnaire Response at BC-S-
139. Moreover, since Crown tenure holders are allowed to overcut their 
AAC, even meeting their AAC would not have necessitated their buying 
from the auctions as additional timber could have been harvested under 
their tenures. See GOBC November 22, 2004, Questionnaire Response at 
BC-S-88. The mills' willingness to pay for timber from other sources, 
such as the auctions, will be limited by their costs for obtaining 
timber from their own tenures.
    The price that loggers bid at the auctions is limited by the price 
they receive from tenure-holding sawmills because these sawmills are 
major purchasers of timber from the loggers and the major producers of 
softwood lumber in B.C. That loggers consider the price they will 
receive from tenure-holding sawmills and that this price determines 
what they bid in the BCTS auctions is demonstrated in the record by the 
fact that logging firms negotiate with the Crown tenure holding 
sawmills prior to placing a bid in the BCTS auction. See GOBC's 
November 22, 2004, Questionnaire Response at BC-IV-43 and April 13, 
2005, Supplemental Response at page 47, and GOBC's November 22, 2004, 
Questionnaire Response at BC-S-26. See also the BCLTC Study at page 6-
7, which states that:

    The BCTS auctions during this time period restricted bidders to 
hold no more than three BCTS timber licenses simultaneously. .. In 
addition, if a [saw]mill is unable to bid on a tract due to the 
restriction, the market loggers participating in the BCTS auctions will 
still take into account the mill's valuation for the logs, since the 
loggers anticipate being able to sell the harvested logs directly to 
the mill or through the log market (where log market prices will 
reflect the valuations of all local mills). Thus, a mill's valuation 
for the logs is still reflected in the auction prices, even it if does 
not bid directly. (Emphasis added.)

    As stated previously, our analysis cannot utilize a benchmark that 
would reflect any underlying subsidy to determine whether and to what 
extent that very subsidy exists. As described above, the prices for 
timber auctioned under section 20 are effectively limited by Crown 
stumpage prices paid by Crown tenure-holding sawmills. These sawmills 
purchase the predominant amount of the timber bought in the auctions by 
logging companies at prices that are negotiated with the loggers prior 
to the auction in addition to being minor participants in the auctions. 
Moreover, the sawmills are in a position to establish these timber 
prices in a manner that reflects the prices they pay for Crown stumpage 
on their own tenures, i.e., administratively-set prices, because they 
are not faced with a scarcity of timber from their tenure.
    For these reasons, we preliminarily determine that the prices of 
Crown timber auctioned under section 20 of the Forest Act, as amended 
during the POR, are effectively limited by prices for administratively-
set Crown timber. As such, these prices cannot serve as benchmarks to 
measure the adequacy of remuneration for Crown provided timber, because 
they do not reflect

[[Page 33102]]

market-determined prices from competitively run government auctions, a 
key requirement of the CVD regulations. See 19 CFR 351.511(a)(2)(i).

Province of Ontario

    In the first administrative review, we determined that the prices 
for private standing timber in Ontario placed on the record by the GOO 
could not be used for benchmark purposes. Specifically, we determined 
that the prices reported in a survey prepared by DGM could not be used 
as benchmarks because the prices are effectively determined by the 
price for public timber. See Preliminary Results of 1st Review, 69 FR 
at 33215-33217; and Final Results of 1st Review Decision Memorandum at 
Comments 20 and 21.
    In this review, the GOO submitted estimates (based on mill return 
data) of the volumes of private timber delivered to the various mills 
and a survey of prices of standing timber from private lands conducted 
by Bearing Point. In addition, the GOO submitted an economic analysis 
written by Charles River Associates and a map which shows the 
distribution of private forest lands in Ontario.
    This new information has not led us to alter our findings from the 
first review. As in the prior review, we determine that the prices for 
private standing timber in Ontario are effectively determined by the 
price for public timber and, thus, cannot be used as benchmarks for 
determining whether the GOO sells Crown timber for less than adequate 
remuneration.
    Information on the record indicates that sawmills in Ontario rely 
on Crown timber for the vast majority of their timber supply needs and 
use private timber in small quantities. According to mill return data 
provided by the GOO, 70 out of 75 mills reported usage of both Crown 
timber and timber from private lands, accounting for 99.7 percent of 
the total volume reported. See Exhibit ON-SUPP-3 of the GOO's April 15, 
2005, supplemental questionnaire response. Also according to data 
provided by the GOO, the twenty-five largest sawmills, which account 
for about 74 percent of the volume reported, used approximately 10 
million cubic meters of Crown timber during POR and less than one half 
million cubic meters of private timber. Information provided on the 
record by the GOO also indicates that tenure holders in Ontario are 
virtually unconstrained in the amount of Crown timber they can obtain. 
During the POR, loggers and mills in Ontario harvested only 70 percent 
of the annual allowable cut set by the GOO. See exhibit ON-TNR-3 of the 
GOO's April 15, 2005, supplemental questionnaire response. In each of 
the last four years, the harvest level ranged from as low as 56 percent 
to no more than 88 percent of the annual allowable cut. Id.
    With no constraints on the amount of Crown timber that sawmills can 
obtain, the price that loggers are willing to bid on private stumpage 
is dictated by the difference of the expected sale price of the log and 
their harvesting costs plus profit. Loggers who sell to tenure-holding 
mills cannot expect to charge more for their private logs than the cost 
of the logs that the mills can source from their public tenure. The 
largest 25 softwood sawmills, producing 92 percent of the lumber in 
Ontario, have Crown tenure for which they pay government-set stumpage 
prices. See page ON-236 of the GOO's November 22, 2004 initial 
questionnaire response. Because the AAC in Ontario is not binding, 
mills with public tenure can always harvest more timber from their 
tenure and are not driven to the private market by demand that cannot 
be met from their tenure-holdings. See Final Results of 1st Review 
Decision Memorandum at Comment 20. Their willingness to pay for logs 
from other sources will be limited by their costs for obtaining timber 
from their own tenures. Therefore, the prices loggers bid for private 
stumpage are limited by the public stumpage prices paid by these mills. 
For these reasons, the Department finds that the transactions recorded 
in the Bearing Point Survey are effectively determined by the Crown 
stumpage prices and are, hence, not suitable benchmarks for assessing 
adequacy of remuneration.
    Our analysis cannot utilize a benchmark that would reflect any 
underlying subsidy to determine whether and to what extent that very 
subsidy exists. Because the prices in the Bearing Point Survey are 
dictated by the price for Crown timber, they are not useable under tier 
one of our regulatory hierarchy.

Province of Quebec

    In the first administrative review, we concluded that prices for 
private standing timber in Quebec could not serve as benchmarks for 
determining whether the GOQ sells Crown timber for less than adequate 
remuneration because the incentives that tenure holders face vis-a-vis 
the private market are distorted. We based our conclusion on the 
following factors:
 Tenure-holding sawmills have an interest in maintaining a low 
value of standing trees in private forests, as this value provides the 
basis for calculating Crown timber prices (the Feedback Effect)
 Sawmills with access to Crown timber can avoid sourcing in the 
private forest because, among other things, the annual allowable cut on 
Crown land is not binding.
 Tenure-holding sawmills dominate the private market
 Sawmills without access to Crown timber account for small 
harvest volume in the private forest
See Preliminary Results of 1st Review, 69 FR at 33215-33217. See also 
Final Results of 1st Review Decision Memorandum at Comments 22 through 
33.
    A review of the information on the record of this review has not 
led us to alter this finding. Similar to the first administrative 
review, the GOQ provided the aggregate sourcing patterns of Quebec's 
1,020 softwood sawmills during 2003. The mills were divided into four 
categories: mills sourcing exclusively from public sources (purely 
public mills), mills sourcing exclusively from private sources (purely 
private mills), mills sourcing from public and private sources, and 
mills sourcing from public, private, and other (e.g., imports) sources 
(public/private/other mills). Analysis of the data provided shows that 
purely private mills sourced 534,769 cubic meters of softwood timber 
which accounted for only 1.7 percent of the volume of softwood 
harvested in the province. See Exhibit 162 of the GOQ's April 19, 2005 
supplemental questionnaire response; see also Table 1 of the May 31, 
2005, Memorandum to the File from Eric B. Greynolds, ``Quebec Internal 
Price Memorandum'' (Quebec Internal Price Memorandum) Further, record 
evidence indicates that the average consumption rate of the 819 purely 
private mills continues to be small, on average approximately 653 cubic 
meters, relative to the 146 dual-source mills, whose consumption rate 
was approximately 171,421 cubic meters (a.k.a., mills that source from 
public and private sources). Id.
    In addition, evidence on the record of this review indicates that 
dual-source mills dominate the market for private standing timber. The 
146 dual-source mills accounted for 85.9 percent of the private timber 
harvested in 2003. Id. At the same time, dual-source mills obtained 
only a small percentage of their total harvest during 2003 from private 
lands. For instance, public/private/other mills obtained 17.6 percent 
of their total harvest from the private forest while public/private 
mills sourced just 10.6 percent of their softwood from the private 
forest. Id. Thus, the data continue to indicate that

[[Page 33103]]

the public stumpage market is a much more important sourcing component 
for dual-source mills and, thus, continues to be the market on which 
these mills focus the majority of their interests and operations.
    As in the first administrative review, record evidence indicates 
that the dominance of the dual-source mills is pronounced at the 
corporate level. In Exhibit 120 of its March 15, 2005 questionnaire 
response, the GOQ provided actual consumption data for 440 of Quebec's 
softwood sawmills.\15\ The data in Exhibit 120 indicate that in 2003 
six corporations, whose mills source from both public and private 
sources, consumed approximately 54 percent of the total timber harvest, 
63 percent of the public harvest, and 31 percent of the private 
harvest. See Table 2 of the Quebec Internal Price Memorandum. Further, 
sorting the data in Exhibit 120 by private timber consumption indicates 
that 20 corporations (15 of which operate dual-source mills) account 
for over 70 percent of the private timber harvest. See Table 3 of the 
Quebec Internal Price Memorandum. However, while these corporations 
consume the majority of private timber in Quebec, private-origin timber 
accounts, on a weighted-average basis, for 12 percent of their inputs 
while public timber accounts for 83 percent.
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    \15\ These mills accounted for nearly all (95 percent) of the 
softwood processed in the Province during the POR. Thus, we find 
that the data in Exhibit 120 provide a reasonable summary of the 
consumption patterns of Quebec's softwood sawmills in operation 
during 2003.
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    In addition, information on the record of this review indicates 
that there have been no changes to Quebec's Forestry Act that would 
lead us to alter our previous findings that feedback effects inherent 
in the GOQ's administered stumpage system encourage tenure holders to 
maintain low prices for private timber. We also continue to find that 
sawmills with access to Crown timber can avoid sourcing in the private 
forest. Therefore, for purposes of these preliminary results, we find 
that private prices for standing timber in Quebec cannot serve as 
benchmarks within the meaning of 19 CFR 351.511(a)(2)(i) when 
determining whether the GOQ sells Crown timber for less than adequate 
remuneration, because these prices are distorted by a combination of 
the GOQ's administered stumpage system, the relative size of public and 
private markets, feedback effects between the private and public 
markets, and a non-binding AAC. See ``Private Provincial Market 
Prices'' section of the Final Results of 1st Review Decision 
Memorandum.

Provinces of Manitoba and Saskatchewan

    With respect to Manitoba and Saskatchewan, the provincial 
governments did not supply private market timber prices upon which to 
base a first-tier benchmark arising from those provinces.

Private Stumpage Prices in New Brunswick and Nova Scotia May Serve as a 
First-Tier Benchmarks in the Subject Provinces

    As in the first administrative review, private stumpage prices for 
New Brunswick and Nova Scotia (together, the Maritimes) were submitted 
on the record of this review by the GONB and GONS, respectively. These 
prices are contained in separate price surveys prepared by AGFOR, Inc. 
Consulting (AGFOR) for each of the Maritimes' governments. See New 
Brunswick AGFOR Report at Exhibit 1 of the GONB's November 22, 2004 
questionnaire response. See Nova Scotia AGFOR Report at Exhibit 4 of 
the GONS's November 22, 2004 questionnaire response.
    In the first administrative review, we determined that private 
stumpage prices in the Maritimes constituted market determined, in-
country prices consistent with the first-tier of the adequate 
remuneration hierarchy of 19 CFR 351.511(a)(2). Therefore, we used 
these prices to assess the adequacy of remuneration of the Crown 
stumpage provided by the GOA, GOM, GOO, GOQ, and GOS. See Preliminary 
Results of 1st Review, 69 FR at 33218. See also ``Private Stumpage 
Prices in New Brunswick and Nova Scotia'' section of the Final Results 
of 1st Review Decision Memorandum and at Comments 34, 35, 37, and 38.
    As explained in the first administrative review, Maritimes' 
stumpage price reports were prepared by AGFOR on behalf of the 
Maritimes' governments to establish the bases for their administered 
stumpage rates and not for the purpose of this proceeding. Id. Record 
evidence further indicated that in establishing their Crown stumpage 
rates, the Maritimes consider the prevailing prices for stumpage in the 
private market and the calculations for the Crown stumpage rates are 
thus directly linked to actual market-based transactions in the private 
market. Id. In addition, in the first administrative review, we found 
that the private supply standing timber constitutes a significant 
portion of the overall market in the Maritimes. See Preliminary Results 
of 1st Review, 69 FR at 33218. During the POR of this administrative 
review, private supply accounts for 49.2 percent of the total harvest 
in New Brunswick and over 89.4 percent in Nova Scotia. See Exhibit 1 of 
the GONB's May 2, 2005 submission; see page 2 of the GONS's November 
23, 2004 submission.
    Although interested parties have contested our use of Maritimes' 
private stumpage prices in this review, we find their comments do not 
contain any new evidence or argument which would warrant a 
reconsideration of our prior finding. For example, the argument that 
Maritimes' private stumpage prices do not reflect prevailing market 
conditions in the subject provinces is fully addressed in the first 
review. See Final Results of 1st Review Decision Memorandum at Comment 
38. Thus, we preliminarily determine that the Maritimes' private prices 
are market-determined prices in Canada, and are therefore usable under 
the first tier of our adequate remuneration hierarchy, and consistent 
with our approach in the first administrative review, we have used 
Maritimes' private prices to measure the adequacy of remuneration of 
the stumpage programs administered by the GOA, GOS, GOM, GOO, and 
GOQ.\16\
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    \16\ In the first administrative review, we determined that 
Maritimes' private prices were not the most appropriate benchmark 
for British Columbia. See ``Benchmark Prices for B.C.'' section of 
the Final Results of 1st Review Decision Memorandum. We have 
continued to adopt this approach in the current review. See 
``Maritimes Prices are not the most appropriate Benchmark for 
British Columbia'' section of these preliminary results for further 
discussion.
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Comparability of Maritimes Standing Timber to Standing Timber in 
Alberta, Manitoba, Ontario, Quebec, and Saskatchewan

    The Nova Scotia and New Brunswick Reports contain prices for the 
general timber species category of eastern SPF.\17\ The species 
included in eastern SPF are also the primary and most commercially 
significant species reported in the SPF groupings for Quebec, Ontario, 
Manitoba, Saskatchewan and a portion of Alberta, accounting for over 90 
percent of the entire timber harvest across these provinces.\18\
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    \17\ This category includes, among other species, white spruce, 
black spruce, red spruce, jack pine, and balsam fir which represents 
the vast majority of the species harvested in the Maritimes.
    \18\ 98 percent for Quebec, 94 percent for Ontario, 99 percent 
for Saskatchewan, 99 percent for Manitoba, and 99 percent for 
Alberta.
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    In the first administrative review, we found that although there is 
some minor variation of the relative concentration of

[[Page 33104]]

individual species across provinces, this does not affect comparability 
for benchmark purposes. See, e.g., Preliminary Results of 1st Review, 
69 FR at 33219; and ``Private Stumpage Prices in New Brunswick and Nova 
Scotia'' section of the Final Results of 1st Review Decision Memorandum 
and at Comment 38. We further found that the provinces themselves do 
not generally differentiate between these species; rather, they tend to 
group all eastern SPF species into one category for data collection and 
pricing, e.g., Quebec charges one stumpage price for ``SPF.'' Id.
    In this review, petitioners contend that it is not appropriate to 
measure the adequacy of the GOA's administered stumpage system because 
a significant portion of Alberta's Crown harvest consists of species 
that are made into Western ``SPF'' lumber, which is superior and, 
therefore, not comparable to the Eastern ``SPF'' lumber produced from 
standing timber harvested in the Maritimes. See page 63 through 69 of 
petitioners' April 29, 2005, submission. Petitioners further argue that 
it is not appropriate to compare Maritimes' stumpage prices to 
Alberta's Crown stumpage prices because there is little commonality 
between western and eastern softwood species. Id.\19\
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    \19\ Petitioners made similar contentions regarding the 
dissimilarity of logs and lumber from the Maritimes and Alberta 
during their April 14 and May 5 meetings with members of the Import 
Administration staff. See the attachments in the April 14 and May 6, 
2005 memorandums to the file from Eric B. Greynolds, Program 
Manager, Office of AD/CVD Enforcement III, entitled, ``Meeting with 
Counsel to the Coalition for Fair Lumber Imports Concerning the 
Upcoming Preliminary Results.''
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    We note that petitioners' contentions are premised on the notion 
that there is a premium attached to Western ``SPF'' lumber, which 
results in a premium for Western ``SPF'' logs. On this point, we note 
that petitioners have themselves asserted the opposite. In a submission 
to the Department regarding the ruling of the NAFTA dispute settlement 
panel, petitioners urged the Department to measure the adequacy of 
remuneration of the subject provinces' administered stumpage system 
using a U.S.-based log benchmark. See petitioners' August 27, 2003 
submission, a public document on file in the CRU. In support of their 
argument that the use of a U.S.-based log benchmark would be feasible, 
petitioners contended that minimal adjustments would be necessary to 
calculate the subsidy benefits for the subject provinces:

    Any comparisons based on log prices should be species-specific. 
With the exception of the BC Coast, however, the large majority of 
Canadian timber falls into the spruce-pine-fir (``SPF'') category, 
which is generally recognized as commercially interchangeable.

    See page 72 of petitioners' August 27, 2003 submission. They 
further stated that because, ''. . . most Canadian lumber . . . is sold 
as part of the undifferentiated SPF lumber grouping, timber harvests 
are largely simply SPF as well.'' Id. Petitioners went on to cite a 
statement made by a major Canadian lumber company, Abitibi-
Consolidated, Inc., in the context of the antidumping investigation in 
which it also attested to the interchangeability of eastern and western 
SPF lumber. Id. On this basis, petitioners concluded that in 
calculating a U.S.-based log benchmark, ``adjustments for species 
within the SPF group, therefore, are not necessary.'' Id. Further, in 
the context of the antidumping proceeding, the Department also found 
eastern and western SPF to be interchangeable. See Notice of 
Preliminary Determination of Sales at Less Than Fair Value and 
Postponement of Final Determination: Certain Softwood Lumber Products 
from Canada, 66 FR 56062 (November 6, 2001), where, in reference to 
lumber, the Department stated:

    . . . Eastern and Western Spruce-Pine-Fir are identical from the 
viewpoints of the markets and with respect to end-use. The ``eastern'' 
and ``western'' designations are simply a regional distinction which is 
irrelevant for purposes of product comparison in this investigation.

    Regarding the comparability of the Maritimes to the subject 
provinces, in the first administrative review we also determined that 
the species maps for SPF demonstrate that the species group's range of 
growth stretches from the Maritimes to Alberta. See Final Results of 
1st Review Decision Memorandum at Comment 38. We further determined 
that record evidence demonstrated that SPF trees are comparable across 
their entire growing range as demonstrated by tree diameter, which is 
one of the most important characteristics in terms of lumber use. Id. 
For example, we found comparable diameters among SPF trees grown from 
the Maritimes to Alberta. Id. In particular, we found that at the 
easternmost portion of their range, SPF's average diameter at breast 
height (DBH) in New Brunswick is 7.78 inches, at the westernmost 
portion of their range in Alberta, the DBH is 8.00 inches, and in 
Quebec, which accounts for the largest overall harvest, the DBH is 
7.91. Id.
    In their April 29, 2005 submission, petitioners contend that the 
diameter information the Department relied on in the first 
administrative review overstated the average diameter of the Maritimes' 
standing timber and understated the diameter of the subject provinces, 
namely that of Alberta. They argue that if the Department accounts for 
biases in the diameter data, it will find that, regardless of the 
preponderance of SPF, the Maritimes logs are too small relative to 
those of the subject provinces to be used as stumpage benchmark.
    The Department continues to rely on the diameter data it relied on 
in the first review. We note that petitioners previously stated that:

    . . .for sawlog sizes up to the 10-inch diameter class--the vast 
bulk of relevant logs in both the U.S. and Canada, outside of the B.C. 
Coast--log prices do not substantially vary on a per-unit-basis, as 
long as the logs are of a sufficient size and quality to be sold to 
sawmills for milling into lumber.

Id. at 73.

    For these reasons, we preliminarily determine that Maritimes' 
prices for eastern SPF are comparable to Crown stumpage prices for the 
SPF species groupings in Quebec,\20\ Ontario, Manitoba, Saskatchewan, 
and Alberta. Accordingly, consistent with 19 CFR 351.511(a)(2)(i), we 
have compared these market-determined, in-country prices to the Crown 
stumpage prices in each of the provinces to determine whether the Crown 
prices were for less than adequate remuneration.
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    \20\ Consistent with our approach in the first administrative 
review, we continue to find that Quebec's SPF basket includes larch. 
Accordingly, we constructed an SPF benchmark which includes larch 
for Quebec for this review. See, e.g., Final Results of 1st Review 
Decision Memorandum at Comment 40.
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Application of Maritimes Prices

    Having preliminarily found that the Maritimes' prices are in-
country, market-determined prices, we next consider how to apply these 
prices in our benefit calculations.
1. Indexing
    The Nova Scotia Report contains price data from 1999. The New 
Brunswick Report contains price data for the period July 1, 2002, to 
November 30, 2002. In the first administrative review, we indexed the 
data in the Nova Scotia Report using using a lumber-specific index 
reported for the Atlantic Region by STATCAN. See Preliminary Results

[[Page 33105]]

of 1st Review, 69 FR at 33218.\21\ In the current administrative 
review, petitioners have argued that it is incorrect to index stumpage 
prices using a lumber price index, especially since the evidence they 
submitted on the record purportedly indicates diverging lumber and log 
prices. See page 89 of petitioners' April 29, 2005 submission. 
Petitioners contend that we should instead rely on indices derived from 
log price data from the Atlantic Forestry Review (AFR), a Maritimes-
based publication that reports softwood sawlog prices on a bi-annual 
basis, to index the pricing data from Nova Scotia and New Brunswick. 
They further argue that if we continue to use the STATCAN index for 
Nova Scotia, then we should index the private pricing data in the New 
Brunswick Report using a constructed lumber price index derived from 
lumber pricing data reported by Madison's Canadian Lumber Reporter 
(Madison's), a British Columbia-based lumber reporting publication, on 
the grounds that record evidence indicates that the GONB uses the 
Madison's publication to set their administered stumpage prices.
---------------------------------------------------------------------------

    \21\ It was not necessary to index the pricing data in the New 
Brunswick Report because it coincided with the POR of the first 
administrative review.
---------------------------------------------------------------------------

    During the POR, the AFR published price information in July 2003 
and January 2004. See the May 31, 2005, Memorandum to the File from 
Maura Jeffords, Case Analyst, AD/CVD Enforcement, Office 3 (AFR 
Memorandum). The July 2003 publication covered a one-week period in May 
2003, while the January publication covered a one-week period in late 
November 2003. Id. According to officials at the AFR, their softwood 
log price surveys cover approximately 20 respondents, with five to ten 
percent of the selection varying between publications. Id. Regarding 
Madison's, officials from the publication stated that it does not 
collect lumber prices from entities in the Maritime provinces. See the 
May 31, 2005, Memorandum to the File from Maura Jeffords, Case Analyst, 
AD/CVD Enforcement, Office 3 (Madison's Memorandum).
    For purposes of these preliminary results, we have determined to 
index the private price data from the New Brunswick and Nova Scotia 
Reports using the lumber-specific index reported for the Atlantic 
Region by STATCAN. First, information from Madison's indicates that it 
does not collect lumber price information for the Maritimes. We further 
note that the AFR and Madison's simply contain price information and 
are not indices in and of themselves. Thus, to use the publications in 
the manner requested by petitioners requires that the Department 
construct an index based on limited data. In contrast, the lumber index 
from STATCAN is prepared and maintained in the ordinary course of 
business and can be incorporated into our calculations without the 
added steps that would be necessary to construct an index using the 
data from AFR and Madison's. See the May 31, 2005, Memorandum to the 
File from Eric B. Greynolds, Program Manager, AD/CVD Enforcement, 
Office 3, ``Data on the Statistics Canada Obtained from the Internet 
and Placed on the Record.'' Further, STATCAN produces its lumber index 
using an established and consistent methodology from year to year that 
involves mandatory respondents, including a group of ``must take'' 
respondents that are included in every survey period. Id. In addition, 
STATCAN employs commodity specialists to conduct follow-up inquiries of 
outlier, incorrect, or suspicious prices. Id.
    Thus, we acknowledge that, in an ideal situation, we would use a 
pre-existing stumpage or log index to adjust for price changes in the 
Maritime price data. However, in light of the evidence submitted on the 
record of this review, we preliminary determine that the constructed 
log index proposed by petitioners remains inferior to the lumber price 
index from STATCAN.
2. Costs That Must Be Paid in Order to Harvest Private Standing Timber 
in New Brunswick and Nova Scotia
    In the first administrative review, we found that the pricing data 
for New Brunswick and Nova Scotia reflect the prices paid by harvesters 
for standing timber and include the value of the timber being purchased 
in addition to any landowner costs. See Final Results of 1st Review 
Decision Memorandum at Comment 39. We also found that harvesters in the 
Maritimes incur additional costs that must be paid in order to be able 
to acquire private timber. Specifically, we found that harvesters in 
New Brunswick are required to pay silviculture fees as well as 
administrative fees to the marketing board operating within the region. 
In Nova Scotia, in order to be able to acquire the standing timber, the 
registered buyer must ei